In 2007, in a cynical measure to tie up and buy the “grey” vote before the federal election, John Howard and Peter Costello abolished the Keating government’s Reasonable Benefit Limits in superannuation, which placed an upper limit to the tax benefits that could be obtained via the superannuation system.

To play to the “grey” constituency, Howard and Costello provided
unlimited tax benefits to be available from superannuation.

Those unlimited sums of income were then subject to tax only at the concessional rate of 15 per cent – where, under the Keating government RBLs, sums above the limits were subject to full personal rate taxation.

In other words, the Reasonable Benefit Limits placed a cap on what
otherwise would become a tearaway capital-accretion scheme taxed only at concessional rates.

The Albanese government and Treasurer Jim Chalmers have spent well over a year seeking to divine a method whereby Howard and Costello’s runaway scheme could, with all reasonableness, be brought under control by setting new permissible limits and above which taxation applied at a higher rate.

The Treasurer has led this work. And the work, of its essence, has been about the modality in setting a new upper limit for superannuation balances taxed at 15 per cent and at a new higher rate of tax above this limit.

The stumbling block has been the policy difficulty and departmental
advice that this could not be done – other than by taxing unrealised values – that is, taxing increments to value, whether such value was realised or otherwise.

The Treasurer’s success in working through and resolving this impasse will now mean that superannuation accumulations will be successfully taxed but only on a basis of realisation. More than that, they will be taxed at a new limit and at a higher rate, restoring much-needed equity following the Howard/Costello rampage of 2007.

Without a doubt, there has been great difficulty in setting new upper limits, along with higher tax rates.

But obviously, the Treasurer and the government now believe superannuation funds will practically be able to tax only realised profits under the new regime, notwithstanding the difficulties. At the same time, they have set into place the new limits, along with the new rates.

Bringing equity – and an important measure of tax justice – to super’s current runaway arrangements, with the nomination of a $3 million limit taxed at 15 per cent and 30 per cent thereafter, is a huge policy achievement by the Treasurer, as is the added increment of a higher rate of tax on accumulations above $10 million.

It is reform of a kind that shares substance with necessity. Necessity that every government since 2007 has conveniently overlooked or simply regarded as too difficult.

Importantly, these decisions solidify superannuation tax arrangements in a manner the community can rely upon for the long-term security of their retirement savings and with it, their peace of mind.

Paul Keating was federal treasurer from 1983-1991 and prime minister from 1991-1996