Social Action Australia (SAA) over the years has analysed a range of important issues. The issue dealt with in this article relating to superannuation reform is possibly the most important of all due to the potentially very negative ramifications for the Australian taxation system with regard to the future of house sales. There is a strong possibility, if not an inevitability, that should the Albanese government be re-elected that it will subsequently introduce a capital gains tax on house and asset sales.
The recent announcement by the federal government that from June 2025 the tax rate on income derived from superannuation holdings which exceed three million dollars will be doubled from fifteen to thirty percent is troubling enough. However, the really disturbing dimension concerning this tax hike is that unrealized capital gains will also be taxed under a regime which is not subject to indexation!!
The concept of taxing unrealized capital gains is rarely implemented elsewhere in the world as it is almost impossible to be applied in a practical fashion. It would require that tax be paid on an asset where there is no realised income to pay it with. Thus, the item being taxed would need to be sold or borrowed against in order to raise sufficient funds for the tax payment to be made. It is possible that this could result in a discrepancy between the assessed value and the realised value of the asset in question which would lead to further complications.
In the case of Self-Managed Super Funds (SMSF) there are instances where property is a part of the fund. Assessing the value of that property for taxation purposes could lead to many inequities and a forced sale (and therefore devaluation of the investment plan of the fund). Furthermore, because of the absence of indexation the scope will consequently exist in theory for more people to be taxed at a higher rate because of bracket creep over years to come.
The term ‘in theory bears emphasis because there is almost certain to be considerable financial planning being put in place by the time that the legislation comes into effect. Those able to exercise any discretion in the placement of their superannuation funds often invest in alternate plans to the national superannuation scheme. Those able to do this will be the targeted ‘rich’ investors who will have advisors able to place their funds to avoid being disadvantaged by the new legislation. While there may be a short term taxation gain for the government, in the not very much longer term, the taxation raised by the measure will in all probability be of no advantage to the government.
The question consequently emerges as to why the Albanese government is applying such a dud tax hike, which besides possibly destroying SMSFs will not raise the revenue which is promised? The answer to that question is that the principles associated with the dud superannuation tax hike can be applied to a future capital gains tax on housing and other asset sales. The precedent which the dud superannuation tax hike will establish will, it is hoped, enable the general acceptance of a tax on unrealized capital gains.
If the Albanese government can ‘get away with’ this dud taxation hike on superannuation (which according to opinion polls is a popular proposal because of the mis-perception that the tax increase will be imposed on a relatively small cohort which will raise a substantial amount of revenue) then the Australian Labor Party (ALP) will be emboldened to later introduce a capital gains tax on house and asset sales in accordance with the above egregious principle of a tax on unrealized income.
Already the signs are there that such a capital gains tax on house and asset sales will be introduced should the Albanese government be re-elected. The federal Treasure Dr. Jim Chalmers has unconvincingly denied that a capital gains tax on profits from house sales will be introduced. The consequent public concern that this concept is in prospect has been countered by the prime minister publicly re-assuring voters that no capital gains tax on real estate of private homes will be introduced so that people are re-assured.
However, Anthony Albanese publicly promised before the 2022 federal election that there would be no changes to superannuation, only to renege on that undertaking by moving to apply this new dud superannuation tax hike. Furthermore, despite a solemn commitment the ALP would never tax franking credits, the Albanese government is now moving toward introducing such a tax. It is therefore not beyond the realms of possibility that the ALP will also introduce the removal of negative gearing for property sales either in this parliamentary term or the next one.
Had Bill Shorten not been honest about his intentions to remove negative gearing and to introduce a tax on franking credits then he probably would not have lost the 2019 federal election. By contrast the Albanese led ALP has previously brazenly denied that there would be a return to these proposed policies but is now proceeding to examine the introduction of such measures. These broken election promises regarding taxation are not only ethically dubious but constitute serious attacks on private property.
Despite all the difficulties caused by the post-1983 transition from the Deakinite socio-economic paradigm, Australia has still retained a high standard of living. This has been partly due to the capacity of people to sell their homes (even if they are burdened with a mortgage) at a substantial profit. The probable introduction of a capital gains tax on house sales should the ALP under Albanese be re-elected will therefore constitute a devastatingly disadvantageous post-1983 ‘economic reform’.
The Worst ‘Economic Reform’: A Capital Gains Tax on Property Sales
Not only would a capital gains tax on house and asset sales be bad enough but the application of such a tax in the context of there being a tax on unrealized capital gains along with the non-indexation of the tax assessment makes this possible new tax regime truly hideous.
Hopefully, the voters in the outer eastern Melbourne federal seat of Aston – who go to the polls in a by-election on April 1st 2022- will realize that the proposed dud superannuation tax hike is nothing more than a trial balloon to introduce a capital gains tax on family homes and other asset sales in which unrealized income will be subject to taxation .
The electorate of Aston is not only singled out because there will soon be a by-election but also because the voters in this electoral division tend to be an aspirational demographic in that they are upwardly mobile with regard to their incomes. Consequently, most Aston voters will not only be hit hard by the dud superannuation tax hike (which has the potential to effectively destroy SMSFs) but also by a capital gains tax being applied in the future to their home and asset sales.
It was the great Florentine political philosopher Niccola Machiavelli (1469 to 1527) who insightfully observed that political problems are similar to treating Tuberculosis; easy to remedy in the early stages but impossible to cure in the later phase. Therefore, unless the electors of Aston are alerted to the acute dangers of the dud superannuation tax hike then the Albanese government will later move to introduce a wealth destroying capital gains tax on home and asset sales should the ALP win the next federal election.