The global investment landscape is becoming increasingly shaped by political dynamics, and the latest US proposal – the so-called “Big Beautiful Bill” – is a prime example. While much of the media focus has been on its domestic US implications, ASFA has been closely analysing what this means for Australian superannuation funds and speaking with officials in DFAT and Treasury to help them in discussions with US counterparts.
The Bill includes provisions from the Defending American Jobs and Investment Act, which seeks to impose additional withholding taxes on foreign investors from countries the US deems to have enacted “unfair foreign taxes” — including regimes like the Undertaxed Profits Rule (UTPR), which Australia implemented in 2024. These measures could trigger retaliatory tax treatment, placing significant pressure on returns from US investments held by Australian superannuation funds.
Australia is a globally integrated investor. Our superannuation system, valued at over $4.2 trillion, is deeply exposed to international markets – and the United States is a cornerstone of that exposure. It is essential that we understand the risks, quantify their potential impact and work to mitigate this.
In partnership with Mandala Partners, we undertook a desktop analysis to assess the potential consequences of changes to US withholding tax (WHT) rates – particularly if Australia’s preferential treaty status is revoked. The analysis used publicly available Portfolio Holdings Disclosures (PHDs) from a cross-section of large APRA-regulated funds to estimate the proportion of US-exposed assets across listed equities, fixed income, private equity, infrastructure and property.
This data provided the basis for a range of scenario analyses. In the baseline case, we modelled an increase in WHT from 15% to 35%. Under more extreme assumptions – such as the removal of Australia’s discounted treaty status – the WHT rate could rise to as much as 50%.
Using both historical returns and forward-looking capital market assumptions, we modelled the financial effect of these changes. The results are of note: we estimate a potential negative impact by end year 4 on super fund returns of around 10 basis points per annum, with the downside risk ranging up to 13 basis points depending on asset mix and income yield. In scenarios where the treaty discount is removed, the impact could be as high as 18 to 26 basis points per annum after year 7.
Listed equities were the largest driver of impact across the tested scenarios. Notably, we found that for every 1 percentage point increase in the income yield on U.S. equities, the impact on the system would increase by approximately 4 basis points.
We also tested edge-case scenarios, such as the taxation of US government bonds (currently exempt) and higher-than-average equity yields – both of which would further compound the negative impact.
This modelling is not a prediction – it is a risk assessment. But it reinforces why tax stability and fair international treatment of long-term institutional investors matter. Superannuation is designed to deliver long-term outcomes for Australians. Policy volatility in global markets poses real risks to those outcomes, and ASFA will continue to monitor developments in Washington closely.
