Treasurer Jim Chalmers’ proposal to impose a 15 per cent levy on unrealised capital gains on superannuation fund balances above $3 million is not a coherent reform. It violates core tax design principles: it’s inefficient; creates equity distortions; and adds unnecessary complexity. It is a political move to fill the gaps in fiscal spending by raiding our nation’s $4 trillion super pool. Taxing paper profits penalises growth that isn’t reflected in actual cash and runs the risk of creating tax revenue shortfalls.
Treasury-aligned modelling shows just 0.5 per cent of super fund members have balances exceeding $3 million today. If the cap remains frozen, that climbs to almost 10.5 per cent of members by the mid 2050s, with a 90 per cent confidence range between 7 per cent and 14 per cent. If indexed to CPI, the proportion stays closer to 3 per cent.
A fixed cap could eventually generate close to $30 billion a year in nominal terms. In real 2025 dollars that is about $17 billion without indexation and around $9 billion if inflation-adjusted, based on Monte Carlo simulations using 35 per cent volatility, consistent with long-term return patterns.
These are not abstract estimates. They show the real fiscal drag, quietly pulling more members into the net each year. History provides us with a warning here: Like Wayne Swan’s mining tax, actual receipts may fall well short of expectations, once savers restructure their affairs to avoid the levy.
Those hit hardest
Beyond these numbers, those hit hardest will be members with larger allocations to illiquid assets. Picture a couple in their 60s with an SMSF holding property and private business assets. Unrealised gains only exist on paper but the levy is paid in cash. Their only option may be to sell, often at the worst time, just to cover a tax bill they never planned for. That distorts long term portfolios and penalises illiquid investments.
The fact that they represent 0.5 per cent of the population is not the point. The point is that this weakens support for the types of assets super was designed to provide. Treasury may claim deferral mechanisms or valuation flexibility could soften this but, in practice, valuations across illiquid assets create large compliance costs, audit friction and uneven outcomes. The result will be portfolio reshaping that favours liquidity over long-term returns.
Once the new rules become law, the system will likely be gamed. Low valuations will be lodged and asset realisations delayed or restructured to minimise paper gains. These behaviours are rational responses to an incoherent design. Tax minimisation is not tax evasion and a measure that aims to improve vertical equity instead undermines simplicity and efficiency by inviting manipulation and tax-induced distortions. Over time, trust in the system erodes.
This proposal cuts at the social contract behind our defined contribution system. Since the early 1990s, super has rested on a bipartisan deal: a modest public pension, compulsory savings, and voluntary top-ups. The Better Super reforms of 2003 encouraged extra saving, fully aware that markets fluctuate and returns are not guaranteed. Then the Coalition’s COVID early-release scheme hollowed out balances at market lows. Now Labor’s levy on unrealised gains. Every time the rules shift midstream, confidence breaks down. Members hesitate to contribute. Contributions stall. More retirees fall back on the Age Pension, just as the demographic load builds.
Disciplined savers
A disciplined saver who starts at age 21, contributes $5000 in year one of their working life, and increases that by 5 per cent each year, ends up with about $1.5 million in 35 years. Step up contributions by 8 per cent annually and the balance climbs towards $2.5 million. To break the $3 million mark in just 35 years takes very aggressive top-ups or mid-career injections, such as $10,000 a year from age 40.
These outcomes are not flukes. They are the natural result of compound growth, early starts and disciplined investing. Many of these savers complied fully with long-term policy signals and are now exposed to retrospective change. That undermines trust and weakens sustainability.
Globally, no advanced pension system taxes paper gains within retirement vehicles. Where wealth taxes exist, such as in Norway or Switzerland, they apply to net wealth outside the pension system and are offset by robust public pensions often funded by sovereign wealth. Norway’s model is built on a national oil fund, not on individual retirement accounts. Trying to compare that to our market-exposed super system is a category error.
If equity and sustainability are the serious goals, then let’s properly assess better options:
- Index the $3 million threshold to inflation or wages to prevent bracket creep and preserves fairness.
- Tax realised withdrawals above a generous cap so retirees can plan for the liability, aligning tax with cash flow and improving efficiency.
- Tighten death benefit rules for nondependent beneficiaries to manage intergenerational transfers and support horizontal equity.
- Taper concessional rates on very large balances to target genuine excess without penalising unrealised growth, enhancing simplicity and trust.
Each of these measures ties tax to real income, protects liquidity and strengthens the policy contract that underpins retirement savings.
Our challenge here is to craft pension policy that survives political cycles. Super works only if savers trust that decades of discipline will not be undone by short term politics. We need to build a legislative moat around retirement savings where reform reflects long term policy, actuarial reality and intergenerational fairness, not short-term political gain. That is how we protect retirement security for this generation and the next.
Lorenzo Casavecchia is Associate Professor, UTS Business School. Rob Prugue is UTS Finance Department Industry Fellow.
