Australia’s superannuation system has substantial benefits: it will ensure many Australians have more comfortable and dignified retirements than they otherwise would have; it will relieve pressure on future budgets as Australia’s population ages; and it provides a truly massive pool of national savings that has already demonstrated its economic value in the financial crisis.
It’s also a rort, a giant swindle in which all taxpayers contribute generously to high-income earners and most generously to the richest. In 2012, Treasury forecast that this year, the top 5% of income earners would take 20% of tax concessions for superannuation contributions. The top 1% would garner 5.3%.
And as the Australia Institute points out, this wild skewing of the superannuation system in favour of high-income earners serves no policy purpose. The top 10% of income earners, who this year are expected to enjoy nearly one-third of all superannuation tax concessions, are unlikely to ever be eligible for the age pension. We taxpayers are simply pumping up their retirement incomes without any offsetting advantages for future budgets.
But the system is not so good for the poor. The bottom 10% of income earners, in which women are overrepresented, will get no tax benefit whatsoever from superannuation this year. Indeed, the bottom half of all income earners will get just 18% of tax concessions from our superannuation system. They are the bulk of future pension recipients, where there is the greatest potential benefit for future budgets from a strong retirement savings system.
The superannuation system isn’t just middle-class welfare. It’s upper-class welfare.
The government tried to mildly address this skewing last year by introducing a “low income superannuation contribution offset”, which the Coalition wants to eliminate, and halving the tax concession for people on incomes over $300,000, so they’ll pay 30% tax instead of 15% — still a generous handout from taxpayers.
The idea that further “tinkering” would reduce the incentive for people to put money into super misses the point that most of us only contribute what we’re compelled to. Those who contribute more do so because of the generous tax breaks; the de-incentivisation argument will only make sense if we reach the point where contributions to super are treated like normal income — and we’re a very, very long way from that.
And this system doesn’t involve a lazy few billion like, for example, the private health insurance rebate, or giving Family Tax Benefits to middle-income earners.
The Australia Institute provides some nice context for just how expensive our superannuation system is compared with other large expenditure items:
Which brings us to the question of why various people are campaigning against the government’s efforts.
The Financial Review has gone feral, running story after story criticising any changes that might reduce the benefit to high-income earners (Laura Tingle providing a solitary voice of reason). That’s understandable. The Fin’s readership is composed mainly of middle and high-income earners, so The Fin is merely going in to bat for its own people.
And The Australian’s stable of right-wingers have been hopping into Labor over the issue, to the extent of having Henry Ergas –yes, Henry “an inability to express an objective expert opinion upon which reliance can be placed” Ergas — describe the possible super changes in a video as “frightening”.
But in both cases such an approach is understandable; The AFR and The Oz are merely trying to stay relevant to their readerships. And in both cases, their readerships, being older, maler and richer than the other 99% of the population, are vastly more interested in superannuation than most Australians, who are relentlessly, unstoppably, remorselessly disengaged from it.
For Labor figures opposing any changes, you have to wonder at the sheer depth of bitterness that is driving them, and in particular Simon Crean, a man who is not taking his self-destruction well at all. There’s a long history of Labor figures using unusual approaches to policy as weapons in leadership battles. None other than proud economical rationalist Paul Keating himself, in exile after his first leadership challenge, attacked Brian Howe over Medicare co-payments and Bob Hawke over reforms to federalism — although the latter was more clearly within Labor’s centralist tradition.
But let’s be clear about what Crean, former Australian Council of Trade Unions leader and self-appointed wearer of the mantle of the Hawke-Keating era, wants to do: preserve and protect a system in which those of us on ordinary incomes generously contribute to the retirement incomes of the top 10% of Australians, for no public policy benefit of any kind.
Crean’s stout, whatever-it-takes defence of the rich and very rich is remarkable to behold, even for a bloke as plainly enraged at his party’s leadership as he is.
The right wing media will focus on the proposed yet unknown changes proposed by Labor. They will ignore Abbott’s proposal to attack those least able to afford a reduction in super by removing the $500 co-contribution.
Ah, Henry Ergas! I was wondering what had happened to him. His column in the ‘Australian’ was the reason I’d canceled my home delivery subscription to ‘the Australian’. Twice. The second time for good. Good articles in a newspaper don’t guarantee continuing readership. But bad irrational articles almost always guarantee that they’ll lose readers. Usually for good.
Of course it’s a rort. It wasn’t that long ago that some of Oz’s most respectable economic commentators, I could be wrong but I’m thinking Nicholas Gruen et al, had calculated that it would be cheaper to just pay people who are currently earning in the top 10% a life pension of some $78k per annum.
All this media speculation about changes that have not been created, announced, or even mooted. Where were they when Peter Costello made what one commentator (perhaps Chris Richardson?) called ‘probably the worst budget decision made in the last quarter century’, when he legislated huge tax free benefits for super pensions just at the time that the baby-boomers were about to hit the retirement train.
The MSM, as a group, are economically inept. Clawing back the mistakes that Costello made in generous superannuation changes (when he was rolling in money he did nothing to create) will take a generation.
Again, the baby boomers will be the prime beneficiaries, and the loudest whingers. Plus ca change.
And Tony Abbott remains motionless, with a policy that rips off the lowest earners in the community.
Thanks MSM.
Thanks Bernard agree in every aspect of your clear concise and factual article. Should be compulsory reading for all to enable rational community debate, against the “white noise” fear, lies and propaganda coverage of the vested interests.
Labor has raised the tax free-threshold from $6k to $18k and introduced a low-income tax offset for superannuation, as well as being lower taxing government than Howard ever was, and yet is still accused of being tax heavy.
Abbott wants to take away tax concessions for low-income, keep the changes Labor want to make to high income and impose a number of taxes as well (e.g. company tax for maternity leave) and is seen as reducing taxes.
Just imagine if this country had a MSM that actually knew their a**e from their elbow and actually did their jobs. Thank you Bernard for showing how it’s done.