In his keynote address, Minister Jones said the government’s proposed legislation to increase tax on superannuation accounts above $3 million was a “moderate” change and “reflects society’s expectations around fairness”.

However, Randeria noted that if the proposed tax aims to promote equity within the system, it raises the question of why certain funds, including those that are constitutionally protected, are exempt.

“The aim of super is straightforward: encourage self-sufficiency in retirement, and reduce the need for people to rely on the age pension,” she said.

“Yet policies that target high-balance accounts – often held by individuals that will never require an age pension – appear to contradict that purpose.”

Randeria said there are also questions about the development of such economic policies.

“To practice as a financial adviser, a person requires a license and the relevant qualifications, and the same applies to auditors and accountants,” she said.

“How, then, can economic policy on retirement savings be crafted by people without specialised qualifications in finance and/or accounting? Finally, in the push for reforms to ensure a fair and sustainable system, let’s remember the long-term objective of super: to help Australians retire independently, and not penalise them for making responsible financial decisions that contribute to their ability to be self-sufficient in the future.”

Randeria added that several counter-arguments can be made to the proposed $3 million super tax, many of which the “average man-on-the-street” is not aware of.

“Firstly, there is the unfair taxation at higher rates for single earner high-income families: High-income earners who breach the Div 293 adjusted income threshold already pay 30 per cent tax on their concessional contributions,” she said.

“There is currently no family means testing on Div 293 for single-income earner families, which already makes this tax inequitable and does not allow for this group to save significant amounts for retirement.”

Furthermore, Randeria said if the main income earner passes away and the taxable benefits are passed onto non-dependents, there is a further 15 per cent tax levied on the taxable component.

“Should the superannuant’s balance then breach the unindexed $3 million cap in future, there will be a further 15 per cent tax levied on the excess, including unrealised gains. This means the potential tax paid by the superannuant would be between 45-60 per cent on taxable and excess components,” she said.

“This measure would act as a disincentive for high-income earners to salary sacrifice, invest, and save for their retirement. This will increase the burden on the aged pensions.”

Additionally, she said, Treasury commentary regarding the existing concept of taxing unrealised capital gains, noting the various valuation methods for trading stock and the current CGT rules that apply when a person leaves Australia.

“However, these are flawed arguments, as currently trading stock can be valued at the lower of cost, market selling value or replacement value, and allows for timing differences with changes in stock levels – this won’t be the case for taxing provisions for superannuation,” she said.

“Further to this, when a person leaves Australia and disposes of their investments, they are provided with two choices. They can choose to pay the tax on the difference between the deemed market value and their purchase cost when they depart the country and thereon the asset ceases to be a taxable Australian asset.”

Alternatively, she said, they can opt to disregard the unrealised gains/losses at the time of departure, maintain the investment as a taxable Australian asset, and when the asset is eventually sold, the capital gains will be taxed at non-resident rates.

“Importantly, the taxpayer is given a choice in this instance which is not the same and cannot be compared to what is being proposed for taxing unrealised gains within the superannuation system,” she said.

Randeria said the nature of the proposed tax is such that it will only generate revenue if people continue to have balances above $3 million and, if that changes, the tax will no longer generate the revenue expected.

“This means future governments will be left to deal with the budget implications – and potentially continue to make changes to the superannuation system,” she said.

Other options

Moreover, Randeria said there are many other options the government could use to achieve both those goals without significantly changing the superannuation system, including increasing the tax rate on superannuation and increasing or expanding the GST base.

“Raising the current contribution tax rate by just one or two per cent, to 16 or 17 per cent, for example, would still offer a concessional tax environment that is lower than the marginal tax rate, and have no impact on people’s current standard of living, as their take-home pay would remain the same.”

“GST has also remained unchanged for more than two decades and the government could look to increase the tax rate and/or expand its reach. It should be noted that the International Monetary Fund has previously recommended tax reform such as increasing the GST and making better use of indirect taxation. Doing so would also create a more consistent and reliable revenue stream, one that wouldn’t be impacted by changing behaviours.”

Increasing the current contribution tax rate or making changes to GST, she said, is far more equitable than the current proposal, as it spreads the burden across the entire Australian population as opposed to targeting a specific group or financial sector.

“The government should consider longer-term policies that encourage more people to contribute to their superannuation, with the aim of achieving total self-sufficiency in retirement,” she said.