Trump’s "899 Revenge Tax" Backs Down – Australian Funds Reconsider Dollar Asset Strategies

TradingKey - Due to deteriorating U.S. fiscal prospects and the so-called Section 899 capital tax proposed under Trump’s tax bill, several major Australian fund managers had begun considering reducing their exposure to U.S. dollar assets. However, this sentiment started to shift within a week after U.S. Treasury Secretary Scott Bessent called on Congress to remove the controversial “revenge tax.”

On Thursday, June 26, U.S. Treasury Secretary Scott Bessent announced that the U.S. has reached an agreement with the G7 group. Under the deal, the U.S. agreed to drop Section 899 — a proposed capital tax included in Trump’s “beautiful big bill” — in exchange for exemptions for U.S. companies from certain taxes imposed by other countries.

Previously, the proposal shocked international investors who feared an additional tax burden on their U.S. investments. Dubbed the “revenge tax,” the clause intensified investor skepticism over holding dollar-denominated assets, prompting ongoing discussions in global markets about reducing or even divesting from U.S. assets.

Reports indicated that several large Australian funds were already reducing their exposure to U.S. Treasuries, Japan’s largest life insurer was actively seeking alternatives to U.S. bonds, and some Asian family offices were cutting or freezing new U.S. investments.

Australian Treasurer Jim Chalmers said in a statement on Friday that he had previously expressed concerns over Section 899 to Secretary Bessent and welcomed the recent developments from the U.S. Treasury.

An Australian investment professional noted that if the clause is ultimately removed or significantly weakened, it would certainly make investing in long-term U.S. assets more attractive and less risky.

Data show that Australian pension funds have invested heavily in U.S. infrastructure, equities, bonds, and other assets, with total exposure reaching up to USD 450 billion.

Australian Retirement Trust, the country’s second-largest pension fund, said investors will remain cautious and continue to assess the impact of Section 899. However, based on current developments, the outcome appears to be quite favorable.