The public reaction to the announcement of the new superannuation tax has focused on the prospect of many more super fund members being caught in the net of an unindexed threshold, and the taxation of unrealised capital gains. However, these consequences are so obvious that they must surely have been intended by the government — not that that makes them any more acceptable.
Another consequence will be that those affected by the change will do their best to avoid it by reducing their total super balance below $3 million — or even getting out of super altogether. This may include irrational responses when the alternative is to pay even more tax than the TBT change would impose. But the government would surely be mistaken to think that people would simply shift assets into a fully-taxed form. Rather, there is more likely to be a shift to trusts, negatively geared real estate, assets with returns dominated by capital gains with a 50 per cent discount,[4] up-market principal places of residence with no capital gains tax, and concessionally-taxed insurance bonds. There is also likely to be gifting of super assets to relatives, which will be a form of advance bequests.
Another consequence is that people will incur significant costs in restructuring their affairs to avoid or minimise any impact from the new tax. This is a classic case of the familiar concept of the excess burden of taxation.
The government’s proposal has also been justified as a revenue-raising measure to help reduce the budget deficit, with the Treasury estimating that it will add $2.3 billion a year to revenue once it is fully operational.
However, any claim of significant additional revenue is dubious; as the new tax is likely to be met with strong tax-avoiding behavioural responses as listed above.