A super-sized retreat for the Treasurer raises questions of government’s ambitions

Last Friday Treasurer Jim Chalmers walked into a meeting of federal cabinet’s budget razor gang, but the usually confident figure was in full retreat.

Two years after announcing plans for a massive overhaul of Australia’s superannuation system, which included taxing unrealised gains for the wealthiest fund holders, Dr Chalmers was forced to surrender and present a completely reworked package.

Conveniently for the Prime Minister, the massive backdown has been unveiled while Anthony Albanese is out of Australia on a week-long break with his fiancé, and hours before Hamas is scheduled to release the remaining Israeli hostages.

Publicly the government is hailing the backdown as “pragmatic” and “practical”, but behind the scenes Labor figures are claiming another humiliating slap down of the Treasurer by his Prime Minister, while also bemoaning any lack of ambition.

“This comes on top of Albo stealing this year’s Productivity Roundtable off Jim – he’s really rubbing his nose in s..t”, one government insider quips.

For months Jim Chalmers, arguably the government’s best salesman, had claimed Labor had a “mandate” for the sweeping superannuation changes which would increase the tax paid by 0.5 per cent of the country’s most well off.

By Saturday the Prime Minister had flown out for his overseas holiday, leaving his ambitious Treasurer to get final approval for the embarrassing backdown at Monday’s cabinet meeting, and then eat humble pie by announcing it.

Unable to win enough support in the senate, Labor is now proposing a two-tiered structure and to only apply it to realised gains (such as dividends or interest) and not to paper increases in asset values (so-called unrealised gains) as first announced.

Taxes on earnings for super balances between $3m and $10m will now be doubled from the existing 15 per cent concessional rate to 30 per cent, while earnings on balances above $10m will be taxed at a 40 per cent rate.

Both thresholds will now also be indexed so they rise each year in line with inflation – a move that addresses criticism that more people would be gradually captured if not indexed – significantly it also reduces the amount of revenue the Government claws back.

All up the revised tax package will raise $4.2b less over the budget four-year forward estimates period, due largely due to the decision to delay the measures until mid-2026.

Dr Chalmers denies he got it wrong initially and rejects suggestions he was “rolled” by his leader by having to rework an election commitment which he had steadfastly defended and promoted for over two years.

“As Treasurer and as a Government we always try to take feedback seriously. We try to find the best way through. We always try to work through issues in a considered and methodical way and that is what happened here.”

But inside Labor there’s some pessimism about the lack of ambition emerging in the vastly more powerful second-term Albanese government that now holds 94 seats in the lower house and commands a progressive majority with the Greens in the Senate.

One person not complaining about the revised package is former Labor Prime Minister Paul Keating, a co-architect of Australia’s superannuation system who argues the changes restore “much needed equity following the Howard/Costello rampage of 2007”.

The outspoken former leader was not a fan of Dr Chalmers’ original proposal to tax unrealised capital gain but believes the new package fixes changes made by the Howard government which abolished the then so-called “reasonable benefits test”.