Treasurer Jim Chalmers admits superannuation backdown will hurt Budget

Treasurer Jim Chalmers admitted the Labor Government’s partial reversal of higher superannuation taxes will be expensive and confirmed he consulted former prime minister Paul Keating, a critic of the original plan.

The policy change was announced on Monday as Hamas returned surviving hostages to Israel, making it likely the dumping of higher retirement taxes will receive less media coverage.

Prime Minister Anthony Albanese has headed overseas with fiancée Jodie Haydon for a seven-day holiday, meaning he won’t have to answer questions on the change, which will cost the Budget $4.2 billion.

After more than two years of consultations, the Federal Government will not go ahead with the taxation of unrealised gains — the paper value of increases in superannuation in a financial year — on accounts with more than $3 million.

The change will reduce the taxes paid by self-managed super funds that own expensive assets such as farms, angering the Greens whose support Labor needs to get the changes passed with the Coalition yet to declare its hand.

Dr Chalmers confirmed he discussed the policy with Mr Keating, an 81-year-old former prime minister and treasurer who was a key critic of the dumped plan to tax unrealised gains.

“I think I spoke to him half a dozen times in the second half of last week. I take very seriously the feedback that Paul provides and I value, frankly, the opportunity over a really long period now to engage with Paul Keating, someone who I have a lot of respect for,” Dr Chalmers told reporters in Brisbane on Tuesday.

“I respect him too much to give you a sort of running commentary on our private conversations. I think his views are well known and his first public intervention into this debate was yesterday when he released that very positive statement.

“That means doing the important changes, making the important reforms to make sure that our superannuation system is as strong and as fair and as sustainable as it can be. Sometimes that’s easy. Sometimes that’s expensive. Sometimes that’s difficult.”

Mr Keating on Monday had hailed Dr Chalmers for taking his advice. “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 in a statement.

A new 15 per cent tax on super balances above $3 million will be indexed for inflation, in addition to an existing 15 per cent earnings tax, on things like share dividends and bank interest, which effectively doubles earnings taxes to 30 per cent on larger balances.

Economists and the Financial Services Council had warned the absence of indexation on that $3 million threshold would have caught average-income workers, now in their twenties, by the time they retired in four decades.

A new 40 per cent tax will be levied on superannuation accounts with more than $10 million.

The proposed start date will be delayed by a year until July 1, 2026. Treasury calculated the new plan will raise $2 billion over the coming three years instead of $6.2 billion under the original plan announced in 2023.

Shadow treasurer Ted O’Brien declined to say if the Coalition would vote for the changes in the Senate, given Labor was no longer proposing to tax unrealised gains and would introduce indexation on balances above $3 million.

“I won’t be pre-empting our own considerations as a Coalition today, though, which is ultimately a victory for hard-working Australians and their savings,” he told reporters on the Sunshine Coast.

Labor was re-elected in a landslide in the House of Representatives but lacks a majority in the Senate.

Without support from the Coalition, Labor would need to win over the Greens who have called for the threshold to be lowered to $2 million.

Nick McKim, the economic justice spokesperson for the Greens, has slammed the changes for costing the Budget.

“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.

“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.”

Crossbencher senators Jacqui Lambie and David Pocock had opposed taxing unrealised gains but their votes alone on a changed Labor policy would be insufficient to get the revamped Better Targeted Superannuation Concessions Bill through the Senate without either the Greens or the Opposition.

Economist Chris Richardson said Labor’s dumping of hated policies showed that tax reform was difficult, even with an electoral mandate.

“The big story isn’t in any of these details. The true implication of today’s announcements is that it is getting harder and harder to change Australia,” he said.