By Geoff Wilson AO
The notion of taxing unrealised gains on superannuation earnings collapses in the real world of long-term investing, illiquid assets and fluctuating valuations.
“You can’t always get what you want. But if you try sometimes, you just might find, you get what you need.” – The Rolling Stones
When Treasurer Jim Chalmers first floated the idea of taxing unrealised gains in superannuation, it was presented as a modest reform, a way to ensure “fairness” in a system that had, in his words, become too generous to those with large balances.
As the details emerged, so did the contradictions. Taxing paper profits before a cent had been realised, distributed or even valued with certainty, was not reform.
It was a rupture with one of the foundational principles of modern taxation: that you tax income when it is earned, not when it is imagined.
Now, with the proposal abruptly shelved, Chalmers hasn’t given investors what he wanted but has given Australia what it needed: a reprieve from one of the most illogical and flawed tax measures in decades.
Markets reward certainty and punish distortion
Markets have a way of asserting reality when government policy loses touch with it.
The Treasurer has finally learned a lesson that investors have always understood: economic reality doesn’t bend to ideology and this tension cannot be legislated away.
For all the political rhetoric about fairness and reform, it is the laws of sound economic policy that stand the test of time. You can’t tax what isn’t real and you can’t build trust by undermining the principles that make investment possible.
Politics may shape the headlines, but markets shape the outcomes. When policymakers ignore that reality, capital will retreat, innovation will slow and the cost is paid by every Australian.
Chalmers was reminded that good policy starts where ideology ends, with the discipline and pragmatism that long-term investors live by every day.
It never added up
The notion of taxing unrealised gains only ever worked in theoretical models or in academic papers. It collapses in the real world of long-term investing, illiquid assets and fluctuating valuations.
Under the proposal, a super fund could have been forced to pay tax on the increase in paper value of an unlisted company or property holding, even if that asset later fell in price or was never sold. The administrative burden of valuing thousands of illiquid assets annually is significant.
“The backdown is a fundamental recognition that ideology cannot override investment logic.”
For SMSFs, the impact would have been severe. Investors could have been forced to sell productive assets to meet tax obligations on hypothetical gains, undermining both savings incentives and market stability.
Since the legislation was first introduced in 2023, we have led the campaign exposing the flaws in Treasury’s proposal. Through more than 150 pages of research, open letters, policy submissions and direct engagement with the Greens and the Coalition we have delivered the message that you don’t build a productive economy by taxing unrealised ambition.
Tens of thousands of retail shareholders agree. Economists including former Treasury officials and the creator of our modern super system, Paul Keating, highlighted that such a tax would damage the credibility of the superannuation system.
Logic over optics
The backdown is being described in Canberra as a “technical adjustment”. It is nothing of the sort. It is a fundamental recognition that ideology cannot override investment logic.
Taxing unrealised gains would have made Australia an outlier among developed economies. The OECD, IMF and most advanced tax systems treat gains as taxable only when realised, a principle embedded in decades of jurisprudence and fiscal pragmatism.
In the end, Chalmers’ retreat reflects the same lesson every investor learns the hard way: mark-to-market volatility is not income, and betting against market fundamentals rarely ends well.
The signal the Treasurer’s withdrawal sends is powerful. Investors crave stability and predictability. The market does not react well to sudden policy experiments that inject uncertainty into capital planning.
This episode has reminded Canberra that Australia’s $4.2 trillion super system is not a political plaything, it is the engine of national investment. It funds our infrastructure, our innovation and our retirement security.
By removing the tax on unrealised gains, the government has reaffirmed that political theatre should not drive policy.
The work ahead
Treasury’s new proposal mirrors the work Wilson Asset Management put forward to the participants of the Economic Reform Roundtable, including higher taxes on high-balance superannuation accounts. It is also pleasing to see the government’s new proposal only taxes realised gains and is indexed to inflation. It could be argued that the indexation should be to asset growth.
The government should want Australians to be ambitious and take risks when investing in their future. In particular, we welcome Treasury’s proposal to support low-income workers. Helping younger Australians and those on modest incomes keep more of what they earn is good policy.
The task now is to ensure this logic endures. Every investor understands that when confidence wavers, investment dries up. By recognising that truth, the Treasurer has moved from theory to practice and from ideology to economics. It is a lesson that will serve him and Australians well.
Superannuation needs a stable, long-term policy framework that encourages investment, productivity and self-sufficiency. Constant tinkering, whether through taxes on paper profits or arbitrary caps, undermines trust and deters participation.
Australia’s economic strength depends on deep, confident capital markets. That requires policy settings that reward long-term risk-taking, not penalise it.
Chalmers didn’t get what he wanted. Investors didn’t want what he proposed. But Australia, this time, got what it needed: policy grounded in economic reason.
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