Trimming the tail of the superannuation tax tiger is no easy task

If you were being really cynical, you might say the government should have hacked into those stage 3 tax cuts, while leaving super alone. That would have received much the same political angst, but saved a heap more revenue.

If we shed the cloak of cynicism, where has this week’s “tweak” of one of the superannuation tax breaks left policy and politics?

As a policy change, the government’s decision is well-based but has been poorly executed. It is fair – people with very large balances certainly don’t need the level of taxpayer generosity they receive. It is also a (very modest) move to address the budget challenge.

But the haste in announcing it – the government had little choice because the debate was becoming a firestorm – meant details are still being worked out, for example for people in defined benefit schemes.

So the government hasn’t been able to say how those politicians, including the prime minister, who are entitled to very large amounts (under now-scrapped arrangements) would be affected.

Nor is there official modelling on how many people in future years will be drawn into the higher super tax rate, given the $3 million threshold is not indexed.

In superannuation, the detail matters, although Treasurer Jim Chalmers would argue there are always points to be nailed down with such changes.

It’s premature to say confidently how the politics of this decision will fall out. Many people will see it as reasonable and/or not affecting them. Others will be nervous it could be the first step in changes that might hit their own retirement nest eggs. Some will condemn it as a “broken promise”, because Anthony Albanese said before the election he intended to make no changes.

Albanese is sensitive about promises. Hence he plans to legislate the change but not have it take effect until after the 2025 election.

Read more: Tax-free super for the super rich is a bad deal for the rest of us – and Morrison said it first^[1]

That makes it an issue in the next campaign, just as the legislated stage 3 tax plan was one for the last.

Peter Dutton has already loaded himself with a promise to repeal the measure. Just as Albanese loaded himself with a promise to keep stage 3.

Much has been said recently about the evils of “rule-in-rule-out” politics and journalism, and indeed this brand of formulaic questioning often makes for vacuous campaign news conferences.

On the other hand, it is not clear how it can be avoided. If we want to know what a party intends to do on superannuation, surely journalists have to ask its plans and try to get some precision about what is, and is not, on the table.

And on other issues too. If the Voice referendum is carried, do we not want a question asking Dutton to rule out making big changes to the implementation legislation that would probably have already passed parliament?

Read more: Word from The Hill: Chalmers learns lesson in 'rule-in-rule-out' game^[2]

The alternative is for election campaigns to avoid specific undertakings, with parties running on broad intentions. Such as: “The taxation system/superannuation arrangements are unsatisfactory – we will examine them and decide in office what needs to be done.”

That approach would have many advantages, but it is hard to see any leader being in a strong enough position to risk it.

It’s understandable Chalmers wants to avoid the rule-in-rule-out trap, but on Wednesday he took his aversion to extremes when he refused to rule out a capital gains tax on the family home. Some things have to be killed instantly (as Albanese did) or a non-story blows into a damaging one.

The super issue has raised speculation about relations between Chalmers and Albanese. The evidence suggests these are developing along familiar lines.

Treasurers (John Howard, Paul Keating, Peter Costello, Scott Morrison) want to expand boundaries. Their prime ministers at times apply the brakes, as Albanese did last year to Chalmers’ desire to alter the stage 3 tax cuts.

Read more: Albanese government to hike tax on earnings from big super balances – but not until 2025-26^[3]

More interesting than how the Chalmers-Albanese relationship is now – Chalmers pushes back against a report of tension – is how it will develop. Often the ambitious treasurer becomes increasingly impatient with the leader.

One factor that might encourage Chalmers’ patience is that he is 15 years younger than Albanese (Chalmers is 45, Albanese is 60 – they both had birthdays on Thursday). But treasurers come to worry about a government’s time running out.

The super row is a gift for the opposition – especially for next week in parliament. Nevertheless, it is risky for Dutton.

Apart from being on what many experts see as the wrong side of the policy debate, Dutton won’t know for a while whether he is on the wrong side of the political argument, seen as just standing up for the rich.

Polling will provide some indication, but the byelection in the Liberal seat of Aston will be the sharper test for Dutton. Given how hard the Liberals will campaign on super, he needs to obtain a substantial swing (not just to retain the seat by a whisker).

Read more: Grattan on Friday: Defining superannuation's 'objective' should leave room for debate about its use for housing^[4]

Arguably, the super decision would have been easier for the government to handle if it had been part of the May budget, placed in a wider context with more of its details finalised.

Now it is out there, it raises questions about its implications for that budget. Will the government be more cautious as a result of this fight?

The government has a dilemma. This is the budget in which to do difficult things (although we do know there won’t be further changes to super tax breaks). But even with solid electoral standing and a weak opposition, political capital quickly erodes. Tony Abbott had plenty of capital in the bank after the 2013 election, did tough things in the 2014 Hockey budget (involving some broken promises) and never recovered.

Context is important too. The budget is being put together as the economy is deteriorating and rising interest rates are putting more people under financial stress.

Whether Chalmers and the PM will be in accord about just where to pitch the budget will emerge over the next few weeks. The reception to that budget will colour how the Albanese government is judged on its first anniversary, later in May.

References

1. ^{^} Tax-free super for the super rich is a bad deal for the rest of us – and Morrison said it first (theconversation.com)
2. ^{^} Word from The Hill: Chalmers learns lesson in 'rule-in-rule-out' game (theconversation.com)
3. ^{^} Albanese government to hike tax on earnings from big super balances – but not until 2025-26 (theconversation.com)
4. ^{^} Grattan on Friday: Defining superannuation's 'objective' should leave room for debate about its use for housing (theconversation.com)