If adopted, it would represent a significant shake-up to the way Australia's $4.5 trillion retirement savings sector is assessed.
Dr Chalmers said the way the performance test was written "discourages investment in areas like housing, energy, venture capital and start-ups".
In a consultation paper, Treasury found the test incentivises trustees to forgo potentially higher-returning investment opportunities in favour of "benchmark hugging" to reduce the likelihood of underperformance.
It also deters investment in "emerging or alternative asset classes" that are under-represented in existing benchmarks, such as venture capital, which typically takes longer to make a significant return.
It comes after entrepreneurs and venture capital investors warned reported changes to the capital gains tax discount could scare start-ups away from Australia, by lifting the maximum effective tax rate on share sales from 23.5 per cent to near 47 per cent.
The changes to the performance test would boost investment and "capital deepening", a significant contributor to productivity growth, Dr Chalmers said.
"We don't want the performance test to unintentionally discourage investment in some of the most important parts of our economy," he told reporters in Canberra.
"We won't be watering it down, we won't be replacing it, we won't be ditching it. I couldn't be clearer about that.
"But we will be improving it, we will be modernising it, and we will be reforming it."
Industry body, the Association of Superannuation Funds of Australia, welcomed the proposal.
"Five years after it was brought in, the performance test has done a great job," ASFA chief executive Mary Delahunty said.
"It's now time to modernise it, to deal with some unintended consequences, and make it stronger."
The Financial Services Council, the peak body for the financial services industry, supported the proposed changes for benchmarking emerging asset classes, but said any reform must preserve integrity of the test.
The council's chief executive Blake Briggs also warned against a Treasury proposal to broaden the test to more tailored, externally-directed products.
"The FSC is extremely cautious about proposals for expanding the test into more complex products, where test outcomes may become harder to interpret and potentially even confusing for consumers, and are less meaningful from a consumer protection standpoint," he said.
Dr Chalmers and Finance Minister Katy Gallagher also revealed the budget would include $64 billion in gross savings, but refused to clarify how much of that would amount to a genuine reduction to the deficit, and how much would be shifted into other spending measures.
Another $4.5 billion will be saved in off-budget spending, meaning it won't lower the deficit but will lower debt, as part of the decision to shelve the Inland Rail project north of Parkes.
Shadow treasurer Tim Wilson accused Labor of "cooking the budget books" by boasting about $114 billion in cumulative budget savings while increasing spending by $223 billion.
HSBC chief economist Paul Bloxham urged the treasurer to take a surgical approach to the budget, or risk fuelling inflation and further Reserve bank rate hikes.
"Any support for households and businesses should be targeted, so as not to add to overall demand (consolidation not expansion)," he said.Â
"A focus on improving the supply side of the economy and lifting productivity should be a focus, as has been the case for some time.
"Much depends on how successful the planned spending cuts end up being. Recent history has seen budget spending overruns, suggesting some risk that the budget is more expansionary than it appears to be."
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