Labor's super tweak affects only the wealthiest Australians. To argue against it is misguided

The Guardian

25-05-2025

If you're wondering why reform in this country is so hard, look no further than the criticism of Labor's plan to trim tax breaks for people with more than $3m in superannuation.
An estimated 80,000 very wealthy Australians will be affected by the extra 15% earnings tax on their retirement savings above $3m.
That's the top 0.5% of super savers, according to Treasury estimates.
And yet, major newspapers – the same ones who rail against a lack of political courage to get reform done – have launched a ferocious campaign to discredit a minor tweak that addresses a well-established problem: super tax concessions for the wealthy are too generous.
The outsized attention given to what Jim Chalmers has called a 'modest' measure speaks less to the policy's flaws and more to the capacity of a small group of influential people to harness media coverage on niche issues where they stand to lose.
Sure, the policy is not perfect.
Reasonable people can take issue with two aspects of its design. First, that it taxes notional (unrealised) gains in super balances rather than the usual tax on actual (realised) profits.
And, secondly, that the $3m threshold is not automatically increased each year (or indexed) in line with inflation or wages.
With that said, here's a taste of the claims being made:
The policy will force farmers to sell their land
It will crush entrepreneurship in this country
It will undermine the funding for green energy technology
Young Australians are the real losers, as they might have to pay the extra tax by the time they retire (in the 2060s).
Again, it's worth remembering this policy will trim generous tax breaks for 80,000 very wealthy Australians out of 16 million people with superannuation.
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As Jeremy Cooper, the lead author of a major report into the super system in 2010 says, there is a touch of hysteria surrounding the topic. He described these arguments as 'embarrassing'.
Unfortunately, vested interest groups can be shameless.
Like with other major policy challenges, we risk getting bogged down in disputing unreasonable assertions that too often degenerate into 'he said, she said' and policy paralysis.
Instead, let's recall what superannuation is for and what the reforms are trying to achieve.
The super system was set up to help provide Australians with a comfortable and dignified life after work. The purpose of super is not to help wealthy people minimise tax.
It is not to protect business assets – farms or otherwise – from the tax office. Nor is it a tool to drive national investment in research and development. We are not offering generous tax concessions on super earnings to reach net zero.
The last major report into the super system was the 2020 Callaghan review. It stated that 'superannuation savings are supported by tax concessions for the purpose of retirement income and not purely for wealth accumulation'.
It adds: 'Yet most retirees leave the bulk of the wealth they had at retirement as a bequest.'
That is, a lot of wealth in super is ultimately not used for a comfortable retirement.
About half of super tax breaks go to the top 10% of earners, according to a 2023 Grattan Institute study.
In particular, that study found that 'tax-free retirement earnings turn super into a taxpayer-funded inheritance scheme, since the boost to balances is typically saved, not spent'.
As Mike Callaghan, the lead author of the 2020 report, told me: 'There is a need in terms of equity to address many of the concessions that favour high-income earners, and in particular the concessions on earnings.'
Besides equity, Callaghan says, there's another reason to trim concessions at the upper end: sustainability.
The Callaghan report projected that super concessions would climb as a share of the economy over the coming decades, driven by tax breaks on super earnings.
At a time of intensifying structural budget pressures, finding ways to improve the efficiency of major policy settings is crucial.
If we want lower income taxes, curbing excessively generous super tax breaks is among the best ways to get there.
Reform comes in many forms, and it creates winners and losers. There is no perfect policy. Compromise is part of politics. That means there are always better alternatives.
But there is a broadly accepted need to reform super tax concessions that overwhelmingly favour the rich and distort the purpose of the super system.
We don't all have to agree. But arguing in favour of no change based on incredible claims by vested interests is misguided.