In an extraordinary showcase of self-interest, the lobby group representing self-managed super funds (SMSFs) – the SMSF Alliance – has slammed calls to tighten tax concessions around superannuation, arguing that the rich are entitled to their tax breaks. From The AFR:
The $1.8 trillion superannuation industry has defended its generous tax breaks, saying it should not be used as a cash cow to rescue the budget deficit at the cost of healthy retirement savings.
…an alliance of self-managed funds said that the rich were just as entitled to benefits…
“People who work harder and save more are going to have larger superannuation balances – it doesn’t mean you’re rorting the system.”
David Murray’s Financial System Inquiry’s interim report notes the top 20 per cent of income earners take most – 57 per cent – of the super concessions.
In its response to the inquiry on Wednesday, the alliance counters that those same people are responsible for paying an even larger chunk – 64 per cent – of income tax.
The SMSF Alliances claims that the wealthy pay more tax, therefore, are entitled to massive super concessions is quite frankly ridiculous. Australia has a progressive tax system for a reason – it has been that way since Federation – and this is being undermined by the 15% super flat-tax (30% for those earning over $300,000), which is highly regressive.
Seriously, take a look at the below table showing the impact of the 15% super flat-tax at different income thresholds:
Explain to me why those earning between $180,000 and $300,000 should receive a 30% concession for investing in super, while those at the lower end of the tax scale are penalised 15% or receive neglible concessions?
It is this arrangement that has skewed concessions overwhelmingly towards higher income earners (see next chart), blown a huge hole in theBudget (via revenue forgone), all the while failing to relieve pressure on the Aged Pension, since those that are most likely to be reliant on the pension – lower income earners – receive little (if any) super benefits.
To make matters worse, the costs to the Budget from Australia’s poorly targeted superannuation system are growing much faster than the Aged Pension, as noted by Dr David Ingles from The Australia Institute today:
“Age pension spending is rising at about 7 per cent per annum, but tax concessions are rising much faster at about 11 per cent per annum,” Dr Ingles said.
“The problem is that although the age pension is directed to low-income earners in particular, tax concessions disproportionately benefit high-income earners, and very markedly so. It’s quite perverse how much they benefit high-income earners.”
The end result is that the Budget is facing the double whamy of fast rising and massive Aged Pension expenditure and an ongoing blow-out in superannuation tax expenditures.
As I keep arguing, a simple and fairer solution would be to replace the flat 15% tax on superannuation contributions with a flat concession/rebate (e.g. 15%) that is the same for all income earners.
This way, all taxpayers would receive the same taxation concession (the lowest income earners would receive a rebate), the progressiveness of the tax system would be restored, and lower income earners’ super savings would be boosted, thereby reducing their reliance on the Aged Pension and relieving pressures on the Budget.
None of this is rocket science, although you wouldn’t know it from the ongoing protests from Australia’s rent-seeking and parasitic superannuation industry, which seems more concerned about boosting funds under management (and clipping the ticket) than genuinely improving the equity and sustainability of the retirement system.
