Superannuation exposes entitlements hypocrisy

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By Leith van Onselen

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).

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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.

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Leith van Onselen

Comments

  1. The thieving poor will have plenty of incentive to release equity in their homes if they pay it off by 70 years of age therefore alleviating the catastrophe about to befall one of the wealthiest nations in the world. Apparently.

  2. Well, he is getting rid of the waste. That being all the poor people leeching rent-seeked money from those who earned.

    I don’t care anymore, people voted for this guy when it was clear he had no vision to share. This of course meant that the vision he had was better kept secret. This country deserves more pain, a lot more.

    Anytime there’s a rally to kick this guy out, along with Labor, I’ll be there. I’d support a hanging even. But silence = compliance.

    • bolstroodMEMBER

      + heaps Phreno
      We gullible voters bought the Abbortt govt. policies unseen. Voter beware.
      The pain is accumilating,30,000 car workers ,3000 fruit growers & cannery workers , 14,000 public servants,
      tightening the dole which is already so low it is not even a subsistance wage.
      Chuck in the destruction of the Great barrier Reef to build coal loading terminals & opening up the Tassie old growth forests for more logging.Close down any Quango that has anything to do with reducing co2 or reducing the Climate change threat.
      Give away our sovereignty thru Free f#^*%@!g trade agreements!!!!!
      I understand you’re not caring anymore & yes hanging may be the answer.

      • @bolstrood
        We gullible voters bought the Abbortt govt. policies unseen.

        BS –you might have bought them – I didn’t & along with many others I hope that those that voted for Big Ears get a guts full.

        After all you deserve it. 🙂

    • Let me recap: Political leaders are elected, we “discover” their hypocrisy, we are upset, we get online and suggest killing them.

      I admire your nihilistic bi-partisanship, but for the sake of one of the last decent self-moderated on-line discussion forums in this country, spare us the arm-chair thuggishness.

      • bolstroodMEMBER

        AURules, sorry I gave the impression I was one of the voters who elected Abbott & co.
        I spoke collectively.
        Not guilty as charged.

        Y I take your point& will moderate my language in future.

        I will leave the thuggery to our elected representatives.

  3. UE, Perhaps if the money was just going to disappear in tax at the marginal rate of 55% (inclusive of GST), the taxpayer may consider other options, like not making provision for retirement at all, negative gearing, going on a holiday, leasing a fully imported new car, or just giving up altogether. Looking at the reservations to the unemployment figures in the posts today the last option seems to be occurring amongst people who are just tired but not retirees. Fancy not wanting to work at those rates…

    How about a beach in Cambodia.

    Some people irresponsibly actually work for someone or something other that the budget bottom line… They should be thinking of Stephen Conroy’s retirement benefits, how selfish of them.

    • We are one of the lowest taxing developed nations in the world. Moreover, the top marginal rate doesn’t kick in until $180k. I fail to see how this is unreasonable.

      That said, I would be happy to see marginal tax rates cut if concessions were wound back.

      • The contribution cap at $25,000 makes it impossible at my age to make adequate provision for retirement. You cannot ignore the GST because it is paid by the person who does the work. The real difference at the highest marginal rate is between 25% and 55%. A $7500 benefit is not much to retire on…

        Dare I say UE what is the point. Not everyone is a politician or a public servant.

      • Fitzroy, are you saying if there was no Cap, you would funnel the majority of your daily income into super, to pay less tax and reap the benefits of a tax free lump sum withdrawal at some near future time ?

      • AM, I am saying that the benefits to me of super are so small that they are insignificant as I am unable to build up sufficient funds later in life. The only real tax refuge I have is NG. No lump sum if not enough money in the trust. The best thing for me to do is to work less, earn less and live longer. The cap for a 58 year old providing for himself makes the whole exercise pointless. Better to be Stephen Conroy…

  4. The methods by which more tax can be confiscated from people knows no bounds, as we see here.Whole industries and large parts of the Media make their daily bread from that most negative premise. If only such efforts were put into expounding the appalling waste in Govt spending, perhaps the need for ever increasing Govt “revenues” could be reduced. Living within one’s means is entirely repugnant to those who make a living off the Other People’s Money gravy train.

    • “expounding the appalling waste in Govt spending, perhaps the need for ever increasing Govt “revenues” could be reduced”

      I take it you are referring to the main creators of Australia’s structural deficit: the Howard Government?

      • Not necessarily. Are you ignoring the obvious waste (again) in such things as an out of control growth of Govt, the CT, Green scheme failures, Welfare rorting, deliberate double functioning, the Grants scams, the compliance industry, Aid to corrupt foreign Govts – all of the aforesaid by the worst Govt in our history – Rudd/Gillard/Rudd? Are you ignoring the hundreds of promises of a Surplus – obviously the Left’s policy – that were deliberately misleading?

        How about some balance UE? Surely you are not for a minute suggesting that the debacle of Leftist Govt we are recovering from was better than Howard’s economic management?

  5. This shouldn’t really come as a surprise. An abbot govt was always a right wing self serving, govern for the rich and rent seeker party. Those groups after all are the ones that fund the abbot govt coffers. Note i make the distinction of an “Abbot” govt as opposed to a liberal govt because i do believe there are some liberals who would make good governance. They just dont have any say in an Abbot govt. Have to hand it to tony. He kept the right wing tea party salivating rabid right wing nut jobs under control during the election, all they had to do was keep quiet and play on the disaffected labour sentiment and wait for labour to self destruct at the election and they got exactly what they expected. Now the right wing who feel they have the right to rule us, are able to reimburse their masters for their electoral largesse.
    I WAS quite of the opinion this is a one term liberal government, but now am less sure. These issue and stories and analysis are completely ignored by the right wing and murdoch press, so much so the average bogan punter has no idea of how they are being shafted by the right wing self styled elite. This govt has learned well from how the Tea party was co-opted by the wealthy, and embarked on a successful campaign to fool Joe public that it was all in their interests.

    • The demise of Menzies “forgotten people”, is a national tragedy. The Liberal Party was not the party for the rich anymore than the Labor Party was not the party for self interested unionists and staffers. The 1942 speech deserves reading. It is delivered by an obviously brilliant man with vision. The logic of the current incumbents would see Melbourne as the next Detroit, with scorched earth as the favoured solution for our manufacturers. The current situation is not assisted by the idiocy of the unions. We are poorly served by buffoons on both sides.

  6. Re: “super concessions will cost the Government $32 billion in forgone revenue this year”: Add $34 billion worth of capital-gains-tax exemptions and discounts (see Friday’s “Addendum”), and you discover that the Commonwealth throws away more revenue through tax breaks for high-income earners and rent-takers than it raises through the GST.

    • One is talking about projections, not money forgone. If those taxpayers did not save for their retirement and spent their money in a tax deductible way that was not taxed at all would that still be money forgone?? Maybe it wouldn’t be money that was earned in the first place if they took a holiday instead of leasing a new car that they otherwise would not have done, deductions to revenue without the GST paid or super contributions tax.
      As I said on Friday. The argument is spurious. If you want to change the law do so, but it is not the Commonwealth’s money UNTILL it has been assessed as income, not before. There are alternatives to paying money into super.

      • In the case of super concessions, you have a point. In the case of CGT concessions, the forgone revenue is under-estimated, because if governments get a greater share of unearned uplifts in property values, they have more capacity and more incentive to invest in infrastructure that causes such uplifts. It’s a virtuous cycle.

        P.S.: No, the gain in revenue is not negated by the expenditure on infrastructure. If x% of each uplift in land value is recaptured through the tax system, infrastructure projects whose cost/benefit ratios are under x% are profitable for the government. Projects with higher cost/benefit ratios need not proceed, just as they need not proceed under current arrangements.

      • Agreed. Save that the CGT concessions may enable one to postpone the payment of the tax until there is little tax to be paid because of the circumstances of the taxpayer. Not too many people try to pay the maximum amount of CGT. I suspect there will be plenty of opportunity to set off capital losses in the near future!!

  7. I love it. “We will face entitlement head on … err other than our entitlement that is… clearly… this is about politics right”