Treasurer Revises Stalled Super Tax Plan

Government Revises Superannuation Tax Policy

The government has made significant changes to its superannuation tax policy, a key revenue-raising measure that had faced considerable pressure. Two years after the initial announcement, the proposal to increase taxes on the largest superannuation balances has been reworked following discussions with the prime minister.

Treasurer Jim Chalmers confirmed that the revised proposal was approved by cabinet this morning. The changes aim to address criticisms of the original bill by making two major concessions. First, the threshold at which higher tax rates will apply will now be indexed to inflation. Second, the proposal will no longer include unrealised capital gains.

The new thresholds set at $3 million and $10 million will see the tax rate on earnings increased to 30 per cent and 40 per cent respectively. However, these thresholds will now be adjusted for inflation, preventing them from capturing more people over time due to bracket creep.

The government estimates that the $3 million threshold will apply to roughly 90,000 balances, while the $10 million threshold will affect about 8,000 balances. If passed by parliament, the changes are expected to take effect from July 2026.

Mr Chalmers emphasized that the government is prepared to rework the bill further to ensure it passes through parliament. "We have always had in our back pocket indexation, or an indexation like this, in order to get it through parliament," he said.

In addition to the tax changes, a tax offset for low-income earners will be increased from $310 to $810. This will benefit workers earning up to $45,000, providing an average extra $15,000 at retirement.

Mr Chalmers noted that the new plan will raise slightly less than the original proposal in the short term. However, in the long term, the measure is expected to generate significantly less revenue because the proposed thresholds will be indexed.

Political Reactions and Implications

The government's decision to revise the policy has drawn mixed reactions from political leaders. Treasurer Jim Chalmers met with Greens leader Larissa Waters shortly after the cabinet agreement, with the Greens seen as a potential ally for passing the bill. Greens senator Sarah Hanson-Young stated that the party would work through the details but expressed concerns about the changes.

"At first blush, it does look like the government has gone weak on taxing the wealthy," Senator Hanson-Young said. "Letting the wealthy off the hook isn't the type of superannuation reform the Greens wanted to see."

Opposition Shadow Treasurer Ted O'Brien welcomed the changes, calling it an embarrassing backdown by the government. He suggested that the treasurer would need to explain a revenue hole in the federal budget caused by the revisions.

Historical Context and Support

The proposed tax increase on some of the nation's wealthiest income earners was announced more than two years ago and was intended to take effect from July. However, it faced criticism, including from within Labor, and was never introduced to parliament.

Late last week, it emerged that the prime minister's office and the treasurer's team sought advice from the Treasury Department on addressing concerns with the bill. Former Prime Minister Paul Keating, who played a key role in shaping Australia's superannuation system, welcomed the changes.

"The treasurer's success in working through and resolving this impasse will now mean that superannuation accumulations will be successfully taxed but taxed only on a basis of realisation," Mr Keating said. "Importantly, these decisions solidify superannuation tax arrangements in a manner the community can now rely upon for the long-term security of their retirement savings."

Mr Chalmers downplayed questions about the government's appetite for reform, acknowledging the difficulty of the changes. "This is difficult tax reform ... I don't accept the characterisation this is simple, or easy or uncontested," he said. "This is a difficult change, which will mean we raise billions of dollars."