Passing a law that will make 80,000 Australians with more than $3m in superannuation pay a bit more tax doesn’t sound like the kind of thing that would worry a newly returned Labor party still giddy from a historic election victory.
But it is being styled by some as theAlbanese government’s first big test. The Australian Financial Reviewcalls itan “intrusion into the nation’s retirement funds to paper over the government’s runaway spending” that could pave the way for the government to “introduce other wealth taxes like higher capital gains taxes or even inheritance taxes”.
A supine Coalition,struggling to pull itself togetherafter its thumping, hopes to use the super tax proposal as an issue it can rally around.
The tax is due to come into effect on 1 July this year and is budgeted to raise $2.3bn in 2027-28, and $40bn over a decade.
The treasurer, Jim Chalmers, has dismissed criticism of the bill and says he is determined to push on with the policy.
If you are young with a few thousand in your savings, you might be tempted to ignore the whole brouhaha. But even someone in their 20s could be caught up in the new rule – eventually.
So let’s take a closer look at the catchily titled Treasury Laws Amendment (Better TargetedSuperannuationConcessions) Bill 2023.
Superannuation funds are taxed on the earnings from their assets that support individuals’ superannuation interests.
In the accumulation (pre-retirement) phase, earnings are taxed at a flat rate of 15%. For assets in the retirement phase, earnings are tax exempt.
The proposal is for an extra 15% tax on earnings generated by the portion of a saver’s super assets over $3m. The saver is individually liable for the tax each year.
Sure. Let’s say Humphrey has $6m in super as at 30 June 2025, and by the end of the next financial year, his total super assets are $7m.
Humphrey has “earned” $1m in 2025-26.
(The actual policy adjusts for money contributed and withdrawn from the fund, but let’s ignore that for simplicity’s sake.)
Then we need to work out how much of those earnings can be attributed to savings over the $3m threshold – which is $4m.
So of the total $7m in super assets as at mid-2026, we can tax the earnings on $4m of that, or 57%.
Now, recall that Humphrey’s super savings went up by $1m in the year. We take 57% of that amount ($570,000) and apply the new 15% tax to it.
Humphrey owes the taxman an extra $85,500.
If his balance had started and ended the financial year unchanged at $6m, no extra tax would be paid.
If it dropped to $5m, then that $1m loss would be offset against future gains.
That worked example, by the way, comes from the self-managed super fund service provider SMSF Alliance.
And it absolutely despises this policy.
It goes without saying that no one likes to pay more tax.
There is also massive resentment among older Australians who feel as though they have worked hard and saved for decades under a set of retirement rules that the government is now fiddling with.
It doesn’t help that Anthony Albanese promised before the 2022 election that he would not fiddle with super taxes, only to do just that.
There are also deep concerns with how the policy is designed.
You’ll notice in the example above that the tax is being charged on the notional change in the value of Humphrey’s super assets. That extra $1m isn’t in his pocket or in cash in the bank – it’s an unrealised gain – and yet he’s up for a cash tax payment of $85,500.
He can dip into his savings to pay for it, or raise that money from elsewhere, or sell something to raise it. That first option is tough if, say, it’s farmland that is in your self-managed super fund.
This taxing of unrealised gains is highly unorthodox, and would be a major departure from standard tax practice.
It also has the potential for every policymaker’s worst nightmare: unintended consequences.
Great question!
As one Reddit contributor concisely put it: “I wish I was worried.”
As mentioned, Treasury estimates 80,000 people will be affected in the first year of the change.
There are about 23 million Australians aged 15 and over.
So we are talking a mere 0.3% of today’s working age population, or the wealthiest 0.5% of those with super savings.
But wait!
There is a reason your future self should be worried.
The government, in its wisdom – and presumably to maximise the benefit to the budget – has decided not to raise the $3m threshold each year in line with inflation or wages growth.
It’s this failure to index the $3m that will eventually catch up with young Australians.
Diana Mousina, the deputy chief economist at AMP, has calculated that without indexation a 22-year-old earning average wages for the rest of their life will breach the $3m by the time they retire.
That still might not overly concern you – after all, a lot can happen in 40 years.
But super is essentially a long-term policy, so why not make policy that has the future in mind?
Now we wait to see how the legislation fares when parliament resumes, potentially in late July.
It was held up last term, not least thanks to some strong lobbying from Allegra Spender, the independent MP who represents some of the country’s richest voters in Sydney’s eastern suburbs.
The Coalition is against the bill, so really it’s whetherthe Greens, who now hold the balance of power in the Senate, decide to wave it through, or push their demands that the $3m threshold be reduced to $2m.
That demand looks unlikely to be met, but they could put pressure on the government to index the threshold, which seems a sensible amendment.
Beyond that, the issue of overly generous tax concessions that overwhelmingly benefit richer Australians remains an issue for this and future governments to grapple with.
Patrick Commins is Guardian Australia’s economics editor