Today brings (without much fanfare) the completion of the greatest policy advance for the prosperity and well-being of Australia and its people since the nation’s inception.
After nearly 33 years, the Keating-inspired Superannuation Guarantee Contribution has reached its original proposed maximum of 12 percent of wages and salaries –the level which will provide dignified retirement for the broad mass of working people.
The scheme underpinned by the tax system has built up a massive ($4.1 trillion) investment portfolio. It should reduce the taxpayers’ burden on providing retirement income.
The Pharmaceutical Benefits Scheme, Medibank-Medicare, the National Disability Insurance Scheme, the GST, and gun control are equally landmark, but none of those provide so much benefit on both sides of the ledger as the superannuation scheme.
The way the scheme was developed and put into effect exemplify many of the obstacles now facing Treasurer Jim Chalmers and his quest for greater productivity and a fairer tax system. As a Keating biographer he should grasp the lessons.
Trade-offs. Any reform, most of all tax, requires trade-offs. In 1992 the superannuation proposal came with the first 2 per cent coming from a trade-off with lower wage rises.
Indeed, the whole Hawke-Keating economic reform agenda – freer trade, the deregulated financial sector, lower income-tax rates, franking credits, and privatisation – was put into effect with a series of trade-offs. Superannuation and Medicare were essential parts.
John Howard’s assertions that it was only his agreement that allowed it to happen is not quite right. The Coalition only agreed to the parts that benefited business and the well-off: lower taxes and lower tariffs and deregulating the financial system. It vigorously fought Medicare, superannuation and other worker benefits, without which no Labor caucus would have agreed to many of the financial changes.
So, any increases to consumption taxes must be traded for significant reductions in tax on lower incomes and significant increases in pensions and welfare.
Gradualism: The distant future is the reformer’s friend. If changes are legislated to come in at a future date, the heat goes off. People in favour of change are often only lukewarm about it, whereas those against it are usually vehemently against. This is because potential losers see immediate loss and potential winners are sceptical of future gains until they actually get them.
The support, even if lukewarm, of potential winners remains unchanged if the winning is to come much later. The heat of the opposition, however, cools if the changes are seen as a long way off.
So, any changes to taxing capital should be staged.
Opposition: Expect the Coalition and the Greens to oppose and cherry-pick as they have done the past. Any proposal for tax changes will be met with the Coalition supporting the lower-taxing bits and opposing tax increases that affect the well-off. And the Greens will seek higher taxes and a greater government role.
The Greens are notorious for allowing the pursuit of their idea of the perfect to defeat what most people would see as the good. The Coalition will oppose anything that puts the collective over the individual.
At present, the Government needs either the support of the Greens or the support of the Coalition to get anything through the Senate.
But there is a way through this which was deliciously illustrated by the history of the Stage 3 tax cuts. When faced with the prospect of enacted law delivering something the Greens opposed, they joined with Labor to at least water it down rather than let it remain, even if they did not get everything they demand.
Thus, the unfair Stage 3 tax cuts were changed.
This could work with the Coalition as well. Take the superannuation changes, for example. Say the Greens demand a $2 million threshold for the higher tax rate rather than the $3 million the Government proposes. And the Coalition opposes the $3 million threshold outright. The Government’s proposed new super tax would face defeat.
But if, instead of walking away, the Government agreed to legislate the Greens demands, it could then turn to the Coalition and say: “Would you like to amend this enacted legislation back to Labor’s $3 million threshold, or would you like to be blamed for hitting your wealthy constituency with more super tax than they need have.”
Bingo, the Coalition would agree to the $3 million threshold, and it would become law rather than allowing the Greens and the Coalition to gang up to defeat reform from the extremes.
Playing off and bluffing the Greens and Coalition like this may look cynical but will become a necessary part of getting much needed reform through.
Australia must tax capital and consumption more and income less. We are taxing people whose earnings put them below the poverty line. We are allowing people on million-dollar incomes to pay no income tax and to pay consumption tax at 10 per cent or zero on a lot of things to which the GST should apply: school fees, health products, and fresh food.
We are taxing employment with payroll tax and efficient use of housing through stamp duties.
Expect white-anting and be prepared to reverse the changes. The Coalition has white-anted Medicare and superannuation from the get-go – age penalties, tax-deductible private insurance, age penalties, SMSFs, dental and housing withdrawals from super and so on. None has been reversed. The lot should go.
Unforeseen consequences. Every tax change will be met with a change in behaviour. The combination of cash franking credits; capital-gains discounts; trusts; negative gearing; and self-managed superannuation has led to the flocking to these avoidance devices and a massive bleeding of the tax base which has compromised the way the Government can deliver services.
It will be difficult, but Australians are waiting for a fairer system, and the lessons from superannuation show the way.
Crispin Hull
This article first appeared in The Canberra Times and other Australian media on 1 July 2025.
If the government of the day keeps the $3 million balance above which earnings are taxed at 30%, until inflation and wage increases reduces its value to the equivalent of $2,000,000 in 2025-26 terms, and then index’s it by the CPI increase, then that is still a very generous tax concession.
A retiring balance of $2,000,000 at age 60 today on 1 superannuation account, assuming: 6% pa earnings; CPI inflation 2.75% pa; 15% tax on earnings on an indexed balance above $2 million pension account cap; additional 15% tax on earnings on a balance above $3 million wealth tax; drawdown starting at an indexed $81,263 (110% of the March 30 2025 ASFA couple comfortable retirement standard) will last until the couple is 110 years old (50 years).
If the wealth tax balance threshold is an indexed $2 million, there is still no 15% wealth tax on earnings, and today’s $2 million balance still lasts 50 years.
If the balance today is $2.5 million, with an indexed $2 million wealth tax threshold, the earnings exceed the drawdown for 67 years, and the $2.5 million lasts for 92 years.
In reference to Paul Keating’s concern that a working life over 40 years will accrue more than a $3 million super balance. At 2.75% pa indexation earnings, super contributions, drawdowns, balance in the year 2065 will be 2.96 times what they are in 2025.
I rarely disagree with Crispin, but I disagree that “Australia must tax capital and consumption more and income less.” Progressive income tax is the fairest and most efficient way to raise public revenue. Consumption taxes are regressive because the poor “consume” more of their income and save/invest less. Taxing capital is the classic case of “economics is the science of confusing stocks and flows”. It risks taxing the legacy owners of non-earning assets that the market deems valuable but the owners never realise that value. If they can’t pay the tax, they’re forced to sell, potentially foregoing a custodianship role over a piece of land with conservation or cultural value and forfeiting those values to commercial profit-maximising. If a capital asset generates income or capital gain, then that money received can be taxed (without discounts!). Taxing high incomes taxes the money that would otherwise have been invested, much of it contributing to housing inflation. What we need is more progressive taxation and fewer loopholes for tax avoidance.
Also, on the idea that superannuation benefits both sides of the ledger, not all economists agree. The tax foregone on super tax concessions (benefitting the wealthiest few percent) are nearly as large as the pension bill and larger than if the pension was universal (i.e. super is not saving the govt money on pensions). Cameron Murray has been very convincing in articulating why super is not so great: https://www.fresheconomicthinking.com/api/v1/file/ac426277-f438-4124-ae9e-ca265a2d8d6a.pdf and https://www.fresheconomicthinking.com/p/mega-post-on-why-superannuation-is
Very good and not cynical, merely part of the great game known as parliamentary debate. Tax reform is desperately needed but vested interests and idiotic understanding of human nature and basic economics hold us back. Taking dividend imputation does anyone remember the leading light of the Labor Party who wanted it extended to interest paid?
So, let us look at the $3 million limit on superannuation. If my wife and I had retired with $3 million in our superannuation we would be in an amazing place now that we are in our 80s with well over 4 million each had changed our habits and flown business class and bought new cars often (as many pensioners do!) as it is, with the way the rules are, and had we spent as we have the amount would be pushing 5 million.
My conclusion is that you are right, has become yet another tax minimisation dodge for the ultra-wealthy and this should be, at least minimised.
Thanks for these articles, they often make me laugh at the thought that the law of the land could be changed to help those in need rather than those who have no needs other than satisfying their greed.