ABC’s The Business aired an interesting interview last night with Nick Sherry, the former Labor government minister for superannuation, who now works for accounting firm Ernst and Young.
In the interview, Sherry explains pointedly why Australia’s superannuation system is unsustainable and how reform is inevitable, due to people living longer, which is placing immense pressure on retirement systems across all developed economies. As such, Sherry advocates a number of reforms, including:
- Increasing the access age to superannuation (from 60 years currently) so that it more closely matches the pension access age;
- Reducing the ability to draw super as a lump-sum, and
- Reducing overall complexity.
While I agree with Sherry on the need for these reforms, they don’t go nearly far enough.
As argued repeatedly, a major failing of Australia’s superannuation system is that it directs the lion’s share of tax concessions to higher income earners – i.e. precisely those whom are least likely to need the pension – instead of sharing concessions more evenly across the income distribution.
Accordingly, the Government should look to replace the 15% flat tax on super contributions with an flat concession (say 15%), thereby: 1) providing all taxpayers with the same taxation concession; 2) boosting lower income earners’ super savings and thus reducing reliance on the aged pension; and 3) reducing overall costs to the budget.
Regardless, with Australia’s population ageing fast, and the proportion of workers to non-workers set to decline significantly in the decades ahead, the Government will ultimately be forced to scale back super entitlements as the tax base shrinks. Better to begin the reform process now rather than waiting until there is a Budget emergency.
