Treasurer Jim Chalmers backs down on super tax package

Jim Chalmers has backed down on every criticism of his plan to tax multimillion-dollar superannuation accounts more, with the revenue he had hoped to raise taking a billion-dollar hit from the changes.

The Treasurer unveiled a new version of his two-year-old plan to lower tax concessions for large superannuation balances above $3 million after Cabinet signed off on it on Monday morning.

He wants to legislate it as soon as possible and has already spoken to the Greens, who will be key to it passing the Senate.

The changes have been hailed as a win for the lobbying efforts of everyone from crossbench MPs to farmers and comes days after it was revealed Prime Minister Anthony Albanese had taken a close interest in the policy.

Dr Chalmers denied he had been rolled by his boss on the stalled revenue-raiser.

“The Prime Minister and I have had discussions over recent months about finding another way to satisfy the same objectives, and that’s what’s happening here,” he said.

“I do accept that this is a change to the proposal that we made more than two years ago, and I think what it demonstrates about me as Treasurer, but also, more importantly, about the government as a whole is that we work through these issues in a considered and methodical way.”

Shadow treasurer Ted O’Brien saw it differently: “The treasurer has been chewed up and his tax plan has now been chucked out. That’s a win for everyday Australians.”

Policy tensions between ambitious treasurers and cautious prime minister have long been a feature of Australian politics, with money men including John Howard, Paul Keating and Peter Costello finding their plans overruled by their bosses.

Under the changes, earnings on balances above $3 million will be taxed at 30 per cent, instead of 15 per cent as at the moment.

A second threshold will be added to lift tax rate to 40 per cent for balances above $10 million.

Both thresholds will be indexed so they rise each year in line with CPI.

The taxes will also now apply only to realised gains on the balances.

This addresses the two key criticisms of the plan first unveiled in the 2023 Budget, that it would gradually capture more people if the thresholds weren’t indexed and that it taxed unrealised capital gains.

National Farmers Federation president David Jochinke said it was a “monumental win” after the lobby group had raised concerns about the impact on families with properties held in self-managed super funds.

Independent MPs Kate Chaney and Zali Steggall also claimed victory after leading demands for changes on both fronts.

Dr Chalmers said that those for whom taxing unrealised gains was “a genuine sticking point” now “have no excuses but to support it”, but that there was another group of people who would never support changes to super tax concessions.

That includes the Opposition, with Mr O’Brien labelling the previous package “super big and super bad”.

Mr O’Brien said the Coalition would scrutinise the new package before deciding its position.

However, he said it looked like “another whopping big tax idea from a Treasurer who can’t stop spending”.

Dr Chalmers is not banking on the Opposition’s support, having spoken to Greens leader Larissa Waters about the changes before making them public, but not reopening discussions with the Coalition.

But Greens economics spokesman Nick McKim blasted the new package as “a capitulation to the wealthiest people in the country”.

“Labor has stripped out the tax on unrealised gains and indexed the $3 million threshold, a gift to the super-rich that will cost the budget billions,” he said.

The minor party had previously called for the threshold for the threshold to be lowered to $2 million and indexed.

The nation’s largest super fund, Australian Super, said the changes would make sure the system remained “fit for purpose” for future generations.

“It’s important for Parliament to legislate the changes to ensure Australians can retire in their best possible financial position,” chief strategy officer Paula Benson said.

Dr Chalmers first unveiled the plans to wind back tax concessions on $3 million super accounts in the 2023 Budget and put legislation for it to Parliament in 2024.

The bill languished friendless – and wasn’t shepherded through the Senate by the Treasurer – until it lapsed when the election was called.

Treasury officials said last week the Prime Minister’s office had met the department to discuss the superannuation tax plan, with some of Dr Chalmers’ staff also present.

Mr Albanese insisted to media on Friday morning that “our policy is as it stands” and “there are no policy changes that we have not made”.

On Friday afternoon, Cabinet’s expenditure review committee approved the new package.

Dr Chalmers said on Monday the Government was “not contemplating any further changes in this area”.

Paul Keating backed the backdown, saying the change “shares substance with necessity” and should give people peace of mind.

The former prime minister took a swipe at the plans in July, pointing out that a young person today on average wages would have more than $3 million in their balance by retirement age.

But on Monday he said the “stumbling block” was Treasury’s advice that a switch to taxing realised gains only couldn’t be done.

“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, but more than that, taxed at a new limit and at a higher rate, restoring much needed equity following the Howard/Costello rampage of 2007,” he said in a statement.

The start date for the package will be pushed back by a year to July 1, 2026.

The Government will also increase the low-income superannuation tax offset – effectively a top-up of people’s super accounts – from $500 to $810 a year and raise the eligibility to $45,000 annual income, to make sure that once the third stage of its tax cuts kick in people aren’t paying more tax on their superannuation balances than their income.

This measure has been widely hailed as a good step towards equity, especially for women who generally have lower super balances.

Super Members Council chief executive Misha Schubert said it would make a big difference to the retirements of more than a million of the country’s lowest-paid workers, who could be up to $60,000 better off.

The original package was expected to raise about $2.5 billion revenue in 2028-29.

The new version will raise about $1.5 billion that year once the $435 million cost of the low-income rebate is taken out.