Big super still wary on US after ‘revenge tax’ walkback

Major Australian super funds were reconsidering their exposure to the US before Scott Bessent backed away from the so-called ‘revenge tax’. They’re still nervous of Donald Trump’s erratic decision-making.

Scott Bessent speaks to reporters. Picture: Tasos Katopodis/Getty Images/AFP

Australia’s superannuation heavyweights spent weeks quietly lobbying the US against bringing in a “revenge tax” on foreign investors and threatened to go on an investment strike before US Treasury Secretary Scott Bessent backed down.

The tax would have wiped billions of dollars from funds’ annual returns.

The superannuation industry expressed relief at dumping the tax, which was confirmed on Friday by Bessent, but funds betrayed some wariness on the US, in part due to Donald Trump’s erratic decision-making.

Hostplus chief executive David Elia, in America this week, was among those lobbying against the controversial tax and said his $120bn fund had made plans to shift investments if Section 899 within Donald Trump’s “big, beautiful” bill, had gone ahead.

The provision would have meant foreign investors get hit with an additional 15 per cent tax on US income, with the rate increasing by 5 per cent over three years.

“We were closely monitoring the implications of the proposed changes and had contingency plans in place should the so-called ‘revenge tax’ be enacted,” Mr Elia told The Australian.

“The plans included reviewing pipeline investments and modelling potential tax impacts across affected structuress.”

Hostplus, the industry fund for hospitality workers, leaned on its US and global external fund managers, relying on their heft in key US circles as it made its case.

David Elia Picture: Frederic J. BROWN / AFP

Hostplus, like others in Australia’s $4.2trn super industry, pays fund managers like heavyweights Apollo Global Management, Blackstone and Nuveen to deploy billions of dollars of member funds into Wall Street securities, roads and ports, and property.

“They’ve been terrific in lobbying on behalf of the Australian superannuation sector,” Mr Elia said.

Australia’s ambassador to the US, former Labor prime minister Kevin Rudd, was “instrumental” behind the scenes, he added.

Federal Treasurer Jim Chalmers raised the tax issue on a phone call with the US Treasury Secretary this week, warning it would be destructive to investment.

“Section 899 of the so-called One Big Beautiful Bill, does pose a risk to the very substantial investments that Australians, particularly Australian super funds but also the Future Fund and other institutional investors, are making in the US,” Dr Chalmers said.

Dropping the tax was part of a broader agreement between the US and other G7 countries around global corporate taxes. As part of the agreement, a 2021 deal that brought in a 15 per cent global corporate minimum tax will not apply to the US.

Prior to the US administration’s move to walk back the tax threat, Australian investors had concluded there would be better investment opportunities elsewhere.

Some, such as AMP and Australia’s sovereign wealth fund, the Future Fund, had publicly said as much.

Insignia-owned MLC’s CIO Dan Farmer said the firm planned on assessing each asset it had exposure to.

“Private markets are typically long term in nature. You’ll often be locked in for seven to 10 years into an investment in the US, which would have taken us past 2027, when section 899 was originally scheduled to take effect,” Mr Farmer said.

“We decided we would look at each investment on a case-by-case basis, work through the economic thesis if the section 899 tax was in place and then judge an investment on that.”

MLC Asset Management on Friday confirmed it had halted all litigation funding commitments in the US market.

Litigation financing is part of the “big, beautiful bill” and carries a 40 per cent excise tax.

Cbus CIO Leigh Gavin is cautious on the US and has moved the fund’s cash position higher despite super’s very long-term investment horizon.

“The range of outcomes for the US, that’s across US equities, US bonds or US dollar, is wider now than it’s been for some time. That doesn’t necessarily mean (returns will be) lower, but certainly the range of plausible outcomes, and therefore range of returns is wider,” he said.

Hostplus’s Mr Elia said the duty could have been a significant impediment to long-term Australian super investment, particularly in real estate and infrastructure.

“This clarity enables us to proceed confidently with existing and planned investments, and reinforces the attractiveness of the US as a key market in our global investment strategy,” he said.

UniSuper CIO John Pearce said the tax walkback by the US was “a relief and in both countries’ best interest”.