Watered-down superannuation reform to go back to Parliament

Superannuation is supposed to be for retirement. Unfortunately, it has become like Australia’s own internal tax haven and inheritance scheme for wealthy people.

Superannuation tax breaks are a big deal. They gave away $18.65 billion of government revenue in 2022-23, as much as the Federal Government spends on public schools or on the Pharmaceutical Benefits Scheme.

The Labor Government spent a chunk of its first term trying to make modest reforms to superannuation. It is trying again this term and a recent Treasury Department consultation has revealed the watered-down reforms that we are likely to see introduced to the parliament, reforms that should make the system slightly less regressive.

The current superannuation arrangements are highly regressive, meaning that high-income earners get most of the benefit. People in the top half of the income distribution received 79 per cent of the benefit from superannuation tax breaks, according to Treasury’s “2025-26 Tax Expenditures and Insights Statement”. The top 10 per cent of income earners received 38 per cent of the benefit.

The Labor Government had attempted to increase the tax on the superannuation of wealthy people during the last term of the Parliament. The reform would have only affected people with over $3 million in super and there are not many of these people – Approximately 80,000 people, or 0.5 per cent of all people with super accounts. A superannuation balance of $3 million is well over ten times the median superannuation account balance on retirement. In 2021, the median account balance for men around retirement age was $211,996, and for women it was just $158,806.

The change would not have affected many people and even those affected weren’t hit terribly hard. The reform aimed to impose an extra 15 per cent tax on the investment income of the portion of a superannuation account that exceeds $3 million in value.

The opposition to the Government’s proposal from wealthy people was ballistic.

A relentless campaign was run by The Australian and The Australian Financial Review, providing a platform for CEOs, fund managers for the wealthy and beneficiaries of the current inequities to voice opposition to the reforms. The attacks were particularly aimed at the $3 million threshold not being indexed, so that, over time, more wealthy people would have to pay the extra tax.

The other key objection was that the tax would have applied to the increase in value of assets in the superannuation account, even before the assets have been sold, known as taxing “unrealised capital gains”. Such an approach is not radical and is already adopted with land taxes.

The Labor Government tried hard to get the reform through the Parliament, but it did not have the numbers in the Senate. With the 2025 election, all that changed: the Greens now hold the balance of power in the Senate and are supportive of progressive tax reform.

So it came as a shock in October 2025 when the government snatched defeat from the jaws of victory and announced they would water down the proposed reforms even though they had a clear path through the Senate.

The new Bill, the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2025, abandons taxing the unrealised capital gains. It keeps the extra 15 per cent tax on the portion of earnings from the part of the superannuation balance that exceeds $3 million.

It will also add an additional 25 per cent tax for the earnings on the part of an individual’s total super balance above $10 million. This might sound good, but less than one in a thousand Australians has a superannuation account that exceeds $10 million.

The new proposal will see both the $3 million and $10 million thresholds indexed so that the additional tax will apply to roughly the same number of people over time. The result is that less tax will be collected from the wealthy compared to the original design of the reforms.

On the positive side, the Government announced good changes to the Low Income Superannuation Tax Offset (LISTO). As superannuation contributions are taxed at 15 per cent, for people on low incomes, that is a higher rate of tax than they would be required to pay on their income. The LISTO will now refund up to $810 of the tax paid by low-income people on superannuation contributions, up from $500. The eligibility threshold would increase from $37,000 to $45,000, effective 1 July 2027.

This will benefit 3.1 million Australians, 60 per cent of whom are women, so it’s an important reform.

With impacts like the LISTO change, the new version of the superannuation reforms are still worth having.

But if Australia is to address growing wealth inequality, we need far more serious progressive tax reform.

The Albanese Government has the numbers to implement serious reform. When will it use them?