Support for the $3 million super tax is strong across the industry, but with the possible July 2025 start date nearing, focus is turning to a key flaw – the lack of indexation.
Australia’s largest superannuation funds have thrown their support behind the government’s $3 million super tax but are urging Treasury to ensure the tax is indexed, saying that without adjustment, it risks capturing far more members over time than originally intended.
HESTA and Australian Retirement Trust (ART), two of the country’s biggest profit-to-member funds, have welcomed the Albanese government’s plan to apply a 30 per cent tax on earnings from super balances above $3 million, describing it as a move towards a fairer and more equitable retirement system. However, they said the proposed threshold must be indexed to avoid unintended bracket creep.
“Australia’s tax system favours high-income earners with high super balances,” a HESTA spokesperson told Super Review sister brand InvestorDaily.
“We support the proposed 30 per cent tax on investment earnings on super balances over $3 million to help make our super system fairer and more equitable. Indexing the threshold will help preserve the policy intent over time.”
ART echoed this view, saying the tax should be subject to “some form of regular review mechanism or indexation … to ensure the policy remains aligned into the future”.
Treasurer Jim Chalmers recently confirmed on ABC’s The Conversation podcast that while he understands the argument for indexation, there are “many instances in the tax system where thresholds aren’t indexed” and future governments have the opportunity to adjust the threshold.
“I’m anticipating that that’s what would happen here. Some of these calculations about what people’s liability would be in 40 years assume that the $3 million threshold never changes,” he said.
“I think we’re making it consistent with other areas of the tax system where the threshold is not indexed. I fully anticipate that governments of either, if not both political persuasions at some point in the future will change the threshold.”
Financial adviser Bryn Evans, partner at Integro Private Wealth, said he is seeing growing concern among younger clients about the long-term implications of the proposed tax, particularly due to the absence of indexation.
“They are nowhere near having $3 million in their super,” Evans said. “They are thinking about the indexation and the compounding returns and the fact that over a 25–30-year period this policy could impact their future.
“There is quite a broad-ranging level of understanding and concern of what the government is proposing to do. People do understand that compounding returns for decades can produce quite spectacular results. And with that key element of a lack of indexation – when things are not indexed – they just don’t move.”
Evans said that this erosion of confidence is starting to discourage long-term superannuation contributions.
“It’s quite extraordinary,” he said, adding that it’s not just about needing money outside super for life goals like school fees or housing anymore, it’s now about their concern over the regulatory side of super.
HESTA, which represents workers in lower-paid sectors such as aged care and early childhood education, said what should be on the government’s agenda is the system’s treatment of low-income earners.
“HESTA has called on government to increase the Low Income Super Tax Offset (LISTO) eligibility and payment amount to ensure low-income earners are not disadvantaged by paying more tax on their super contributions than on their take-home pay,” the spokesperson said.
“This is an important equity measure that will make a big difference for HESTA members, nearly 80 per cent of whom are women, as they typically have lower super balances from the important work they do in typically lower paid industries such as aged care and early childhood education and from taking time out of the workforce to care for others.”
The proposed $3 million tax is slated to begin from 1 July, if the government gets it through the Senate. While the political debate around taxing unrealised capital gains continues, a consensus appears to be forming among major funds and advisers alike – the tax is defensible, but indexation is essential.
While the country’s biggest superannuation fund, AustralianSuper, has not said anything new regarding the proposed tax, in its submission to the government back in 2023, the fund too, called for indexing the $3 million threshold to “provide greater certainty and promote stability and confidence in the system”.
The fund also called for a legislative requirement for a post-implementation review three years after the measure begins, something it said is especially important if indexation is not included.
“While we remain of the view that the $3 million threshold should be indexed, in the absence of indexation of the $3 million threshold, this review should also be required to consider whether the threshold remains appropriate,” the fund said.
