Economic Round Table Debrief
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Key Takeaways
- The Division 296 tax, targeting excess superannuation balances, faces uncertainty following its lapse in parliament.
- The Economic Round Table, led by Treasurer Jim Chalmers, aims to address productivity and budget sustainability.
- Challenges include bureaucratic red tape, political resistance, and the need for cooperation across levels of government.
- The term ‘intergenerational equity’ may justify increased taxation on trusts and investor wealth in future debates.
- Investors should act now to ensure their financial flexibility in light of the elevated risk of new taxation measures.
Division 296
For the last two and a half years, a focus of the financial advice industry, and of many of our clients, has been the threatened imposition of the ‘better targeted superannuation concessions’ policy.
This bureaucratic-speak became known as the proposed ‘excess superannuation member balance tax’. Those in the industry simply know it as ‘Division 296 tax’, which the ATO prefers. The term is opaque and makes no reference to what is being taxed (earnings on member balances greater than $3m). Nor does it reference the rate of taxation, which is an additional 15%. Like a thief in the night, the Division 296 tax will silently operate to make the wallets of investors slimmer.
The government’s desire to impose higher tax on those investors with seemingly excessive superannuation balances probably passed former Prime Minister Morrison’s ‘pub test’. But the taxing of unrealised capital gains within a member’s account did not. Additionally, not indexing the commencement threshold does not pass the test either.
But a pub test is not federal parliament. When the Division 296 Bill was initially introduced to parliament, it quickly cleared the government majority in the House of Representatives. Thereafter, it languished on the troublesome cross-benches of the Senate. Unable to secure sufficient support owing to a refusal to negotiate the aforementioned areas of contention, the Bill lapsed on parliament’s dissolution ahead of the May 2025 election.
It has been widely expected that the Bill would soon be reintroduced. There is diminished opposition, the government having secured an increased majority, a rare occurrence for a second term government. A July 2026 start date appeared likely.
Unexpectedly though, that highly anticipated scenario has now been thrown into disarray. The news is there is no news. It remains unclear whether the delay is because of ‘technical reasons’ (a term the ATO and/or Treasury uses when it tries to put into unchallengeable legislative words the ambit policy of politicians). Or it may be because the Treasurer’s Economic Roundtable sucked the oxygen from the government’s Division 296 process.
So, investors and their advisers wait. Which allowed them to focus on…
The Economic Roundtable
At the outset of the Economic Round table, the Treasurer advised, “The first day will be resilience, the second day productivity, the third day budget sustainability.”
Even God took six days to design the planet and its inhabitants. What hope does Jim Chalmers have in three?
None. It is now clear that the government had no interest in outsourcing policy to a collective of rent-seekers, academics, policy wonks and do-gooders. This is even though there were some very good ideas promulgated.
Mr. Chalmers very well knows the problems: Soviet-level productivity and too little revenue to finance its too much spending.
The first problem
There are structural and commonsense fixes. But sadly, it requires the cooperation of bureaucracies at local, state and federal level. Bureaucracies are run by bureaucrats, whose very existence requires the employment of kilometres of red tape with which to bind approvals.
Any sensible bureaucrat is not going to put at risk his/her future employment by recommending processes that would eliminate it.
As ANU Tax and Transfer Policy Institute director Robert Breunig noted, “…there’s a lot of good evidence that productivity is negatively correlated with size of government.”
The second problem
Has the ageless challenge: how to “pluck the goose so as to get the most feathers with the least hissing.”[1]
Hence the Treasurer’s creation of the magical but intellectually lazy lens: “intergenerational equity.”
It was no coincidence that Monday’s Australian Financial Review had an extensive article on ‘Tax rise for trusts, retirees’. A cynic would suggest some careful ‘backgrounding’ of the journalist to (a) create content on a slow Monday. Additionally, (b) to push the canoe of more taxation into the river of public discourse.
It took only until the second paragraph for ‘intergenerational equity’ to rear its safe-sounding but insidious head.
The ‘intergenerational equity’ mantra will now become part of government-speak. And it will be used to provide cover and justification. This is not only for Division 296 tax but also for broader plucking of the goose.
For example, some of the media reported discussions during the Roundtable that called for tax reform of family trusts. It is worthwhile recalling that in 2017 the Labor Party, led by then-Opposition Leader Bill Shorten, proposed a minimum 30% tax on discretionary trust distributions to beneficiaries over the age of 18. This policy was intended to take effect from 1 July 2019 if Labor won the federal election. It didn’t.
Mr. Chalmers disowned the prospect of such a tax just prior to the 2022 election. But, well, if a week is a long time in politics, three years is time enough to forget earlier promises.
What it means
The Economic Round table has yet to result in a clear approach to bridging the productivity gap. And one thing seems clear: the probability of the government tinkering with further taxation of the wealth of investors is presently at an elevated level of risk.
The way to deal with such scenarios is to ensure that your situation remains as flexible as possible.
The first best time to do this, of course, was many years ago. The next best time is starting today so as not to let further opportunity slip by.
First Samuel clients already have these matters in hand. Others should start. Before the goose is further plucked.
Get in touch with First Samuel for an obligation-free assessment of your situation with our team of experts.
Braith Morrow – Head of Advice
Anthony Starkins – Executive Director
[1] Jean-Baptiste Colbert, Louis XIV’s finance minister.
The information in this article is of a general nature and does not take into consideration your personal objectives, financial situation or needs. Before acting on any of this information, you should consider whether it is appropriate for your personal circumstances and seek personal financial advice.