The Albanese government has abandoned its plan to tax unrealised capital gains on superannuation balances above $3 million, following months of intense criticism from financial experts, industry groups and everyday Australians concerned about the impact on retirement savings.
Treasurer Jim Chalmers confirmed the decision this week, saying the government had listened to feedback and wanted to ensure that any changes to the superannuation system were fair, workable and did not create unnecessary hardship. The reversal means that only realised gains (those that occur when an asset is actually sold) will be subject to taxation under the government’s revised plan.
The original proposal, announced earlier this year, sought to double the tax rate on super earnings for individuals with balances exceeding $3 million, from 15 per cent to 30 per cent. Controversially, the government also intended to include unrealised capital gains in the calculation of taxable earnings.
This meant that even if an asset such as property, shares or a private business increased in value but was not sold, the owner could still face a tax bill based on that paper gain. Critics warned that such a move could result in people being forced to sell assets to cover tax liabilities, particularly during volatile market conditions.
Financial planners, accountants and superannuation funds quickly raised concerns about the practicality of valuing certain assets annually, particularly those that are illiquid or difficult to price. Many argued that the proposal risked undermining confidence in the entire superannuation system, which has long been based on encouraging Australians to save for their retirement through stable, predictable tax settings.
Dr Chalmers said the government had taken these concerns seriously and decided that the best course of action was to drop the plan to tax unrealised gains.
“We are absolutely committed to ensuring the superannuation system remains sustainable and fair,” he said. “But we have also heard the feedback that including unrealised gains would create complexity and uncertainty. We want a system that Australians can continue to trust.”
Under the revised proposal, only realised gains will be taxed, consistent with the approach used across most areas of Australia’s taxation system. The change is expected to reduce the amount of additional revenue raised from high-balance accounts, but the government maintains that the overall reform still targets equity and long-term sustainability.
Industry reaction to the announcement has been largely positive. The Association of Superannuation Funds of Australia (ASFA) and other leading bodies welcomed the decision as a “common-sense correction” that restores stability and fairness to retirement policy.
Super fund executives said the original plan had caused confusion and anxiety among members, many of whom were uncertain about how their balances would be assessed or whether they would face large tax bills based on fluctuating valuations.
Financial advisers also expressed relief. Many had argued that the administrative burden of calculating unrealised gains each year, particularly for self-managed super funds holding assets such as farms or commercial property, would have been immense.
The government’s reversal follows months of mounting political pressure. Opposition parties, along with several crossbench MPs, had accused Labor of breaking faith with retirees by proposing a tax that they said punished Australians for saving diligently.
Public sentiment also appeared to shift against the policy. Polling conducted in August showed that while most Australians supported higher taxes on very large super balances, a majority opposed taxing paper gains. For many, the idea of paying tax on wealth that had not yet been realised simply felt unfair.
Economists were also divided. Some argued the measure could have improved budget sustainability by targeting concessions that overwhelmingly benefit high-income earners. Others warned it would have created distortionary effects, particularly in markets where asset values can rise and fall dramatically from year to year.
The government has emphasised that the broader goal of the superannuation reform remains unchanged. Chalmers said the intent is still to ensure that the tax benefits of super are distributed more equitably and that those with multimillion-dollar balances contribute their fair share.
However, by removing the most controversial component of the proposal, Labor hopes to preserve public trust in a system that holds more than $3.5 trillion in savings and represents the cornerstone of Australia’s retirement framework.
The backdown also reflects the government’s ongoing effort to manage competing pressures: the need for fiscal responsibility amid growing budget deficits, and the political imperative to avoid alienating middle-class voters who rely on super as their primary retirement asset.
While the final details of the revised plan are still being refined, experts expect the government to proceed with a simpler approach that maintains the higher tax rate for very large balances without the complexity of annual revaluations.
Chalmers said the decision demonstrates that the government is willing to adjust when good ideas encounter practical challenges. “This is about getting the balance right,” he said. “We can make the system fairer without making it harder to understand.”
For now, the move has been broadly welcomed across the political and financial spectrum. But as debate continues over how to make the superannuation system more equitable, the episode serves as a reminder of how sensitive Australians remain to any changes that affect their retirement savings.
