Treasurer Jim Chalmers forced into backflip on super tax package but says not driven by Albanese

Jim Chalmers has been forced into a significant backflip on his superannuation reforms after being rolled on his plan to tax multimillion-dollar accounts more, but he denies Anthony Albanese had a roll in the shock change.

The Treasurer revealed a new version of the plan he has been pushing for two-years to lower tax concessions for large superannuation balances above $3 million, after Cabinet agreed to it on Monday morning.

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 — who is on leave this week — had taken a close interest in the policy.

Policy tensions between ambitious treasurers and cautious prime ministers 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.

But 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 argued the Treasurer had been “chewed up and his tax plan has now been chucked out”.

“That’s a win for everyday Australians,” he said.

The surprise changes will create a billion-dollar hole in the Budget in just one year with the concessions introduced to earn less than what was originally forecast by Dr Chalmers.

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

A second threshold would be added to lift the tax rate to 40 per cent for balances above $10m.

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

The taxes would 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.

Dr Chalmers said those for whom taxing unrealised gains was “a genuine sticking point” now “have no excuses but to support it”. But he said 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, adding that it looked like “another whopping big tax idea from a Treasurer who can’t stop spending”.

Dr Chalmers is not counting on the Opposition’s support, having spoken to Greens leader Larissa Waters about the changes before making them public. But he didn’t reopen discussions with the Coalition.

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 to be lowered to $2m and indexed.

The nation’s largest super fund, Australian Super, said the changes would ensure 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 $3m super accounts in the 2023 Budget and put legislation for it to Parliament in 2024.

The Bill languished — 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 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, 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 supported 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 $3m 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.

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

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