Anthony Albanese’s Labor government is so radical that it wants to introduce a tax that no other country in the world has. And you probably haven’t even heard of it.
Australia’s most left-wing government – since Gough Whitlam racked up public debt in the 1970s – is quietly trying to introduce a tax on “unrealized profits”.
In simple terms, Australians would be paying tax on the increase in value of an asset they still own and have not yet sold, i.e. retirement savings above a certain threshold.
This is an unprecedented departure from the usual approach in which someone pays capital gains taxes on an investment property or shares only once they have sold those assets, and not before.
The proposed tax has flown under the radar as it has been overshadowed by Labor’s plans to raise taxes on Australians with more than $3 million in surplus. The press barely mentioned it at the beginning of last year and it has been virtually unreported since.
A Google search for “unrealized gains” returns a single news result from a major media outlet and a handful of blog posts, notable given the ramifications for people planning for retirement.
And the proposed tax is not only secret: it’s also confusing.
Professor Robert Breunig, director of the Tax and Transfer Policy Institute at the Australian National University, says Labor policy is very confusing, and he has been a tax expert for 26 years.
Anthony Albanese’s Labor government is so radical that it wants to introduce a tax that no other country in the world has. And chances are you haven’t even heard of it.
“I don’t think they’ve fully thought through the implications of how difficult this is going to be,” he tells me.
‘Frankly, we are in a world where the government keeps introducing policies that haven’t given much thought to how they are going to implement them.
“They just leave the mess for the people on the ground to sort out.”
There are fears that Labor’s system could be so complicated that even the Australian Taxation Office would struggle to administer the new laws.
Professor Robert Breunig, director of the Tax and Transfer Policy Institute at the Australian National University, says Labor policy is very confusing and has been a tax expert for 26 years.
“Making things too complex makes things more expensive, makes the system more difficult to operate and makes it harder for the ATO to carry out compliance checks,” says Professor Breunig, widely considered Australia’s most respected public finance expert.
“You want to avoid those things.”
Professor Breunig has contradicted Treasurer Jim Chalmers, who last year argued that a tax on unrealized profits would be deceptively simple.
“That’s Treasury advice, working with other relevant agencies, that it’s the most efficient, simplest and best way to do it, and that’s what we intend to do,” Dr Chalmers told reporters in Brisbane.
Dr Chalmers, who has a PhD on former Labor prime minister Paul Keating, acknowledged in June that crossbenchers had concerns about the policy.
“Obviously we are in discussions throughout parliament to try to legislate it,” he said.
“And this is one of the issues that has arisen: the issue of unrealized profits.”
He did not acknowledge how Keating, as treasurer before becoming prime minister, only applied capital gains tax to assets once sold, when Labor introduced that policy in 1985.
While the Greens want the unrealized gains threshold lowered to $2 million, Teal MPs are concerned the Better Targeted Retirement Concessions bill is too complicated and will prove counterproductive.
The federal government announced a plan early last year to double the tax to 30 per cent for Australians with superannuation balances of more than $3 million.
But hidden in the details was a plan to tax unrealized profits from self-managed super funds.
This clause, known as Division 296, will make Australia the only country to tax unrealized gains on retirement savings.
“It is quite unusual around the world to tax unrealized profits,” says Professor Breunig.
From July 2025, if Labor legislation were passed through Parliament, anyone with more than $3 million in retirement savings would have to pay tax on super savings above that threshold.
That means someone with about $3 million in retirement savings would have to get rid of some of their retirement savings to meet this threshold.
In simple terms, Australians would pay tax on the increase in value of an asset they own and have not yet sold – that is, retirement savings above a certain threshold (file image).
This would create a new level of complexity if assets were difficult to sell and an individual suddenly had retirement savings of more than $3 million.
“It could be very complicated if people have very illiquid assets,” Professor Breunig tells me.
‘So if you have large blocks of property, it’s difficult to sell a hundredth of your property to pay your taxes.
“It’s going to be quite confusing – people have small businesses within their self-managed super funds.”
Giving an example of how complex the proposed tax could be in practice, says Professor Breunig. Someone with a self-managed super fund who owned a farm would struggle to calculate how much the asset was worth in a financial year if there were no other similar farms in the area that had recently sold for comparison.
“It’s often a pretty crude approximation,” he adds.
“Valuing those things is going to be difficult and then for people who don’t have liquid assets, paying them off is going to be difficult.”
Sweden and Germany during the 1970s and 1980s taxed unrealized gains on wealth, but the policy was notoriously difficult to administer.
And France still has a wealth tax that applies to assets worth more than €1.3 million ($A2.1 million).
But even European nations, famous for having higher income taxes to fund more services, don’t touch retirement savings this way.
One of Australia’s most respected tax experts has contradicted Treasurer Jim Chalmers (pictured), who last year argued that a tax on unrealized profits would apparently be simple.
US Democratic presidential candidate Kamala Harris is campaigning to tax unrealized wealth gains, but only for the ultra-rich with assets worth $100 million or more.
But once again, the vice president has not pursued retirement savings in her campaign against Republican Donald Trump.
Shadow treasurer Angus Taylor compared the tax on unrealized profits in super to something you would find in a dictatorship.
“That’s why governments around the world have always been very reluctant to pursue unrealized capital gains, unless there’s some kind of crazy left-wing communist dictatorship,” he said.
“So this is really, seriously crossing the line. It’s absolutely crossing the line.”
Taxing unrealized profits is such a radical policy for Australia that even the Whitlam government’s treasurer, Jim Cairns, a self-described socialist and former academic, didn’t even go there, preferring to fight unsuccessfully for higher income taxes and price controls. .
At least this former Labor deputy prime minister, who had once applied to join the Communist Party, acknowledged that the electorate was generally distrustful of his side of politics.
“History is not on the side of the left,” he said.
If only the Albanian government had the same political awareness of itself.