Jim Chalmers destroys Paul Keating’s superannuation vision

Paul Keating announcing universal super in 1992.

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Jim Chalmers is set to be ­remembered as the treasurer whose unrealised capital gains tax destroyed the historic 1992 universal superannuation vision of Paul Keating.

At the moment there is an eerie silence from the 81-year-old former treasurer and prime minister. But in 1992, I was writing and broadcasting about the ­Keating plan to create a universal savings movement that would make Australia’s pool among the largest in the world.

It seemed optimistic then but now Australia’s superannuation savings are close to being the highest in the world – the original Keating vision.

Keating must know that aspiring Australians, mostly in self-managed funds, will exit superannuation rather than pay tax on unrealised gains. Accordingly, a third of superannuation will exit, leaving it as a lower to middle-income Australian movement. I can’t believe Keating’s eerie silence on the destruction of his vision will remain forever.

Already, I am getting the message that some members of the cabinet and the caucus are ­realising that, by voting for the ­unrealised capital gains tax, they will have to tell their children and grandchildren they were part of the destruction of the universal savings vision that had been ­established by a previous ALP government – knowing that that destruction would weaken the nation.

Yet the Treasurer, the cabinet and the caucus can still become ALP and community heroes if they go back to the original Chalmers plan – a 30 per cent tax on the income derived from superannuation balances above $3m – double the current 15 per cent rate on all funds.

The second 15 per cent tax would be taxed in exactly same way as the first 15 per cent tax, which would continue to apply to all superannuation members.

Keating’s 1992 legislation had reasonable benefit limit provisions that were later abandoned by Peter Costello and the ­Coalition.

Accordingly a 30 per cent tax on the income from an indexed $3m balance, calculated in the same way as the 15 per cent base rate, will not destroy the Keating vision, but rather restore an equivalent to his original reasonable benefit limit provisions. I believe the vast majority of young and middle-age Australians who aspire to success will accept that tax as fair.

Chalmers becomes a hero instead of a person who will have virtually destroyed himself as a candidate to replace Anthony Albanese when he decides to retire as prime minister.

It is ironic that Albanese achieved his historic win partly by flashing his green Medicare card, which every Australian participates in regardless of their income or wealth.

The Keating superannuation scheme duplicated Medicare by also involving every Australian irrespective of income or wealth – it was a universal savings scheme

A remarkable feature of the Keating plan was that, although it would see the emergence of very large industry funds, there was great scope for both retail and self-managed funds to be part of the universal savings landscape.

The self-managed funds tend to be dominated by aspiring Australians seeking greater wealth by investing part of their superannuation savings in developing businesses.

This has enabled about 60 per cent of ASX stocks to survive and prosper, thanks to the capital raising support of self-managed funds. These plus smaller emerging and venture-capital enterprises will be the first casualties of the decimation of self-managed funds as a result of the Chalmers tax.

The aspiring people in the community will structure their savings in a different way.

The mischievous detail in Chalmers’ unrealised capital gains tax plan made me believe that this was the work of the top people in Treasury. But the avalanche of respected people from business plus former Reserve Bank and Treasury heads has been so great that it is clear they have been informally told by Treasury people that this is not their doing.

This is a Chalmers tax, not a Treasury tax.

In a strange way the Chalmers tax on unrealised capital gains is like cigarette excise. The Chalmers tax income estimates are rubbish because people simply will organise their affairs not to pay it. It will lead to legal and devious tax-avoidance schemes and nothing like the current revenue estimates will be achieved.

A tax that is considered fair would raise substantially more.

The best way to understand the horror of the Chalmers tax is to look at how it has been structured. The Treasurer clearly has demanded that it be designed to be able to cover a much wider field than superannuation

Firstly, there will still be an initial tax of 15 per cent on income of a fund that is not in the pension phase. It will be levied in exactly the same way as the current 15 per cent which is applied universally across all superannuation funds regardless of size.

Secondly, instead of basically doubling that tax to 30 per cent on income generated by funds above and indexed $3m, the government introduced legislation for a new tax that is actually going to be paid by the member not by the fund.

To calculate this second tax – the unrealised capital gains or Chalmers tax – on June 30, 2025 (and for every subsequent year), superannuation fund members must provide a market value of the total asset base of their funds.

If the value at June 30, 2026, is above a non-indexed $3m then the increase above the June 30, 2025, value, adjusted for withdrawals and contributions, will be “taxed” at 15 per cent. The tax liability so created is not a liability of the fund, rather of the member who is entitled to the superannuation assets

Accordingly the beneficiary of the rise in unrealised gains attributable to the balance above $3m will be personally taxed at 15 per cent on the increased paper value of his or her fund investment. Measured over a year the rise in value of the funds will include realised gains, income and, most significantly, unrealised capital gains.

• The July 1, 2025, base will be taken as the market value of all the assets irrespective of what was actually paid for them: i.e. if there is a substantial paper capital gain in the years prior to July 1, 2025, that will not be the subject of the Chalmers tax. But if there’s a loss that too will not be counted.

Losses incurred under the Chalmers tax will merely be carried forward to be offset against future profits.

Superannuation fund members can withdraw a sum equal to their new tax liability from their fund Alternatively they can leave the money in super and fund the tax from their personal funds.

Originally there seemed some difficulty in the industry funds adapting to doubling the 15 per cent tax on balances over $3m but it is now clear they can manage it easily although they may need a one-year grace.