“Our income tax system has never taxed Australians on intangible gains. This would be an Australian first, and not one to be proud of.”

Last week, The Australian Financial Review reported that anonymous sources revealed the government had paused its plans to introduce the $3 million super tax in its current form.

It continued that while no decisions had been made, internal discussions had been held in recent weeks as the Prime Minister’s office took an increased interest in the policy.

Peter Burgess, chief executive of the SMSF Association, told SMSF Adviser the government is “obviously very concerned” about the taxation of unrealised capital gains, and the unintended consequences that flow from that.

“I think the other thing is that the government is trying to position the Labor Party as pro-aspirational, and if it is genuine about that then you can't get a better example of a tax on aspiration than this tax. It is completely at odds with what it’s trying to achieve in terms of encouraging innovation, productivity and aspiration so, there is little wonder there is growing opposition to this tax from within the Labor party ranks,” he said.

He continued that a tax on unrealised capital gains in a sector, which is a key contributor to venture capital and funding for start-ups, would be detrimental for the government.

Burgess added that there have also been concerns expressed by large APRA funds that would have to change their processes and reporting obligations.

Conaghan said the draft legislation would have created “real hardship” for ordinary Australians who have their small business or their farm in their SMSF.

“Take a farmer who holds land in a self-managed super fund,” he said.

“If the land’s value rises on paper, they could be hit with a tax bill – even during a drought or a loss-making year where they have no real profits. That could mean they have to sell part of the family farm just to pay the tax. How is that fair?”

The minister continued that the Coalition has long warned that taxing unrealised gains would shatter trust in super, which they say is built on long-term savings, clear rules, and certainty.

“Labor’s retreat shows they’re feeling the heat – but this isn’t a policy that just needs some cosmetic fixes. Taxing unrealised gains is fundamentally wrong, and it should be ruled out entirely.”

He also condemned Labor’s refusal to index the threshold, calling it a “slow-motion tax trap” for younger Australians.

“As wages and inflation rise, more and more ordinary workers will be dragged into Labor’s tax net. The people that will be hit hardest are the youngest Australians that are just starting to save for their retirement today. This is tax by stealth on the next generation.”

Conaghan criticised the tax as sending a message that the rules can change at any time, even when you’ve played by the rules for decades.

“You can’t build confidence in retirement by shifting the goalposts every few years.”

“People planned their futures under the rules of the day. Tearing up that deal to plug Chalmers’ budget hole is a betrayal of trust. The Coalition will continue to fight for a super system that rewards saving, respects long-term planning, and protects the trust Australians place in their retirement – not one that penalises aspiration or plays politics with people’s futures.”