Major Overhaul of Superannuation Tax Plans
Treasurer Jim Chalmers has introduced a significant revision to the Labor government’s superannuation tax plan, responding to widespread criticism that the initial proposal could unfairly penalize ordinary Australians with growing retirement savings. The new policy aims to address concerns from retirees and financial experts while maintaining the core objective of making the superannuation system more sustainable.
The revised plan includes several key changes. Most notably, the tax on earnings from super balances exceeding $3 million will now be indexed to inflation. This adjustment ensures that the threshold does not automatically expand as wages and prices rise over time, which was a major point of contention in the original proposal. Additionally, the tax will no longer apply to unrealized gains—those that exist only on paper and have not been sold. This change is expected to alleviate concerns from individuals with assets such as farms or businesses held within self-managed super funds.
However, the policy also escalates the tax burden for those with larger balances. Earnings on super balances above $10 million will now be taxed at a higher rate of 40 percent, while earnings between $3 million and $10 million will still be taxed at 30 percent. Individuals with balances below $3 million will continue to pay the standard 15 percent rate.
Key Changes in the Superannuation Tax Plan
| Proposal | Before | After |
|---|---|---|
| Thresholds | 30 per cent over $3m | 30 per cent $3m-$10m, 40 per cent above $10m |
| Unrealised gains | Taxed (even if not sold) | Removed – only realised gains taxed |
| Indexation | Not indexed | Indexed to inflation |
| Low-income offset | $310 | $818 |
The government estimates that the $3 million threshold will affect approximately 90,000 super balances, while the $10 million threshold will impact around 8,000. These figures are expected to grow over time due to inflation, but the indexed approach aims to prevent an increasing number of individuals from being caught by the higher tax rates.
Chalmers emphasized that the revised plan remains a “concessional tax arrangement” but is more targeted to ensure fairness. He acknowledged that the government had always considered indexation as a potential solution to secure parliamentary approval.
Additional Reforms
In addition to the changes in tax rates, the government has also decided to increase the low-income super tax offset payment from $310 to $818. The eligibility threshold for this offset will also be raised from $37,000 to $45,000, effective from July 2027. These adjustments aim to provide greater relief to lower-income earners who contribute to their superannuation.
Despite these reforms, the legislation has yet to be introduced into parliament. Previous attempts to implement similar changes two years ago were met with opposition from the coalition and the Greens. If passed, the new measures would take effect from July 2026, a year later than the original proposed start date.
Political Dynamics and Public Reaction
Dr. Chalmers has dismissed claims that the revised plan represents a retreat from the original proposal. He stated that the changes reflect a more sustainable approach to tax reform, allowing the government to achieve its objectives without alienating key stakeholders.
Recent developments suggest that the tax reform may be under review. A Treasury official confirmed that the prime minister’s office had engaged with the department on the plans, although Prime Minister Anthony Albanese downplayed the rumors, stating that the policy “is as it stands.”
Chalmers also revealed that he had met with Greens leader Larissa Waters following cabinet approval of the changes, indicating that the government may seek support from the minor party. However, Greens economic justice spokesperson Nick McKim criticized the revisions, arguing that they do not go far enough and represent a concession to the wealthiest Australians.
Ongoing Debate
The debate surrounding the superannuation tax changes continues to spark discussions about the future of Australia’s retirement savings system. Critics argue that the reforms could undermine the long-term security of superannuation, while supporters believe they are necessary to ensure the system remains fair and sustainable.
As the government moves forward with its revised plan, the next step will be to secure parliamentary approval and address any remaining concerns from the opposition and the public.