Super Tax Plan Could Land Hardest on the Next Generation of Savers

Inflation just clocked in at 5.0% for June 2025, the highest since July 2023. And while that’s hitting grocery bills and gas tanks, there’s a bigger issue simmering beneath the surface: Australia’s $3 million superannuation tax reform. At first glance, the government’s move to double the tax on earnings above $3 million may seem like a crackdown on the ultra-rich. But for younger Australians? It could quietly affect their retirement plans. Right now, only about 80,000 people are affected. Fast forward 30 years, and thanks to compounding income and rising wages, that could include you, even if you're not rolling in it now. 

From Retirement Safety to Generational Tax

Super was designed in the '90s to help Aussies retire with dignity. Today, it’s a $4.2 trillion beast. But as the Grattan Institute notes, the benefits are tilted toward the wealthy. "Two-thirds of the value of super tax breaks benefit the top 20 per cent of income earners,” said Brendan Coates and Joey Moloney. Instead of spending it down, many retirees become net savers. By 2060, one-third of super withdrawals will be bequests, not income. The system, they warn, is morphing into a “taxpayer-subsidized inheritance scheme.”

Division 296

Starting this July, Division 296 kicks in. Any earnings on the portion of super balances above $3 million will be taxed at 30%—up from 15%. That includes unrealized gains, meaning you could be taxed on paper profits without selling the asset. That’s a cash flow nightmare if you're holding illiquid investments like property or farmland—concerns already raised by both the Henry Tax Review and farming groups, especially self-managed super funds.  This particularly concerns farmers holding land in super, where skyrocketing valuations could force asset sales to cover tax bills.

And here's the kicker: the $3 million cap isn’t indexed to inflation. With rising wages and employer contributions (up to 12% from July), today’s Gen Z workers could hit that ceiling by their 60s and start paying taxes designed for the mega-wealthy. According to Treasury and Grattan forecasts, by the 2050s, 1 in 10 Australians could have a $3M+ balance. By the 2060s, it could be as high as 4 in 10, transforming a ‘wealth tax’ into a middle-class norm.

That’ll Be Pocket Change

Mark Bouris, Executive Chairman of Yellow Brick Road, isn’t pulling punches. On his Mentored+ podcast, he said: “Every young person in the country should be worried about this… This $3 million at some period will be worth, like, $100k.” He points out older Australians grew their super under decades of a 15% tax ceiling—a luxury younger workers won’t enjoy. As Bloomberg’s Richard Henderson put it, “the rules are changing mid-game.”

Go Harder, Go Lower

Grattan says the current plan doesn’t go far enough. Their broader blueprint includes:

• Dropping the cap to $2 million, saving another $1B/year
• Raising the contribution tax to 35% for earners above $220K
• Lowering annual caps from $30K to $20K
• Eliminating co-contributions and carryforwards (seen as tax loopholes)
• Taxing earnings in retirement at 15%, matching the pre-retirement rate—bringing in $6B/year

They argue this isn’t about punishing savers; it’s about sustainability. Without reform, younger generations may bear the brunt through higher income or corporate taxes.

Just Play It Smart

While critics call out taxing unrealized gains as unfair and potentially destabilizing, supporters say the current system is regressive and outdated. For Gen Zs and millennials, this isn’t the moment to bail on super. It’s still more tax-efficient than regular income, especially for high earners. But it is the moment to:

• Stay plugged in to policy shifts
• Watch your super fund’s growth and fees
• Rethink extra contributions if you’re nearing thresholds
• Diversify with your future tax position in mind

It’s Your Future

Super might sound like something your dad worries about between rounds of golf. But the truth? If you’re under 40, this is already your problem. You’re not being taxed today, but you could be tomorrow, just for doing everything right. As Coates and Moloney put it, “Generous tax breaks for super savers mean other, more economically distorting taxes… must be higher to make up the forgone revenue.” Translation? You could end up paying for someone else’s tax holiday. So, while politicians debate in Canberra and think tanks crunch the numbers, make no mistake: this isn’t background noise—it’s your main financial feed. Inflation is rising, the rules are shifting, and the “set-and-forget” retirement strategy is long gone. Track it. Question it. And most of all, plan like the goalposts might move again. Because if history’s any guide… they will. Don’t just keep up—stay ahead. Subscribe for insights that matter.