Cutting the camel’s nose to spite its face: The tax system’s slippery slope

You could be forgiven for thinking that the vociferous pushback the Labor government has received over its proposed $3 million super tax would serve as a deterrent to politicians announcing policies that undermine the taxation system.

Unfortunately, you would also be wrong.

If we’re looking for optimism, at least both options for PM are being upfront about their ridiculous proposals.

Three years ago, Anthony Albanese was clear that Labor had “no intention” to make changes to super, yet shortly after he announced the tax now known as division 296.

Labor has consistently sought to minimise the gravity of the changes – moving the tax on earnings for super balances above $3 million from the current 15 per cent to 30 per cent – arguing that it would support the objective of superannuation.

It can be argued that reducing tax concessions for high balances would meet this goal. After all, having the broader population effectively subsidise a tiny minority with an extremely generous nestegg is, to the government’s point, not the objective of superannuation.

Given its equitable nature, had the tax been designed in a more reasonable way, there’s little doubt it would have sailed through both houses rather than getting stonewalled in the Senate.

Instead, the government has stubbornly refused to budge on glaring holes in its design - taxing unrealised capital gains or even indexing the threshold.

Beyond the issue of constantly tinkering with the settings of an inherently long-term vehicle, the slippery slope that eventuates from a tax that contradicts the accepted principles of taxation in this country is far more concerning.

Exemplifying this flow on effect, at last week’s Momentum Media Election 2025 event, ASFA chief executive Mary Delahunty referenced land tax in defence of div 296.

“I'm not as concerned about the taxation of unrealised capital gains as some other commentators are,” Delahunty said.

“I think we're all fairly familiar with land tax, which is also a taxation system that is based on unrealised capital gains.”

In translation, one encroachment is often used to justify the next, no matter how tenuous the connection.

Indeed, despite sustained, passionate attempts to shoo the camel’s nose from our collective window, we are perilously close to a dromedary standing in our kitchen.

Through the first few weeks of the election campaign, the disregard for the norms of taxation is escalating in increasingly misguided ways.

The Coalition’s pitch to make interest payments on mortgages tax deductible… Labor’s flat $1,000 deduction… Neither side seems immune to reckless tinkering in place of permanent fixes.

There is no comparable measure allowing mortgage interest on an owner-occupier to be tax deductible. There’s simply no way to link it to income production without tying yourself in knots.

While a lesser evil, the standard $1,000 deduction allows anyone to simply make a claim with no substantiation, while also lowering the incentive to check that income-related costs didn’t exceed that number. Some will be better off, others worse, but the system as a whole is fractured just a little more.

The moorings of tax policy are becoming untethered from the mutually accepted status quo, now dangled like shiny toys in front of a populace political parties increasingly believe needs to be tricked and bribed.

Maybe it’s recency bias, and politicians have always treated those they govern like easily hoodwinked fools.

Maybe it’s naivety in trusting that enough of the population would see through the bread and circuses, and vote based on the workable policy platform that most closely aligns with their views and preferences.

Maybe it’s just earned cynicism in the transparent attempts to woo voters at any cost, integrity be damned.

But when both major parties are chipping away at the foundations of rational tax policy with little regard for the unintended consequences - to utilise the hackneyed euphemism our pollies favour - it’s hard not to lose faith in the whole enterprise.