The Turnbull government’s proposed superannuation changes have been a thorn in its side since they were first unveiled with the budget in May.

Liberal Party members, unhappy with the prospect of paying more super tax, kept their wallets closed, causing election campaign funding problems. And since then high-profile Coalition members, like Senator Eric Abetz and Queensland Nationals member George Christensen, have threatened to oppose the moves in the party room and Parliament.

But, according to an internal Treasury executive minute uncovered by Fairfax Media through a freedom of information search, the Treasury suggested the government take far tougher action.

A series of options put forward by Treasury would have yielded the government in the range of $5.5 billion to $1.25 billion in the first year of implementation. The note was written in October 2014 as advice to the Abbott-Hockey government.

The package the Turnbull government finally chose to go with will save $1.5 billion in the first year. It will do that by taxing earnings on funds in pension phase at 15 per cent for balances over $1.6 billion, dropping concessional caps to $25,000 a year and capping non-concessional contributions at $500,000 backdated to July 2007.

It will also tax super contributions at 30c in the dollar for those earning $250,000 or above.

The Turnbull super package hits big balances. Photo:Getty

The Treasury plan

The Treasury proposals suggested taxing all earnings in pension phase at 15 per cent, not just on balances of over $1.6 million, which could have raised $4 billion a year alone.

Then Treasury Secretary Martin Parkinson had tough super advice for the Abbott government. Photo: AAP

The Treasury option that would have saved $5.5 billion involved replacing the current 15 per cent flat tax on superannuation contributions with a new system that would tax contributions at “marginal rates minus a 20 per cent, non-refundable rebate” the note said.

“That would mean those on the top income level would have their super contributions taxed at 27 per cent, not 15 per cent,” said Ian Fryer, research head with superannuation consultancy Chant West.

The move to a flat rate tax for both the “accumulation and drawdown phases”, Treasury also suggested would yield “substantial simplicity gains”.

Abbott wasn’t buying in

The Abbott–Hockey government did not take up any of the Treasury suggestions, perhaps as to do so would have broken Tony Abbott’s first term promise that “there will be no unexpected adverse changes to superannuation under a Coalition government”.

Chant West’s Ian Fryer said the Treasury proposal to tax super contributions at the marginal rate less 20 per cent “would have had little effect on middle-income earners but would have reduced the benefits at the top end. I would describe that as pretty reasonable”.

However the proposal to tax earnings of all funds in pension phase at 15 per cent “would have made a significant difference to middle- and lower-income earners”.

Scott Morrison defends his changes

Treasurer Scott Morrison went in to bat strongly for the government’s changes, saying they were fair.

Speaking on Sydney radio’s 2GB he said: “The only people that would benefit are people who would already on average have $2 million in their superannuation scheme, have already put $700,000 in after-tax contributions … and somehow the great fairness thing that has to be done here is let them put in $1.2m after tax.

Scott Morrison defended his super changes strongly. Photo: ABC

“I’m saying that we should be getting rid of the Family Tax Benefit supplement payments … for people who earn a lot less than people who are able to put $500,000 after tax, after all their other superannuation contributions into their super account, and I’m saying that supplement has to go so we can pay for childcare changes.

“How can I look them in the eye and at the same time say: ‘oh no, I’m going to protect this interest over here who’s sitting on half-a-million-bucks that they want load in and stuff more in and pay less tax on it?’ ”