The changes were first announced in early 2023, with Chalmers then describing them as a “modest” reform that would ensure the long-term sustainability of superannuation. The Treasury estimates the government will forego more than $55 billion in revenue because of the concessional tax treatment of super.
Paul Keating has backed Jim Chalmers’ changes to the government’s superannuation reforms.Credit: Oscar Colman
But the changes attracted increasingly strident attacks, with claims the taxation of unrealised gains would large compliance problems and hurt investment in sectors from venture capital to farming while the lack of indexation would ultimately hit people on average incomes.
Paul Keating, who oversaw the creation of modern superannuation, said the problems Chalmers was trying to address dated back to changes made by John Howard and Peter Costello in 2007 when they abolished the then so-called “reasonable benefits test”.
The former Labor PM had been an internal critic of Chalmers’ original plan but said the changes would restore “much-needed equity following the Howard-Costello rampage of 2007” when the then reasonable benefit limit was abolished.
“Bringing equity and an important measure of tax justice to super’s current runaway arrangements with the nomination of a $3 million limit taxed at 15 per cent and 30 per cent thereafter, is a huge policy achievement by the Treasurer, as is the added increment of a higher rate of tax on accumulations above $10 million,” he said.
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“It is reform of a kind that shares substance with necessity. Necessity that every government since 2007 has conveniently overlooked or simply regarded as too difficult.”
The change will substantially reduce the amount of tax to be raised by the measure. Chalmers said in its first full year of operation, which has been pushed back 12 months to the start of the 2026-27 financial year, the changes will raise about $2 billion compared to the $2.5 billion expected from the original package.
Shadow treasurer Ted O’Brien said the proposal had always been “super big and super bad” while demanding Chalmers reveal how he would cover the expected shortfall in revenue left by the move.
“The treasurer has to explain where he is going to get $4 billion to plug the black hole that now exists in the budget. Today’s decision creates that black hole,” he said.
Independent MP Allegra Spender said there had been strong support for reducing superannuation concessions but the original proposal, particularly the taxation of unrealised gains and the lack of threshold indexation, had gone too far.
Explaining the key terms
- Unrealised gains: Earnings which have not yet been cashed out. For example: the value of shares you own may rise, but you do not get to pocket that gain until you sell those shares. The latest super tax changes reverse the proposal to tax unrealised gains.
- Threshold: The point at which the new super tax applies. I.e. the super balance threshold for the 30 per cent tax is $3 million, and the threshold for the 40 per cent tax is $10 million.
- Indexation: tying a number (such as the threshold for the super tax) to another metric or gauge. The treasurer has said the $3 million and $10 million thresholds will move indirectly with inflation (the consumer price index).
- Low-income superannuation tax offset (LISTO): a payment received by those earning under a certain amount (currently $37,000, to be raised to $45,000 from 2027) to give those taxpayers back some of the tax they have paid. The amount of the payment will also be raised from $500 to $810.
“I believe super concessions should focus on supporting a dignified retirement and while I will be looking carefully at the details of what’s actually proposed, the packaged changes as announced today appear to be a reasonable compromise,” she said.
The government, which hopes to legislate the proposals early next year, will need the support of the Greens to get the reforms through the Senate.
Greens economic justice spokesman Nick McKim accused the government of watering down its changes to appease the nation’s richest people, saying the reforms would cost the budget billions in foregone revenue.
“This is a capitulation to the wealthiest people in the country, and a slap in the face to everyone else who pays their tax straight out of their pay packet,” he said.
Superannuation lead for CPA Australia, Richard Webb, urged the Parliament to pass the proposals and said the move to index the thresholds was a positive step.
“Bracket creep already has a silent eroding effect on personal finances. Allowing further erosion of superannuation savings would have been contrary to the fundamental principles of our tax system,” he said.
Association of Superannuation Funds of Australia chief executive Mary Delahunty warned the changes would create “extra work” for Australia’s super funds, but said she welcomed the changes.
