After the Coalition’s ‘triumphant’ backdown on superannuation last week, which has paved the way for reform through the Senate, talk has already turned to the next stage of potential reforms to superannuation. From The AFR:
A new law to define the purpose of superannuation could foreshadow the end of tax perks for anyone better off than an age pensioner.
The government last week confirmed its plans to enshrine in legislation that the objective of the superannuation system is “to provide income in retirement that substitutes or supplements the age pension”.
A draft bill, including a set of secondary objectives, is expected to be released later this week…
KPMG director Ross Stephens warned defining the purpose of the super system as merely to “substitute or supplement the age pension” was a “very dangerous” thing to do…
“I want to see a clarification that the purpose of the super system is to help people achieve a better income in retirement than the age pension,” Mr Ross said.
Otherwise it “leaves the door open” to future changes to slash all tax concessions for those who have already accumulated a super balance big enough to fund a retirement income equal to living on the age pension, he said.
Further reforms to superannuation are inevitable.
The latest package, while welcome, did not go nearly far enough to remove superannuation’s status as a tax shelter for high income earners.
As noted in the Grattan Institute’s recent superannuation report, even had the Coalition’s reforms been implemented in-full, superannuation would remain poorly targeted overall and would continue to overwhelmingly favour wealthy Australians:
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Even after the reforms, super tax breaks will overwhelmingly flow to high-income earners who do not need them. People in the top 20 per cent of income earners, who are unlikely to ever get a pension, will still receive about half of all super pre-tax contribution tax breaks.
Treasury projections in the 2016 Budget show that the lifetime value of tax breaks to high-income earners remains much higher than the value of the Age Pension for low-income earners, even after the Government’s Budget changes (Figure 9). These projections are likely to be conservative since they ignore post-tax super contributions, which are largely made by high-income earners, boosting the super earnings tax breaks they receive.
Before the changes, someone in the top 1 per cent of income earners could expect to receive two and a half times as much in tax breaks from super over their lifetime as a retiree with no assets receives in pension. This is also two and a half times as much as the average income earner receives in pension and super tax breaks combined. The Budget changes merely trim the worst of these excesses: the top one per cent now receives just twice as much as low or average income earners.
In other words, the wealthy would continue making out like bandits from superannuation and the system would remain unsustainable over the longer-term, necessitating further reforms.
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.
