Chalmers confirmed on Wednesday that he spoke to US Treasury Secretary Scott Bessent to raise mounting concerns about the provision, which could trigger higher taxes on foreign-owned entities investing in the US.
The Treasurer said: “I know that there’s a lot of concern among our Australian institutional investors – super funds, the Future Fund, and other institutions – when it comes to Section 899 of the proposed so called Big Beautiful Bill in the US.
“I’ve engaged a lot with Australian investors over the course of the last couple of weeks on their concerns. I was able to represent them and raise their concerns directly with US Treasury Secretary Bessent. And I know that the Treasury Secretary is very focused on these issues as well. We hope that they can be resolved.”
Section 899, buried in a sprawling budget reconciliation package passed by the US House of Representatives in May, would allow the US Treasury to publish a quarterly list of “discriminatory” jurisdictions deemed to have imposed unfair taxes on American companies.
Investors from those jurisdictions could face an escalating withholding tax – rising by 5 percentage points annually to a maximum of 20 – on income sourced from the US.
Even with the Senate’s alternative version, which proposes capping the additional tax at 15 percentage points and delaying implementation until 2027, Section 899 remains a significant risk to Australia’s $400 billion in US-exposed superannuation capital.
Modelling by Mandala Partners for the Association of Superannuation Funds of Australia (ASFA) estimates that the provision, if enacted in line with the House version, would wipe out US$2.3 billion ($3.5 billion) in returns over just four years.
“We do not want to see our investors and our funds unfairly treated or disadvantaged when it comes to developments out of the US Congress,” Chalmers said, adding he was “grateful” to Bessent for hearing Australia’s case and pursuing progress on the issue.
“They’ve been raised with him directly. I was able to raise them directly with him as well, and we hope for some good developments on this front in the coming days. If not the coming days, then certainly the coming weeks,” the Treasurer added.
Investor concerns over Section 899 have already started to reshape behaviour. AMP’s head of portfolio management, Stuart Eliot, told InvestorDaily the firm is taking a “cautious approach” to new long-term investments in the US amid ongoing uncertainty around the tax reforms.
“This isn’t a reflection of the broader US economy, but a prudent pause while we assess our long-term investment strategy,” Eliot said.
AMP chief economist, Shane Oliver, echoed this sentiment, telling the Relative Return Insider podcast that the tax would fundamentally alter the risk-reward equation for super funds.
“Australian superannuation funds, which I think get an exemption from tax at present, they would find themselves being taxed on their earnings,” Oliver said.
“It could have the effect that superannuation funds will say, ‘Look, we’re going to have a higher tax in the US and therefore we’re going to get a better return out of Europe on a tax adjusted basis, and other countries’ ... That could be a blowback on the US.”
Oliver previously described Section 899 as a slow-burn threat to the US’ status as a safe investment haven, noting that global investors may increasingly demand higher risk premiums to hold US assets.
“I suspect it’s likely to be a slow burn and US tech and particularly AI dominance will serve as a powerful offset for some time to come. But it means ongoing bouts of high uncertainty and volatility,” he said earlier this month.
Greg Combet, chair of the Future Fund, also highlighted in a speech to the Committee for Economic Development of Australia earlier this month that US President Donald Trump’s Big Beautiful Bill – particularly Section 899 – could “potentially and dramatically” increase tax rates for Australian institutional investors such as the Future Fund.
“In combination, these policies and dynamics are making the US a more risky and uncertain investment destination,” he said.
Factors such as the bill are alerting investors that elevated risk demands a higher return on capital and that they may be overweight US assets, Combet added.
Noting that the US will “undoubtedly” continue to offer “many attractive investment opportunities”, he elaborated that the fund is giving further consideration to the medium- and long-term implications and is allocating “more time and resources to investigating other markets”.
“We are considering the need to build the physical portfolio in a more diversified way,” he said.
