Tax-free super for the super rich is a bad deal for the rest of us – and Morrison said it first

You’d be forgiven for thinking Treasurer Jim Chalmers had done something dramatic.

From 2025 he will double the tax rate on earnings from superannuation balances above A$3 million, lifting it from 15% to 30%.

Only 80,000 Australians have accounts that large, and many of them who have retired have shoved the maximum permissible $1.7 million into a separate so-called retirement account whose earnings are entirely tax-free.

That’s right. Retirees with $1.7 million in retirement accounts pay nothing whatsoever on what those accounts earn, which in normal years amounts to $85,000.

By way of comparison, wage earners on $85,000 get taxed $18,000.

But though you’d never know it from some of the “socialist tax grab” commentary around this week, Chalmers isn’t the first treasurer to act on this rort. Scott Morrison got there first.

Howard’s super deal for the richest 1%

In 2006, in what economist Saul Eslake describes as one of the worst taxation decisions in modern times (an honour for which he says there’s a fair bit of competition), then Prime Minister John Howard exempted from tax withdrawals from super for Australians aged 60 and over.

By itself, this was unremarkable. We don’t tax withdrawals from bank accounts, because the interest they earn has been taxed within the account.

But Howard left in place a preexisting exemption from tax for earnings within the retirement accounts of Australians aged 60 and over.

This meant the earnings on the sometimes very large accounts of retirees aged 65 and over weren’t taxed at all. Not at the normal super tax rate of 15%, not at any rate – without limit, no matter how much was earned, merely because the person owning the account was aged 65 or over and had retired.

Morrison wound Howard’s policy back

In office, the Labor governments of Kevin Rudd and Julia Gillard didn’t touch the open-ended opportunity to earn unlimited amounts from super tax-free. Instead, we had to wait a decade, until Prime Minister Malcolm Turnbull and his Treasurer Scott Morrison wound it back in 2016.

Facing off against critics in his own party, Morrison cut the amount that could be transferred from an ordinary super account into a tax-free “retirement” super account to $1.6 million, a ceiling that is adjusted every few years with inflation.

“If you’ve got more than $1.6 million in a superannuation account, you’re in the top 1% and you’ve worked hard to get there, that’s fabulous,” Morrison said at the time. “But that $1.6 million is the limit.”

The seeds of Chalmers’ new plan

They were words echoed by Chalmers on Tuesday, who said his change would only affect half of the top 1%. If people had done well, that was “a good thing”.

But Chalmers said the system should be fairer.

And I think for any objective observer, the idea that ordinary working people subsidise incredibly generous tax breaks for people with millions and millions of dollars in superannuation doesn’t stack up.

Chalmers did more than channel Morrison’s language. The idea of a 30% super tax rate isn’t new.

Most Australians pay 15% on contributions, but in 2016 then treasurer Morrison expanded a 30% contributions rate from Australians with combined incomes and super contributions exceeding $300,000 to Australians with incomes and contributions exceeding $250,000.

And Chalmers received encouragement from another source.