By Zac de Silva and Andrew Brown in Canberra

More than one million Australians are expected to be about $15,000 better off by the time they retire after Labor caved to pressure to overhaul controversial changes to tax on superannuation.

The federal government has announced a drastic redesign of its super tax policy, which was originally intended to double the tax rate on accounts containing more than $3 million to 30 per cent.

Under the new changes, the $3 million threshold will remain, while accounts with more than $10 million will be slugged a 40 per cent tax rate.

Both thresholds will now be tied to inflation, ensuring lower-income Australians aren’t captured by the tax changes over the years, as incomes rise.

About 80,000 people have super accounts holding $3 million or more, and currently pay the standard 15 per cent concessional rate.

Treasurer Jim Chalmers said the reforms would make the superannuation system “stronger, fairer and more sustainable.”

“We always try to take feedback seriously … we found another way to satisfy the same objectives,” he told reporters in Canberra on Monday.

The government will also increase the low-income superannuation tax offset, a payment given to low-earning workers, by $310 to $810, and eligibility for the super payment will be expanded to anyone earning above $45,000.

Changes to the tax offset would take effect from July 2027 to coincide with Labor’s next round of tax cuts, while the other changes would kick in from July 2026, if they pass parliament.

Peak body the Association of Superannuation Funds of Australia said the LISTO change had the potential to add about $15,000 to the retirement savings of low-paid workers.

“These changes will make a material difference to the retirement prospects of 1.3 million Australians,” chief executive Mary Delahunty said in a statement.

Labor’s original plan to overhaul tax on superannuation, now dumped, was roundly criticised by economists because the threshold was locked at $3 million and not indexed in line with inflation.

The federal opposition also raised concerns that “paper profits” or unrealised gains would be taxed.

The government has addressed both criticisms in its new plan by indexing the thresholds and promising more work to ensure unrealised gains are carved out.

But Dr Chalmers now needs to win over either the coalition or the Greens to get the overhaul through parliament.

The treasurer has discussed the super tax changes with the Greens, but on Monday said he was yet to meet with the opposition.

Greens senator Sarah Hanson-Young said her party would examine the reforms closely, but called for more detail about how they would work and reiterated the Greens’ demand for the threshold to be lowered to $2 million.

“At first blush, it does look as though the government has gone weak on taxing the wealthy,” she told reporters in Canberra on Monday.

“For every rich dude who doesn’t have to pay his fair tax on superannuation, someone at a school is not getting the resources they need.”

Shadow treasurer Ted O’Brien said he would also look at the details before taking a position, but described the government’s backdown as a “victory for the coalition of common sense”.

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