As heated discussions swirl around the federal government’s proposal to increase taxes on superannuation balances exceeding $3 million, it’s vital to examine the core reason we provide super tax concessions and why reform is long overdue.
Superannuation tax breaks are intended to incentivize retirement savings by reducing the tax burden on these contributions. However, these generous concessions come at a steep cost—about $50 billion in lost revenue each year.
While these tax incentives help grow super balances and reduce long-term tax burdens for savers, they disproportionately benefit older, wealthier Australians. The top 20% of income earners receive two-thirds of all super tax concessions.
Many retirees do not use their super balances as intended. Rather than drawing them down, many continue to accumulate wealth post-retirement. As a result, by 2060, one-third of all super withdrawals are projected to be passed on as bequests.
Superannuation, designed to fund individual retirements, has morphed into a taxpayer-funded inheritance vehicle. This not only undermines its purpose but places an undue burden on younger taxpayers.
The government’s decision to increase the tax on earnings from 15% to 30% for balances above $3 million is a measured step toward correcting these disparities. Importantly, this tax applies only to the portion exceeding $3 million, not the entire balance.
Only about 0.5% of super holders—roughly 80,000 people—will be affected by this change, but it’s projected to save over $2 billion annually. Despite criticism, this is a fair and necessary correction to the system.
“Claims that not indexing the $3 million threshold will result in the tax affecting most younger Australians, or that it will somehow disproportionately affect younger generations, are simply nonsense.”
“Rather than being the biggest losers from the lack of indexation, younger Australians are the biggest beneficiaries.”
This policy shift ensures that the wealthiest Australians—primarily those over 60—will help carry the burden of an ageing population, relieving pressure on Gen Z and Millennials.
Even in a scenario where the threshold remains unchanged until 2055, it would impact only the top 10% of retirees. Treasurer Jim Chalmers emphasized the improbability of the threshold remaining static for that long.
“Treasurer Jim Chalmers says the higher tax rate will affect less than 1% of super account holders.”
In fact, experts argue the government could go further—reducing the threshold to $2 million and indexing it only after inflation adjusts its real value. This could result in an additional $1 billion in annual budget savings.
Critics point out the tax structure is complex. Since super earnings are taxed at the fund level, not per individual, levying a 15% surcharge on earnings over $3 million could include unrealized capital gains.
While this may affect self-managed super funds that hold illiquid assets like farms or business premises, regulations already require these funds to maintain liquidity and ensure they meet withdrawal obligations.
Moreover, the tax doesn’t need to be paid directly from super accounts. Most high-net-worth retirees also derive substantial income from non-super investments. In fact, the top 10% of retirees earn more from outside super than from within.
“Good policy is always the art of the compromise.”
“Super tax breaks should exist only where they support a policy aim. And on balance, trimming unneeded super tax breaks for the wealthiest 0.5% of Australians would make our super system fairer and our budget stronger.”
In a time of mounting budget deficits and productivity stagnation, targeting super tax concessions for the ultra-wealthy is not only smart—it’s necessary. For Gen Z, this change spells a future with a more equitable and sustainable retirement system.
