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Mark's Value3 Insider #9

A Case Study in Economic Suicide—
Coming July 2025

You have likely seen the latest plan from Canberra: a new tax on unrealised capital gains within superannuation balances exceeding $3 million, starting July 2025.

At first glance, it might seem like a modest tweak targeting the wealthy. But the deeper implications are serious—and potentially devastating.

This policy is a clear break from centuries of sound tax principles and introduces risks that could destabilise Australia’s investment landscape. Here’s why:

  1. It Destroys the Principle of Realised Income

    For generations, tax systems have taxed realised profits—those crystallised by an actual sale. Taxing unrealised gains means taxing “paper or theoretical profits” that may never materialise. It’s not reform— it undermines the trust that holds the tax system together.

  2. It Will Trigger Forced Asset Sales

    Those with large but illiquid assets—like property, private business interests, or concentrated equity positions—may be forced to sell simply to pay tax on gains they haven’t received. That creates unnecessary market pressure, hardship and undermines long-term strategies.

  3. It Discourages Risk and Innovation

    When mere fluctuations in value create a tax event, investors will avoid volatility. That’s bad news for early-stage ventures, innovation, and capital-intensive industries that need patient capital.

  4. It’s a Bureaucratic Nightmare

    Annual valuations for illiquid and complex assets (think rural land, art, or private companies) will be subjective, costly, and contested. Even defining “fair market value” reliably year to year will be difficult and very expensive. A win for Lawyers and Valuers paid out of investors pockets.


  5. It’s Not Indexed to Inflation

    The $3 million threshold will erode over time. As asset prices rise and the dollar falls in value, this tax will creep deeper into the middle class—pulling in self-funded retirees and prudent savers who never thought of themselves as “rich.”


  6. It Will Drive Capital Offshore

    Money moves to where it is welcome. Faced with an unpredictable and punitive tax regime, investors will look to safer jurisdictions. Australia risks losing the very capital it needs to drive domestic growth and prosperity.


  7. Increasing House Prices

    It will increase demand for real estate as withdrawn super is redeployed into Capital Gains Tax free family homes, increasing house prices and assigning more Australian capital to unproductive housing.


  8. Aspiring Workers the Real Target?

    A large percentage of the 80,000 targeted initially, are retired or can shift from accumulation and reduce their SMSF balance to $3million. The real target is likely the trapped working savers who have built good super balances that will grow through inflation, compounded by the mandatory 12% super contribution.  They will be trapped for decades and can’t get any relief before they turn 60.


  9. Goodbye Tax Revenue

    It will likely reduce overall Government tax take, contrary to the intent of the new super tax, as capital removed from the super system also escapes the 17% tax on lump sum death benefits paid to non-dependent beneficiaries, including the Medicare levy. 


  10. Australia Never Seems To Learn From Other Countries Mistakes (Statistics from ChatGPT)

    International experience proves this policy will backfire spectacularly. When governments increase taxes to prohibitive levels, they generate a flight of capital and talent that ultimately produces less tax revenue than they would have collected under reasonable rates.


France's Costly Lesson: France's wealth tax (ISF) exemplifies this phenomenon. Despite collecting €2.6 billion annually, economist Éric Pichet estimates it cost the country more than $125 billion in capital flight since 1998. The tax generated an annual fiscal shortfall of €7 billion—about twice what it actually yielded WikipediaResearchGate. A report by senator Philippe Marini estimated that 843 people left France in 2006 because of the tax, resulting in a net loss of €2.8 billion Solidarity tax on wealth - Wikipedia.

Norway's Recent Disaster: Norway's experience is even more dramatic and recent. The 2023 wealth tax increase was expected to raise $146 million in additional yearly revenue. Instead, individuals worth $54 billion left the country, leading to a lost $594 million in yearly tax revenue—a net decrease of $448 million Norway's Wealth Tax Unchains a Capital Exodus. Thirty of Norway's multimillionaires and billionaires left in 2022-2023 alone, with 82 wealthy Norwegians representing combined net wealth of $4.3 billion departing ReasonFortune.

The Economics Are Clear: Even small increases in wealth tax rates can lead to capital flight and wealthy individuals relocating to neighbouring jurisdictions Wealth Tax Impact: Details & Analysis | Tax Foundation. Money flows to where it's welcomed, not where it's punished. Australia's proposed tax on unrealised gains will trigger exactly this dynamic driving away the very capital and taxpayers the country needs for growth and prosperity.

The mathematics are brutal: you end up collecting far less total tax revenue while simultaneously weakening your economic base and competitive position.

Final Comment

This isn’t a victory for fairness. It’s a dangerous precedent that undermines the core principles of investment and tax logic.

If implemented, this policy won’t just backfire—it will be a disaster – initially - for 80,000+ Australians and create enormous damage to trust in the fairness of the tax system.  The only positive? It will serve as another warning to other nations. A live case study in how not to tax capital in a modern, globalised economy.

Let’s hope common sense prevails and this lunacy is dropped.

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Disclosure: General advice only. Past performance ≠ future results.