Perpetual chief executive, Geoff Lloyd, has today backed calls for the superannuation guarantee (compulsory superannuation) to be raised to 15% from 9% currently, citing that it would help bolster Australian incomes in retirement. From The AFR:
“I’d like to think it can get to 15 per cent. Our politicians are getting 15, so why isn’t that good enough for everyone in Australia”…
“We have an obligation to help the kids of Australia plan for and live well in their retirement. We still have a large and growing retirement savings gap”…
Lloyd’s push for a large increase in the superannuation guarantee is understandable, given his company stands to benefit directly from such a move. But it is also very poor public policy.
As noted yesterday, superannuation concessions are already one of the biggest and fastest growing drains on the Federal Budget. According to the Australian Treasury, concessions on superannuation contributions were estimated at $16.5 billion in 2012-13, with concessions on superannuation earnings valued at $15.5 billion. Any move to boost the superannuation guarantee would obviously increase drains on the Budget.
To add insult to injury, the lion’s share of the gains from such a boost to the superannuation guarantee would flow to higher income earners. Under the current system, all employees that contribute compulsorily into super 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.
Indeed, the Treasury estimated that in 2012-13, the top 5% of contributors would receive 20.3% of contribution concessions, with higher income earners also receiving the lion’s share of the earnings tax concessions. Such imbalances would only grow under the proposed 15% superannuation guarantee.
Increasing the superannuation guarantee would also unfairly punish those on lower incomes, who would effectively see their disposable incomes reduced. For this reason, as well as the tax lurks highlighted above, the Henry Tax Review recommended that the superannuation guarantee rate should remain at 9%.
As argued previously, a more equitable and cost effective way to improve Australian’s superannuation system is to:
- Abolish the flat 15% tax on superannuation contributions and replace it with a flat concession (e.g. 15%) that is the same for all income earners. A reform of this nature would not only improve equity, since all taxpayers would receive the same taxation concession, but also boost lower income earners’ super savings, thereby reducing reliance on the Aged Pension and relieving pressures on the Budget.
- Increase the access age to superannuation (from 60 years currently) so that it more closely matches the pension access age.
- Reducing the ability to draw superannuation as a lump-sum.
Simply raising the superannuation guarantee to 15% will merely heighten inequities already present in Australia’s superannuation system and worsen the long-term sustainability of the Budget.
