The shadow financial services minister has confirmed Labor’s retreat from the proposed $3 million super tax, describing the legislation as flawed.
In a statement on Tuesday, Pat Conaghan said lobbying by the Coalition, industry leaders, and everyday Australians had forced the government to retreat from its controversial super tax plan, after reports last week that APRA-regulated funds had raised concerns with the government.
“From day one, we said this tax was unfair, unworkable and completely out of touch,” Conaghan said.
“Our income tax system has never taxed Australians on intangible gains. This would be an Australian first, and not one to be proud of.”
Last week, Super Review sister brand InvestorDaily reported that growing media coverage and internal Labor dissent were believed to be adding pressure on the government to reconsider Division 296, amid concerns about political backlash and the tax’s impact on Australia’s already fragile productivity.
APRA-regulated funds, in particular, were believed to have warned the government that the tax would create costly and complex new reporting obligations.
Speaking to Super Review sister brand SMSF Adviser, following reports in The Australian Financial Review that the government had paused plans to impose an additional 15 per cent on earnings of super balances above $3 million, Peter Burgess, CEO of the SMSFA, said: “It’s no secret there is opposition to this tax within the Labor party ranks.
“I think the other thing is that the government is trying to position the Labor Party as pro-aspirational … You can’t get a better example of a tax on aspiration than this tax.”
Now Conaghan appears to have confirmed speculations, claiming on Tuesday that “Labor’s retreat shows they’re feeling the heat”.
“This isn’t a policy that just needs some cosmetic fixes. Taxing unrealised gains is fundamentally wrong, and it should be ruled out entirely,” he said.
He also condemned Labor’s refusal to index the threshold, calling it a “slow-motion tax trap” for younger Australians.
“As wages and inflation rise, more and more ordinary workers will be dragged into Labor’s tax net. The people that will be hit hardest are the youngest Australians that are just starting to save for their retirement today. This is tax by stealth on the next generation,” he said.
But perhaps Conaghan’s strongest criticism was that the tax signalled superannuation rules could shift at any time, even for those who had complied for decades.
“You can’t build confidence in retirement by shifting the goalposts every few years,” he said.
“People planned their futures under the rules of the day. Tearing up that deal to plug Chalmers’ budget hole is a betrayal of trust.”
APRA funds voice concerns
Last week, Burgess told SMSF Adviser that APRA-regulated funds had been mounting pressure on the government over worries they would be forced to overhaul their processes and reporting obligations under the new tax.
“We know that one of the implications of this tax is that funds will have to re-report balances for people that have defined benefit pensions, and it’s messy, costly,” he said.
“There are other ways to go about achieving what the government is trying to achieve that don’t have these unintended consequences.”
In a live televised Q&A following his National Press Club address last week, Paul Schroder, CEO of AustralianSuper, didn’t hold back on how funds cope with tweaks like Division 296, telling attendees: “We’ve become expert at adjusting for regulatory change.
“We think of it [regulatory change] as a constant state.
“We have to budget for it every year. We have experts deep in the system to make sure we do a very good job of trying to meet all of our obligations.
“There’s always costs associated with regulatory change. It will cost a bit, it will take a bit of effort, but for us, it’s kind of like the cost of doing business.”
How APRA-regulated funds feel about the tax remains unclear, with ASFA CEO Mary Delahunty publicly backing Division 296 at an InvestorDaily event earlier this year, describing it as a “worthwhile pursuit”.
The waiting game for Division 296, originally set to take effect on 1 July 2025, took a turn late last month when Treasurer Jim Chalmers told ABC’s Insiders program that he was in no hurry to reintroduce the legislation.
He, however, insisted at the time that the tax was “a pretty modest” but “meaningful change”, which makes the system “a bit more sustainable”.
At the time, Nicholas Ali, head of technical for Neo Super, accused the government of being “disingenuous”.
“On the one hand, Treasurer Chalmers states the backlash against Div 296 by professional bodies doesn’t augur well for more substantive tax reforms because the change is modest and methodical, yet on the other hand he states he is in no hurry to introduce the Div 296 legislation back into Parliament as it is not set to start until mid-next year,” Ali said.
“If it was so well designed and methodical, why has it not been passed as legislation?”
