Deloitte-Access Economics’ Chris Richardson is the latest to jump on the “reform superannuation” bandwagon, arguing today that super concessions will cost the Government $32 billion in forgone revenue this year, with the majority of benefits going to the wealthy. From the AFR:
Deloitte Access Economics partner Chris Richardson said while superannuation concessions were needed, they were not equitable and needed to be reviewed.
“There are really big bucks that the tax system isn’t collecting as a result of superannuation concessions,” he said.
“If government’s aim is to increase future savings on the aged pension, then our super system isn’t well set up to do that. The system gives the biggest discounts to the high-income earners but they are the group least likely to go on pensions anyway”…
While Treasurer Joe Hockey has today declared “the age of entitlement dead” in the wake of the Government’s refusal to provide SPC Ardmona with $25 million of industry assistance, it seems his rhetoric doesn’t extend to the billions of dollars worth of superannuation concessions provided to higher income earners.
Shortly after being elected, the Coalition shamelessly jettisoned the former Labor Government’s planned changes to superannuation, which would have seen tax concessions reduced on super funds earning over $100,000 per year. It also cancelled the Low Income Super Contribution (LISC) – a policy that refunds the 15% tax on super contributions for workers earning less than $37,000 a year.
The former Labor Government’s superannuation policies were designed to improve the equity and sustainability of the system. Instead, under the Coalition’s policy, all employees that contribute compulsorily into super will pay a flat 15% contributions tax, which effectively means that the amount of concessions received increases as one moves up the income scale (see below table).
For example, someone that earns in excess of $180,000 per year receives a 30% tax concession for each dollar that they contribute into super (i.e. 45% marginal tax rate less the 15% flat tax). At the other end of the scale, someone that earns less than $18,200 per year in effect gets penalised 15% for each dollar that they contribute into super.
So rather than winding back entitlements, the Coalition’s approach to super will exacerbate inequities in the system, since under the flat (15%) tax, an even greater share of tax concessions – a direct hit on the Budget – would flow to those on higher income earners, whilst lower income earners will receive next to no tax benefit.
The sustainability of the superannuation system would also be reduced under the Coalition’s policy. As noted by Chris Richardson, it is the lower end of the tax scale that are most likely to be reliant on the pension in old age. Yet, they will have less incentive and opportunity to build-up a retirement nest egg following the Coalition’s changes.
Therefore, the Coalition’s superannuation policy will ultimately result in a system that costs the Budget even more money – mostly via the huge concessions granted to higher income earners – whilst doing little to relieve the strain on the aged pension, since those most likely to require the pension in old age will receive an even smaller share of the superannuation concessions.
When combined with the announced review of the Newstart and disability pensions (while leaving the aged pension off limits), it’s enough to make a cynic like me suspect that Hockey’s bluster over entitlement spending is just hollow rhetoric mostly designed to mask an assault on government support for the vulnerable, whilst maintaining benefits to his rich constituents.