One of the many forceful interest groups seeking to influence the independents and the Greens in search of support for policies that may be at risk, is the powerful superannuation industry.
From an industry newsletter:
“The chief of Australia’s largest industry fund, AustralianSuper, is urging politicians, especially the independents, to rank superannuation adequacy high on the agenda as negotiations progress to form the next government. Ian Silk, chief executive of the $30 billion-plus Australian, is renewing calls for SG to be raised from 9 per cent to 12 per cent as a matter of “utmost national importance”…
…Pauline Vamos, chief executive of the Association of Superannuation Funds , commended the super fund’s initiative to urge politicians to heed the industry’s call to consider super adequacy.”
These quotes are examples of rent seeking efforts of some industries to continue policies that would benefits their incomes, the superannuation industry being one of the worst. Its members are seeking to preserve their new big industry cash cow, the ALP’s promised rise of compulsory super from 9% to 12%. This sector oddly combines the resources of the big money with the clout of the ACTU, which gives it undue ability to influence bad policy to its own advantage.
The ALP proposal for raising the super level was very dishonestly tied back to the publication of the Henry report, the implication being that this was part of what was recommended. This was gross distortion because the Henry report, and the Harmer one before it, both clearly stated that there was no need to raise the 9% contribution level. The other bizarre aspect of this connection is that the ALP government also ignored the report’s various recommendations to correct the current rorts of tax avoidance that come from tax concessions for higher income earners.
Henry recommended against raising the compulsory contributions another 3%, because he claimed it will not benefit the bulk of Australian workers. Current super already penalises low income earners, who have had to put up with reduced pay rates to fund it and Henry show how further rises would just increase the inequities. Estimates by Brian Toohey point out that the rise would, when fully implemented, reduce by $8B (tax foregone) income for the federal budget. These figures make a nonsense of the claims that we need super to reduce the pressure on the Age Pension, as most people will still need a pension because an earning related scheme fails the more than half the population that earn less than Average Weekly Earnings.
The inequities by which superannuation subsidises high income earners come from current tax concessions, which cost last year about the same as the Age Pension. Unlike the pension, the bulk of advantages go to the highest income earners, who can avoid the top rate of tax and save 31.5 cents in every dollar they contribute or earn. At the other income end, anyone earning under $37,000 should not be forced to contribute to super because they are generally being overtaxed on their contributions as their average tax rate is below 15%. Extending the amount just increases the inequities, with the small exception being that the package promised very belatedly to refund — up to $500 p.a. — contributions tax for those in the lowest income bracket.
Equity and costs are not arguments the trillion plus dollar industry wants to hear. Its members are worried because the promised rise was part of the package from the mining tax, so will presumably not occur if the Coalition gets the government guernsey. The ALP was fulfilling ancient commitments to Kelty and Keating in promising the rise, and was also beholden to the finance industry for support for the mining tax, so failed to remove the gross inequities that even shocked Henry.
I just hope their self serving bleatings, as above, do not fool the independents and Greens. We could use the billions given away in super tax concessions and the huge profits made by the industry to redistribute funding for a much more equitable retirement system. So beware the siren song of greed and self interest by a mix of union and finance powerbrokers.
Thanx for this, which has been most helpful and has changed my view on increasing compulsory superannuation which I reflexively assumed to be a Good Thing because it was advocated so vigorously by the ACTU and Keating.
Why should the ACTU support a policy that is so manifestly regressive?
I totally agree that increasing the level of compulsory superannuation contributions is regressive and a bad outcome for low earners. I would go further and say that the whole compulsory super regime should be abandoned.
However, there are a couple of points I think need to be made.
The “tax expenditure” numbers quoted are, if you ask me, not real numbers. You could just as easily take this approach to its extreme and argue that the tax rate *could* be set at 100% so every single dollar not paid in tax is tax forgone. If the concessionary treatment for superannuation contributions (or whatever other tax expenditure) were removed there would be no automatic requirement for the forgone tax to be collected – and tax rates would fall. Given that it is higher income earners who pay most of the tax, in all likelihood the lion’s share of any reduction in tax rates would go to them.
Second, comparing the 15% tax on superannuation contributions to low income earner’s “average” tax rate is rubbish. It is the marginal tax rate that would apply to any extra income, so for anyone earning over $6,000 it is the same 15% they’d get charged in income tax.
With respect to the huge profits the industry makes, this I can fully agree with. The Labor government’s push towards simplified and cheaper superannuation administration and investment should be applauded. Investment management seems to consist of nothing more than investing in the market, plus or minus a bit around the edges. For this we pay sometimes well in excess of 1% management fees p.a. We should be paying basis points.
The ACTU thought up the scheme so blue collar workers could have the same retirement advantages as white collar ones with defined benefits. They also thought the industry super funds would be able to give the unions unprecedented access to investment income. It did and many unions officials are on super boards but they are locked into making sure individual members benefit, not the national interest by trustee obligations. They cannot admit they were wrong and high income earners do benefit from it, it’s just so inequitable to others. Most workers have no idea of the flaws in the system or even what they own or earn, just the vague idea it muct be a good thing if the unions back it.
Re average vs marginal income, some low income earners are below the 15c payment threshold, or even out of the 2workforce for periods so they pay too much on contributions and earnings. Others just get no benefit at all from having their money sequestered.
The idea of compulsory saving is not the problem, but who benefits and who loses is the question with the current scheme.
eva