The government’s recent backdown on the $3 million superannuation cap tax was as inevitable as it was overdue. From the start, the proposal to tax unrealised gains and to leave the $3 million threshold unindexed was unworkable, unfair, and destructive to investor confidence. Yet it still made it this far. That should concern everyone.
The idea of taxing unrealised gains is one of those concepts that makes sense to someone who has never built anything, but it falls apart in practice. It would have forced Australians to pay tax on increases in asset values they haven’t realised, money they don’t actually have. Imagine being forced to sell assets in a falling market just to fund a tax bill on a paper gain from the year before. It would have distorted investment behaviour, punished long-term savers, and turned a retirement vehicle into a speculative guessing game.
The failure to index the $3 million threshold compounded the problem. Inflation and compounding returns would have dragged more and more Australians into the net over time, not because they were super-rich, but because they had been prudent. The policy would have quietly shifted the goalposts every year, punishing success and eroding the principle of fairness on which the super system was built.
These were never minor oversights. They were red flags. Yet they were allowed to progress, right up until this week. Which raises a deeper issue. Increasingly, I see these extreme policy ideas being floated, almost as sacrificial pawns. Governments know the public will push back against overreach. By inserting unworkable elements, such as taxing unrealised gains, they create something to “give up” later, allowing the core legislation to pass with less resistance. There ends up being no opposition to the 15% additional tax because everyone has been distracted by smoke and mirrors.
This kind of political theatre might make sense in Canberra, but it undermines the integrity of the entire super system. Superannuation works because people can plan with confidence. Every time the rules change, that confidence is shaken. Investors begin to wonder not just what’s next, but whether they can trust the system at all. Constant tinkering turns a long-term savings framework into a short-term political tool.
It’s worth remembering that effective caps on super aren’t new. We’ve been here before. Back in the 1990s, the system had Reasonable Benefit Limits (RBLs) that capped how much individuals could hold in tax-advantaged super. The principle was clear. The limits were transparent, predictable, and indexed, so people could plan accordingly. The new proposals ignored that history and instead created confusion, inequity, and distrust.
The governments retreat is welcome, but the damage is done. The very act of proposing such measures sends a message that no rule is safe, no commitment permanent. It was a mean-spirited and opportunistic grab at retirement savings after years of government incentives to contribute to super. That’s a dangerous precedent for a system built on trust and time horizons that stretch decades into the future. Super is supposed to be the one part of the financial landscape Australians can count on. It deserves better than to be used as a bargaining chip.
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