Mercer slaps down rich super whinge

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By Leith van Onselen

Mercer have put some much needed perspective on the huge scare campaign being run against the Turnbull Government’s announced caps to superannuation. From The AFR:

[Mercer’s] research shows that the top 1 per cent of income earners will be hit hardest. Despite the heavy backlash over the plan to limit after-tax super contributions to $500,000 over a person’s lifetime, AIST and Mercer found that the measure would have almost no impact on savers overall because so few superannuants opted to inject after-tax dollars into their super pots.

The budget measure that will have the biggest impact is the $1.6 million limit on super pension transfers. Reducing the pre-tax concessional contribution cap to $25,000 will also have a sizeable effect on high-income earners.

If the lower pre-tax limits were adopted, as well as the super pension transfer cap and a doubling of the contributions tax to 30 per cent for individuals earning between $250,000 and $300,000, the level of government support for the top 1 per cent of wage earners would fall to $450,000 from $600,000 over their lifetime.

The level of support for the top 10 per cent of income earners will fall from $500,000 to about $470,000. Individuals on full-time salaries who fall in the seventh decile will continue to receive the lowest level of government support, estimated to be just over $300,000 over their lifetime.

I’m guessing that the change in taxpayer support that Mercer is referring to relates to the below chart, which shows that under current arrangements, the top 10% and top 1% of income earners receive more government retirement support than the other 90%:

ScreenHunter_9940 Oct. 27 07.30
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So, under the Coalition’s policy, the top 1% and 10% of earners would continue to receive the lion’s share of taxpayer assistance, but that it would be lower than currently. Hardly a cause for righteous indignation, is it?

As noted last week by David Ingles and Miranda Stewart from the Tax and Transfer Policy Institute, superannuation would remain ridiculously generous to the wealthy, even after the Coalition’s planned reforms:

Super fund withdrawals and investment income in pension phase became entirely tax-free in 2006 under changes made by Treasurer Peter Costello. It is widely recognised that this was a high water mark in the generosity of the superannuation tax system, unsustainable except for the mining boom with the “rivers of gold” flowing into Government coffers at the time.

The table below shows how extraordinarily generous the superannuation tax system will remain for better-off retirees, even after the imposition of the government’s proposed tax.

For example, a wage earner with a taxable income of $200,000 a year pays tax and Medicare levy totalling $67,947. Under the proposed reforms, a retiree with $200,000 income from super (implying capital of $4 million in the fund, at a 5% return), will pay $18,000 in tax. The retiree is still $49,947 ahead (see Table, column 5). Cries of double taxation cannot be sustained because the whole of the draw-down of the lump sum continues to be tax free – only the future investment income is taxed.

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In other words, wealthy superannuates should stop their complaining and blatant rent-seeking.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.