The Labor opposition has called on the Coalition to implement implement three additional reforms to superannuation concessions that would make the system more equitable and raise significant additional Budget revenue. From The AFR’s Philip Coorey:
If the government refuses Labor will most likely pass the government’s package but take its own tougher cuts to the next election…
The new measure would be to reduce from $100,000 to $75,000 the annual cap on non-concessional contributions that could be made by an individual, with a maximum three-year carry forward of $225,000…
As well as requesting that annual cap be reduced to $75,000, Labor will propose lowering from a proposed $250,000 to $200,000 the income threshold at which a person’s super contributions are taxed at 30 per cent rather than 15 per cent. The current threshold is $300,000.
It will also propose dumping two spending measures that are part of the government’s package:
allowing catch-up concessional contributions so unused concessional contribution caps can be carried forward on a rolling basis for up to five years for those with account balances of $500,000 or less;
allowing tax deductions for personal superannuation contributions for those under 75 for certain funds.
Labor claims these are loopholes that will benefit the better off…
Costings prepared by the Parliamentary Budget Office show that combined with the government’s package, the changes would save $4.5 billion to 2019-20 and $32.6 billion to 2026-27.
Good call. The Coalition’s superannuation reforms, while certainly worthwhile, were always far too weak and did not go anywhere near far enough to restore integrity to the system.
As shown recently by the Grattan Institute, even after the Coalition’s reforms are implemented, superannuation would remain ridiculously generous to high income earners:
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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, higher income earners will continue to make out like bandits from superannuation, hence there is more reform needed to restore integrity and sustainability to the system. Now watch as rent-seekers like Robert Gottliebsen and Peter Costello lobby furiously against further reform.
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.
