As super reforms pass, rent-seekers wail

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By Leith van Onselen

Finally some good news on the reform front, with the Turnbull Government’s modest (but sensible) superannuation reforms finally passing the Senate, taking effect from 1 July 2017. From The AFR:

…the Senate passed the superannuation package which was unveiled in the May budget and which will deliver a net $3 billion in savings over four years. To begin on July 1, 2017, measures include capping at $1.6 million the amount which can be kept in a super retirement account, lowering concessional contributions to a maximum $25,000 a year, and lowering from $300,000 to $250,000 the income threshold at which a person pays a higher 30 per cent tax on contributions…

The super package cuts $6 billion in tax concession but spends $3 billion on measures to bolster super savings of those on low incomes and the self-employed, making the net saving $3 billion…

To MB, these changes are a no-brainer. In addition to saving the Budget around $3 billion over four years, they will make the concession system a little fairer by boosting savings of those on lower incomes, who under the existing system are penalised.

Still, despite the pervasive arguments supporting these reforms, rent-seekers and their representatives continue to complain, with The AFR’s ‘gun for hire’, Jennifer Hewett, the latest to whinge:

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There’s no doubt, for example, the changes severely constrict the ability of many people to fund their own retirement in future without relying on the aged pension or part pension.

They will also further destroy confidence in the super system and the benefits of contributing any additional funds beyond what is mandated. Is that fair or sustainable in the long term, which, after all, is what super is supposed to be about?…

Pull the other one Jen. Even after the Coalition’s reforms are implemented, superannuation would remain ridiculously generous to high income earners, as revealed by the Grattan Institute recently:

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.

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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.

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In other words, higher income earners will continue to make out like bandits from superannuation. My heart bleeds, Jen.

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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.