Why these farmers are angry about Labor’s super changes | 7.30

Key Concepts

• Superannuation (Super): Australia's retirement savings system.
• Tax Concessions: Reduced tax rates on superannuation earnings to encourage savings.
• Unrealized Gains: Increase in the value of assets held by a fund, regardless of actual profit.
• $3 Million Threshold: The superannuation balance at which a higher 30% tax rate is applied to earnings.
• Agricultural Assets: Farms, land, and related businesses held within a superannuation fund.
• Age Pension: Government-funded retirement income for eligible Australians.

Glenbrook Farm and the Norman Family

• Family History: The Norman family has been farming at Glenbrook in New South Wales for over 15 years, with Tom Norman poised to be the fifth-generation owner.
• Challenges: The farm faces challenges such as dry years, requiring the use of stored grain to feed sheep.
• Financial Management: Farm income is reinvested into the land, equipment, and family superannuation.
• Succession Planning: Murray's parents, Ray and Bev, are retiring and moving off the farm, with superannuation providing the financial means for their retirement.
• Asset Allocation: 70% of Ray and Bev's superannuation fund (approximately $5.5 million) is held in agricultural assets.

Proposed Superannuation Changes

• Treasurer's Proposal: Treasurer Jim Chalmers has proposed changes to superannuation taxation.
• Tax Rate Increase: Earnings on superannuation balances above $3 million will be taxed at 30%, up from the current 15%.
• Unrealized Gains Tax: The new tax rate will apply to unrealized gains, impacting assets like farms and investment properties.
• Impact on Normans: The Normans estimate the new tax could cost them $120,000 per year, on top of existing taxes.
• Liquidity Concerns: The farm and superannuation fund may not have sufficient cash flow to cover the increased tax burden.
• Disincentive for Holding Assets: The changes may make it less attractive to hold large assets like farms within superannuation funds.

Superannuation System Overview

• Compulsory Super: Compulsory superannuation was introduced in 1992 by the Keating government.
• Tax Concessions Rationale: Tax concessions, such as the 15% tax rate, incentivize people to save more for retirement.
• Inequality in Benefits: A significant portion of superannuation tax concessions benefits high-income earners who may not need government assistance in retirement.
• High Balances: Approximately 80,000 Australians have superannuation balances exceeding $3 million, with some individuals holding over $100 million.
• Fairness Concerns: Critics argue that the current system provides excessive tax subsidies to wealthy individuals, enabling them to pass on large amounts of wealth to their children.

Government Perspective and Analysis

• Savings Projections: The federal government estimates the changes will save $2.3 billion in the first year, increasing over time.
• Long-Term Impact: Research from AM Capital suggests that a 22-year-old earning an average wage could accumulate over $3 million in superannuation by age 64.
• Time Horizon: Critics argue that the long time horizon (40 years) before the changes significantly impact average Australians makes the government's argument weak.

Impact and Response

• Immediate Impact on Normans: The changes will require the Normans to reassess their superannuation arrangements.
• Potential Actions: They may consider withdrawing assets from superannuation, which could create financial strain on the farm.
• Broader Concerns: Other farmers in similar situations may face even greater challenges, particularly those with farms held within their superannuation funds.
• Complexity and Costs: Removing assets from superannuation is a complex and expensive process.
• Preserving Family Farms: The Normans emphasize the importance of preserving family farms for future generations, which requires maintaining land ownership.

Synthesis/Conclusion

The proposed changes to superannuation taxation in Australia, particularly the increased tax rate on balances above $3 million and the taxation of unrealized gains, will have a significant impact on individuals and families with substantial assets held within their superannuation funds. While the government argues that these changes will improve the fairness and sustainability of the system, concerns remain about the potential for unintended consequences, such as discouraging investment in productive assets like farms and creating financial hardship for those who may not have sufficient liquidity to meet the increased tax burden. The Norman family's situation exemplifies the challenges faced by farmers and other asset-rich individuals who have relied on superannuation as a key component of their retirement and succession planning.