The federal government has bowed to pressure on its superannuation tax policy, after criticism of its initial proposal.

Treasurer Jim Chalmers confirmed on Monday he had worked with Prime Minister Anthony Albanese to overhaul the proposal to increase taxes on the largest superannuation balances – although he denied being rolled on the controversial proposal.

Under the plan signed off by cabinet on Monday morning, the long-touted reforms to double the tax rate to 30 per cent on super accounts above $3 million will remain. A second threshold will be created for balances above $10 million, which will be taxed at 40 per cent.

The thresholds will also be indexed, following concerns the taxes would apply to more people over time due to bracket creep.

One of the most controversial elements of the original proposal, taxing unrealised capital gains will no longer be captured.

About 80,000 Australian have super accounts holding $3 million or more, and pay the standard 15 per cent concession rate.

Chalmers said the changes, which take effect from July 2026, would make the super system fairer.

“As Treasurer and as a government, we always try to take feedback seriously,” he said in Canberra.

“We always try to find the best way through.

“We found another way to satisfy the same objectives. It means a fairer superannuation system from top to bottom.”

He said he and Albanese had agreed on dumping the unrealised capital gains portion of the tax.

“There were people who said that that was a genuine sticking point for them. Now that that sticking point is no longer there, they have no excuses but to support it,” Chalmers said.

“When it comes to the government, the Prime Minister and I agreed these changes. I recommended it to the colleagues. I’ve announced it within a couple of hours of cabinet agreeing it, because we found another way to satisfy the same objectives.”

The government will also increase the low-income super tax offset payment from $500 to $810. It will be available for workers earning up to $45,000 – and the Association of Superannuation Funds of Australia said had the potential to add about $15,000 to the retirement savings of low-paid workers.

“These changes will make a material difference to the retirement prospects of 1.3 million Australians,” chief executive Mary Delahunty said.

Labor’s original plan to overhaul tax on superannuation, now dumped, was roundly criticised by economists because the threshold was locked at $3 million and not indexed in line with inflation.

The federal opposition also raised concerns that “paper profits” or unrealised gains would be taxed.

The government has addressed both criticisms in its new plan by indexing the thresholds and promising more work to ensure unrealised gains are carved out.

Chalmers now needs to win over either the Coalition or the Greens to get the overhaul through parliament. He said he had discussed it with Greens leader Larissa Waters earlier on Monday.

“It was a constructive conversation, though I do not want to preempt the Greens party room. They will consider these changes in the usual way and they will make it known in the usual way as well,” he said.

Shadow treasurer Ted O’Brien said he would also look at the details before taking a position, but described the government’s backdown as a “victory for the coalition of common sense”.

Chalmers said the amended plan would raise slightly less than the government’s original proposal in the short-term. The indexing means significantly less is expected to be raised long-term.

Labor first floated changes to super taxes two years ago, but the proposed legislation has never been introduced into federal parliament due to opposition from the Coalition and the Greens.

-with AAP