Liberal senator Andrew Bragg and Treasurer Jim Chalmers are at odds over whether federal politicians covered under the pre-2004 defined pension scheme would be captured in the super tax changes.
Appearing on 2GB radio on Friday, Bragg stated that the Division 296 “legislation does not include the prime minister and other ministers who would be subject to this tax”.
The claim was in response to Chalmers arguing the exact opposite earlier in the week.
“We made it clear it applies the same way that the Coalition’s changes did, and we did a lot of consultation to make sure that defined benefit was appropriately represented in the changes that we are proposing,” Chalmers said at a press conference in Brisbane.
Asked directly whether the defined benefits covered would include the prime minister and other politicians under the pension scheme for members first elected prior to the 2004 changes, the Treasurer said: “Yes, and we’ve made that clear.
“You read from time to time on social media that somehow politicians on the old scheme before 2004 have somehow been exempted, that’s not the case. So, I’m pleased you’ve given me the opportunity to raise that and clear that up.
“I think people deliberately have told a different story from time to time, but politicians on defined benefit will be impacted if they’ve got very substantial balances by the changes we’re proposing.”
Bragg, however, disagreed with Chalmers, adding that the “legislation gives the government a regulation-making power where they can subsequently apply this tax to the prime minister and other ministers, but the bill itself does not do that”.
“And, the draft regulations, in fact, don’t mention the scheme that the prime minister is actually a member of the Parliamentary Contributory Superannuation Scheme,” he added.
While stopping just short of definitively stating the tax would not apply, Bragg said he had “no confidence” that the tax would apply to the PM and other politicians where the “legislation doesn’t explicitly include” them.
In part, he said, this is because it is notoriously difficult to allocate an actual total super balance on a defined benefit pension.
“The actuaries are very smart. They can do all sorts of computations and analysis about the future. But there’s no way, no easy way to determine exactly how much tax should be paid, and so that’s why I think it’s very important as a fairness measure that the Treasurer say how much he thinks the prime minister should be paying if this is going to be applied,” Bragg said.
“I mean, the whole idea of having a tax on unrealised gains is insane anyway, but, if the Labor Party thinks this is a good idea and they want to ram it through the Senate with the support of the Greens, they should say how much money would be paid by the prime minister.”
A government summary document states that “those earnings in superannuation funds that the constitution prevents being taxed by the government will be excluded”.
On Sunday, Sky News reported that senior Labor minister Murray Watt conceded a “small group” of former officials will be exempt from Labor’s Better Targeted Superannuation Bill.
As the newly appointed environment and water minister noted, former state premiers, MPs, governors and judges would be exempt from Division 296, as these former officials “cannot be taxed on their superannuation under the constitution”.
“We’re of course not going to be introducing laws that are in breach of the constitution and will be struck down,” Watt said on Sky News.
This exemption is not new, having been part of the conversation around Division 296 for more than a year, and does not include federal politicians.
Chalmers also subsequently disputed Bragg’s accusation, saying this is “one of the reasons why nobody takes that guy seriously”.
“When it comes to the prime minister, his pension’s not yet known. Now we don’t know his circumstances into the future,” he said.
“He should know, he’s on the committee that scrutinised the legislation that Andrew Bragg lied about and said didn’t exist. He also said that there’s no allowance in the legislation for defined benefit schemes for politicians. Those are lies.”
Chalmers added that the actuarial calculation for defined benefits is similar to the calculation that currently applies to the changes that the Coalition made when they were in office.
“There is provision for defined benefit schemes, there are calculations, those calculations are very similar to the ones that the Liberals and Nationals put in when they changed superannuation in the last term of the government, and that will apply to the prime minister, it will apply to any politician who’s got the equivalent of more than $3 million in super,” he said.
How does the parliamentary pension scheme work?
While many are still of the incorrect belief that all retiring politicians receive the parliamentary pension scheme, it only applies to MPs that entered Parliament prior to 2004. It is, however, extremely generous and could see Prime Minister Anthony Albanese receive a pension of more than $300,000 when he calls time on his political career.
Albanese, who was first elected to federal Parliament in 1996, is one of just six remaining sitting MPs that will receive the pension, alongside Bob Katter, Tanya Plibersek, Catherine King, Penny Wong, and new Opposition Leader Sussan Ley.
There is also a far larger number of former politicians that are being paid under the scheme, including the freshly ousted Peter Dutton, who will receive somewhere in the range of $250,000 per year.
These pensions fall under a defined benefit scheme, so there is a guaranteed income stream and no actual balance in the traditional sense.
As Heffron managing director Meg Heffron explained last year, the calculation to determine a defined benefit scheme’s total super balance was “permanently set at the value of their pension when it started”.
“This led to some crazy results – since lifetime pensions for that purpose were valued as simply 16 times the initial pension payment (which often bore little resemblance to the actual worth of the pension),” Heffron said.
However, under the Division 296 changes as currently proposed, the method would change from 30 June 2025.
“At that point, the value will be calculated more accurately – using the valuation method that would be used under the family law legislation if the member was getting divorced or similar factors set by the fund itself,” Heffron added.
