Young workers will be worse off under Labor’s pension changes in coming decades because higher earnings as inflation rises will cause more people to accrue $3 million in retirement savings.
Prime Minister Anthony Albanese and his treasurer Jim Chalmers claim the changes will only affect 80,000 people or 0.5 percent of the population – but that’s based on 2025 and not years in the future.
Labor is cracking down on the favorable 15 percent tax rate on super contributions, arguing that the $50 billion a year cost will overtake that of old age pensions by 2050.
But the changes targeting the wealthiest super savers would only save the budget $2 billion a year, with many more younger Australians, not older baby boomers, likely to be affected over the next several decades.
As wages rise along with inflation, more people would have more than $3 million in savings, but Labor refuses to adjust the limit as inflation rises.
The Financial Services Council calculates that without indexation, $3 million would now be worth only $1.1 million in four decades because of future inflation, which is being modeled.
That means a 25-year-old worker today would have more than $3 million in retirement savings by the time that person reaches retirement age at age 67.
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Young workers will be worse off under Labor’s pension changes in coming decades, as higher earnings as inflation rises will see more people accumulate $3 million in retirement savings (pictured are New Year’s Eve revelers in Sydney)
More individuals in the coming decades, and not just the wealthiest, would lose the right to pay their super and a favorable 15 percent tax rate — after the tax rate for large super balances doubles to 30 percent on July 1, 2025.
When it comes to income taxes, marginal rates adjust periodically to prevent more middle- and middle-income earners from climbing into higher tax brackets as wages rise — a situation known as bracket creep.
Twice a year, the federal government indexes Centrelink benefits, such as retirement, jobseeker’s benefits, youth benefits, and veterans’ benefits, to reflect inflation.
But Dr. Chalmers has refused to entertain the idea of indexing the $3 million cap of super-tax concessions to inflation.
“A future government can decide to change the $3 million threshold — if a future government decides they want to lift it, then they can pay for it,” he said Wednesday.
Prime Minister Anthony Albanese and his treasurer Jim Chalmers claim the changes will only affect 80,000 people or 0.5 percent of the population.
Clearly, as more people save more than $3 million in retirement over time, they will still be subject to generous tax breaks, but slightly less.
“People who have more than $3 million in retirement — and good for them — we think that’s a good thing, people have enough savings for a decent retirement.”
Shadow Treasurer Angus Taylor seized on this to argue that more than 80,000 people would be affected if the $3 million supercap were not indexed to inflation.
“They have not been upfront with the Australian people about how many Australians will be affected,” he said.
Now it’s up to the government to be honest with Australians about how many people will be affected under a range of different inflation scenarios.
Treasurer Jim Chalmers has refused to entertain the idea of indexing the $3 million supertax concession limit to inflation
“But what I can be quite sure of is much more than they say.”
Mr Taylor, a Rhodes Scholar, said the $3 million threshold would catch a lot more people in ’10, 20, 30, 40 years’.
But the Grattan Institute think tank said Labour’s changes would hit just one in 200 Australians with super and argued that the $3 million threshold should be lowered to $2 million.
Inflation rose by 7.8 percent last year – the strongest rate in 32 years.
The Reserve Bank expects it to remain above its target of 2 to 3 percent through mid-2025, but not before wage growth reaches 4.25 percent this year.
The mandatory super contribution will increase from 10.5 percent to 11 percent on 1 July.