Albanese government reveals that politicians will be exempt from new superannuation tax

The Albanese government’s new superannuation tax, set to take effect from 1 July 2025, has sparked outrage for its carve-out exempting certain politicians while imposing a heavy burden on ordinary Australians.

Doubling the tax rate on superannuation earnings for balances over $3 million from 15% to 30%, the policy also controversially taxes unrealised capital gains.

While Treasurer Jim Chalmers touts it as a step toward a “fairer” and “more sustainable” super system, the exemption for state politicians and other high-ranking officials reveals a galling double standard.

This move is both infuriating and, sadly, unsurprising given the history of political self-preservation. Beyond the exemptions, the tax’s design flaws threaten economic productivity, retirement planning, and fairness, making it a policy that could haunt Labor for years.

Politicians protected, public exposed

The most egregious aspect of the super tax is the exemption granted to former state premiers, parliamentarians, and other state officials like governors, judges, and police commissioners who benefit from generous defined benefit pension schemes.

These exemptions, justified by constitutional requirements, mean that figures like Victoria’s Jacinta Allan or former NSW premier Bob Carr will dodge the tax, even if their super balances exceed $3 million.

Meanwhile, federal public servants and ordinary Australians with similar balances face the full brunt. This disparity reeks of elitism, reinforcing the perception that politicians craft laws to shield themselves while leaving the public to foot the bill.

Deputy Liberal leader Ted O’Brien called it a “tax on aspiration,” and it’s hard to disagree when the rules seem rigged to protect the powerful.

The government insists the exemptions are narrow and constitutionally mandated, but this does little to quell public frustration. Why should state politicians, already enjoying lucrative pensions, be spared while federal public servants and self-managed super fund (SMSF) holders are hit?

The lack of transparency around how liabilities will be calculated for federal defined benefit schemes only adds to the sense of unfairness. It’s a stark reminder that those in power often find ways to insulate themselves from the policies they impose.

Beyond the exemptions, the super tax is riddled with problems that could undermine Australia’s economy and retirement system. Here are the key issues:

Taxing unrealised gains: A dangerous precedent

The inclusion of unrealised capital gains – taxing assets like businesses, farms, or shares before they’re sold – is a radical departure from Australian tax norms.

As teal MP Allegra Spender warned, this could set a dangerous precedent, allowing future governments to tax hypothetical gains on other assets, like homes. For SMSF holders, particularly those with illiquid assets like family businesses or farms, the tax could force premature sales to cover liabilities, disrupting long-term investment plans.

Economist Peter Downes noted that this policy could lead to “unintended consequences,” such as reduced investment in high-growth sectors like tech startups, which Spender highlighted as critical for productivity.

No indexation of the $3 million threshold

The $3 million threshold sounds high, but without indexation, inflation will push more Australians into the tax net over time. AMP Deputy Chief Economist Diana Mousina estimated that the average 22-year-old today could be hit by the tax upon retirement.

This undermines the government’s claim that it affects only 0.5% of super holders (roughly 80,000 people). As Spender pointed out, the lack of indexation could fuel public backlash once “everyday Australians” realise they’re caught in the net, eroding Labor’s credibility.

Productivity and workforce impacts

The tax could deter high-skilled, high-income workers from staying in the workforce, contradicting Chalmers’ productivity agenda. Downes warned that older workers nearing retirement may opt out early to avoid the tax, exacerbating Australia’s skills shortage.

This is particularly concerning given the Productivity Commission’s ongoing review of tax settings to boost economic growth. Taxing super earnings at 30% for balances over $3 million reduces the incentive to save within the super system, potentially driving capital offshore or into less productive investments.

Compliance burdens and revenue uncertainty

The tax’s complexity, especially for SMSFs, imposes significant compliance costs. Meg Heffron, a superannuation expert, noted that taxing unrealised gains without refunding unrealised losses creates a “unique set of circumstances” that may push people to withdraw funds from super altogether.

This could undermine the government’s projected $2.3 billion annual revenue, as wealthy individuals restructure their portfolios to avoid the tax. Downes suggested that an inheritance tax might be a more effective way to address wealth inequality without distorting retirement savings.

Erosion of trust in the super system

Superannuation is meant to encourage long-term saving for a dignified retirement, not serve as a tax avoidance vehicle, as Labor Party president Wayne Swan argued.

Yet, by targeting SMSFs and taxing unrealised gains, the policy risks alienating those who’ve diligently saved within the rules. Reports indicate that some high-income earners in their 40s have stopped contributing to SMSFs due to uncertainty, while wealthy retirees are selling assets to stay under the threshold.

This undermines confidence in a system already strained by decades of policy tinkering.

A missed opportunity for fair reform

The Albanese government had a chance to address intergenerational inequity and budget pressures with a well-designed super tax. Instead, it’s delivered a policy that spares politically connected elites, taxes hypothetical gains, and risks long-term economic harm.

Laura Tingle, ABC’s political editor, noted that the government has failed to articulate a clear rationale for taxing unrealised gains, leaving it vulnerable to criticism from figures like former PM Paul Keating, who opposes both the tax and the unindexed threshold.

The Greens’ push to lower the threshold to $2 million, as suggested by leader Larissa Waters, would only exacerbate the policy’s flaws, capturing even more Australians over time.

A policy set to backfire?

The super tax exemptions for state politicians are a shameful display of self-interest, but they’re only the tip of the iceberg.

By taxing unrealised gains, ignoring indexation, and risking productivity, the Albanese government has crafted a policy that’s as poorly thought-out as it is inequitable. Spender’s call for a public education campaign to highlight the tax’s long-term impacts is spot-on, Labor may have won the 2025 election, but this tax could cost them dearly at the next one.

Australians deserve a super system that rewards hard work and planning, not one that punishes success while letting politicians off the hook. It’s outrageous, but given the track record of political self-preservation, it’s hardly a shock.