Paul Keating Criticises New Tax on Super

Former Prime Minister Paul Keating has sharply criticised the government's proposed new tax on superannuation balances over $3 million, arguing it undermines the fundamental purpose of super and risks punishing Australians who have diligently saved for their retirement. Keating, often regarded as the architect of Australia's compulsory super system, emphasised that superannuation was designed as a social wage, encouraging workers to build wealth and reduce reliance on the age pension. He warned that using super as a budget lever would erode trust in the system, sending the wrong message to Australians who have followed the rules, made sacrifices, and prioritised long-term financial security.

Under current tax laws, superannuation contributions are taxed at a concessional rate of 15%, and investment earnings in the accumulation phase are also taxed at 15%. Once in the retirement phase, earnings on balances supporting retirement income streams are generally tax-free up to the Transfer Balance Cap, which sits at $1.9 million for the 2025 financial year. This system was designed to incentivise long-term saving by providing tax concessions in exchange for locking funds away until retirement, reducing pressure on the age pension system and rewarding those who take responsibility for their financial future. Many Australians plan their retirement strategy based on these stable, predictable tax settings.

The government has proposed increasing the tax rate on earnings for super balances above $3 million from the concessional 15% to 30%, arguing that the current settings provide disproportionate benefits to high-balance accounts at a significant cost to the budget. According to Treasury, fewer than 0.5% of Australians will be impacted, with the changes forecast to generate billions in additional revenue over the next decade. Importantly, the tax will apply to **unrealised gains**, meaning Australians with large super balances could be forced to pay tax on gains they have not actually received as cash, potentially creating liquidity challenges, particularly in SMSFs with illiquid assets like property.

Paul Keating has argued that superannuation should not be used as a tool for budget repair, reiterating that it is deferred wages belonging to Australians who have set aside income to provide for themselves in retirement. "Superannuation is a deferred wage. It is Australians’ own money, set aside to support themselves in retirement. Using it as a fiscal lever for general budget balancing is a breach of faith with the system," Keating stated. He warns that if governments change the rules whenever convenient, it undermines the core principle of superannuation and risks turning the system into another tax pool, rather than a genuine retirement vehicle. While the changes may only affect a small percentage today, the concern is the precedent it sets for future governments to lower the thresholds, affecting everyday Australians who strive for financial independence.

Although the government claims the tax will only affect high-balance accounts, many Australians are concerned about the precedent these changes set. Superannuation is designed as a long-term investment, and policy stability is critical to trust in the system. Australians who diligently save, invest well, and take full advantage of compounding returns could find themselves impacted by these thresholds in the future, particularly if thresholds do not keep pace with inflation or if governments lower them over time to capture more revenue. Additionally, taxing unrealised gains means that even those who have invested prudently in illiquid assets, such as property, could be forced to sell or restructure their portfolios to cover tax bills on paper gains they cannot easily access. This creates a level of uncertainty and risk that undermines the stability of retirement planning.

Industry bodies have expressed mixed reactions to the proposed changes. Some argue that tax concessions should be better targeted, while others warn that constant rule changes damage confidence in the system. Many in the superannuation and financial advice industries are concerned that this change could be the thin end of the wedge, leading to more frequent changes that erode the incentives to save for retirement. Australians already face a complex superannuation landscape, and rule instability risks discouraging voluntary contributions and encouraging individuals to look for alternative, less secure strategies outside the super system. Critics argue that the government should focus on managing spending and driving economic growth rather than seeking to claw back funds from Australians who have legally and responsibly planned for retirement within the existing rules. There is also concern that the policy could increase the administrative burden on super funds and SMSFs, adding costs that will ultimately be borne by members.

The debate over the proposed super tax changes reflects a broader conversation about fairness, budget sustainability, and the government's role in managing retirement policy. While the government argues that reducing concessions for high-balance accounts is necessary for budget sustainability and fairness, Keating and other critics believe it undermines the social contract of super, penalising those who have planned responsibly. There is a legitimate concern that the changes could be extended to lower thresholds over time, affecting middle-income Australians who are focused on securing a comfortable retirement without relying on the age pension. Australians value the promise of super as a stable, reliable retirement vehicle that rewards disciplined saving and long-term investment. Any change that threatens this stability should be carefully scrutinised, ensuring it does not erode confidence or punish those who follow the rules.

• Under current law, super earnings in accumulation are taxed at 15%, and tax-free in retirement phase up to the Transfer Balance Cap. • The government proposes a 30% tax on earnings for balances above $3 million, including unrealised gains, claiming it will affect less than 0.5% of Australians. • Paul Keating argues this breaches the social contract of super, using it as a budget tool rather than a retirement system. • Average Australians should be aware of the risk that thresholds may not keep up with inflation or could be lowered, potentially affecting more people over time. • Taxing unrealised gains could create liquidity problems, particularly for SMSFs holding property. • Frequent rule changes can damage trust in super, discouraging voluntary contributions and long-term savings.

Paul Keating’s criticism of the proposed new super tax is a timely reminder of the importance of stability and trust in Australia's superannuation system. While the government seeks to improve budget sustainability, it must carefully balance this with the need to preserve the integrity of super as a retirement vehicle, not merely as a revenue-raising tool. Australians who work hard, save diligently, and plan responsibly deserve a system that rewards, not punishes, their efforts. It is crucial for policymakers to consider the long-term impacts of these changes on retirement confidence and to ensure that superannuation remains a tool for building financial independence, not a convenient target for short-term fiscal pressures.