Gotti defends giant super rort

By Leith van Onselen

Dad’s Army’s Robert Gottliebsen (“Gotti”) has produced a tortured defence of Australia’s superannuation system today, claiming that the costs of the scheme are a “small fraction” of the “hoax” figures estimated by the Australian Treasury:

As we start the next round of superannuation debate, we are still hindered by the elaborate hoax Treasury played on Australian politicians and the public by giving out false costs on superannuation…

The real cost of superannuation is a small fraction of $32bn…

…The $32bn “cost” figure was reached by adding two theoretical calculations that Treasury researchers in 2013 said must never be added…

Not only was Treasury mathematically wrong in adding the 2013 sums but they used a highly optimistic earning rate of 7 per cent over 35 years to artificially boost the income lost in the concession and “forgot” to deduct the reduction in the pension bill that superannuation delivers.

The “hoax” figures Gotti refers to are shown in the table below:

ScreenHunter_5849 Feb. 02 08.00

As you can see, the concessional taxation of employer superannuation contributions, whereby super contributions are taxed at 15% rather than at the employees marginal tax rate, is forecast to cost the Budget a whopping $16,300 in 2014-15.

Similarly, the concessional taxation of superannuation entity earnings – whereby earnings within super funds are taxed at just 15% before the age of 60 and 0% afterwards – are forecast by the Treasury to cost the Budget $13,400 million in 2014-15.

To add insult to injury, superannuation concessions were also forecast in the December Mid-Year Economic and Fiscal Outlook to grow by a whopping 10.8% per annum between 2014-15 and 2017-18 – well in excess of the growth in the economy.

Gotti argues that Treasury’s tax expenditures measurement is wrong, and that it is incorrect to simply add the costs of the two types of super tax concessions together (i.e. C3 and C6 above).

He has a point: if employer contributions were taxed more heavily then there would be less in the super funds to create earnings that would be taxed.

However, these complexities of measurement are besides the point. The fact is superannuation concessions are costing the Budget many billions of dollars of revenue foregone. They are also growing rapidly. Even if their true cost was half the amount estimated by Treasury above (an impossibly low figure), their cost to the Budget would still be a ginormous $15 billion this year, rising to some $20 billion in 2017-18!

Gotti also needs to explain why it is efficient and fair that the amount of superannuation tax concession received grows as one moves up the income tax scale. For example, a very low income earner earning up to $18,200 effectively pays 15% for their superannuation concession, whereas a high income earner earning $300,000 enjoys a 30% tax benefit (see below table).

ScreenHunter_5484 Dec. 16 07.08

The draft report of the Murray Inquiry into Australia’s financial system agreed that the system makes little sense, noting that “the majority of superannuation tax concessions accrue to the top 20 per cent of income earners (Chart 4.3). These individuals are likely to have saved sufficiently for their retirement, even in the absence of compulsory superannuation or tax concessions”. 

ScreenHunter_3316 Jul. 15 13.21

The bottom line is that superannuation concessions in their current form are both highly inequitable and inefficient, costing the Federal Budget many billions in foregone revenue whilst reducing the progressiveness of the tax system. They have increasingly become a mechanism for richer older people to avoid paying tax, rather than a genuine means for Australians to pay for their own retirement and avoid drawing on the Aged Pension.

Moreover, as noted in last week’s inter-generational report, despite its massive and growing cost to the Budget, superannuation will do little to relieve pressures on the Aged Pension, with the proportion of Australians relying on the Aged Pension – either full or in part – not projected to decline by 2055 (my emphasis):

In 2013-14, around 70 per cent of people of Age Pension age were receiving the Age Pension. Of these, 60 per cent were in receipt of the full-rate pension. As Australia’s superannuation system matures, and compulsory contributions increase, many Australian workers will retire with much larger superannuation balances. The proportion of part-rate pensioners relative to full-rate pensioners is expected to increase. The proportion of retirees receiving any pension is not projected to decline.

If Gotti had any morals, he would be pushing for superannuation reform, in the interests of inter-generational equity and Budget sustainability, rather than muddying the waters with arguments about “hoax” figures from Treasury.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

  1. Tassie TomMEMBER

    Once again, tax-exempt status of religious institutions doesn’t make it to the list. Does anyone know what the figure is?

    • Paul Keating suggested something similar to Gotti above… I think there was some big mathematical stuff up, bogus assumptions or something. But in saying that, some (a small minority by definition) are probably abusing the system. You should always tinker with the system and make if fairer I reckon. It should be done.

      In regards to religious organisations – not much fat in the system I suspect. (i) The Catholic Church has substantial assets, but they are the largest non-government educator. And weekly collections of coins would never cover the maintenance of the church, let alone it various out-reaches. (ii) The Anglican Church is primarily (~90%?) NSW based from various donations of land given early in Australian history, that if the NSW diocese split from the rest of the Australian Anglican churches, as it has threatened to do so – then the rest of the dioceses will go into immediate voluntary administration, and the Anglican as we know it church disappears. (iii) New churches such as Hillsong and its kin don’t have many assets, and substantial debt (2x income?). Not sure of annual income (~$20m pa?) – but apparently that amount disappears almost immediately into various projects globally. (iv) Salvation Army will disappear within a decade on current church attendance trends, its now entirely government dependant on various social programmes.

      Yeah lets bust the churches Tom – and see what happens to this nation… best idea I have seen on this website yet!

      • RT
        Yeah lets bust the churches Tom – and see what happens to this nation…
        It will probably have a positive impact by providing a level playing field in markets where churches are using their tax free status to smash competitors. The Catholic Church also rates as one of the worst land bankers in WA. Charitable work with no strings attached deserves tax relief but, clearly there is much about the operations of some churches that has more to do with recruitment and power. A blanket tax free status is not justifiable. If they want to make money in markets, then they can compete on the same basis as everyone else.

        they are the largest non-government educator. The federal government already contributes substantial sums to the operation of private schools. I am also very uneasy about allowing religious institutions to play a prominent role in educating children when there’s obvious governance/ethics problems.

      • Tassie TomMEMBER

        I don’t think I suggested changing the tax-free status of religious institutions (the voices arguing inside your head have got ahead of you RT).

        I suggested not hiding and covering up what the rest of the taxpayers spend to subsidize the profitable and otherwise taxable activities operating under the cloak of religion.

      • GeordieMEMBER

        There is no reason why the taxpayer should fund the archaic piffle that is religion. It is an anchor on society, and should not be funded from the public purse.

        The federal government already contributes substantial sums to the operation of private schools.

        Spot on, you don’t need to use religion to argue for this funding.

      • Well, not going to argue with fine secularists like yourselves… i would lose comprehensively. Therefore I suggest then that we do what Sweden does, we all pay taxes, so we all get a token worth x amount (usually what ever it costs to educate your child in a public school), and take that token to any school that we desire…

        So if you fine chaps want to take your children to the local public school fine – I will take my token and shroud my kids in a cloak of religion at the local Catholic school.

        Its a democracy – we have the right to chose how we educate our children… you don’t have the right to take my taxes and shove your beliefs down my throat, any more than I with you.

        But I can guarantee, if the Australian education system was suddenly organised along those token lines (Howard tried bringing it in) then public schools would close on mass for lack of students… I wonder why that would be?

      • drsmithyMEMBER

        But I can guarantee, if the Australian education system was suddenly organised along those token lines (Howard tried bringing it in) then public schools would close on mass for lack of students… I wonder why that would be?

        Going on a couple of decades of systemic undermining of the public school system in favour of private schools to drive parents towards that model ?

        Much like they intend to systemically undermine publicly funded healthcare to drive people towards a user-pays system ?

        You can’t get to the ideological goal of incompetent Government without deliberately destroying its ability to be competent.

      • I think public schools have a role. I was predominately publicly schooled – although I was a real rebel raiser… so I didn’t fit in for a long time. My children however, are at an amazing school, fees are incredibly modest, and the care and input by the teachers just leave the public system in absolute shame. I remember not being allowed to do a certain math class at school because it would have gone over the student limit – and the teacher was going to call in the Union. That would never happen at my kids school.

        Christians overwhelmingly subsidise the public school system, and many of us who have had kids in this public system are very unhappy with the results. Yes we have Chaplains’ – but thats only to appease. Personally I think it would be good (such as that seen in the UK) for public schools to be offered to churches and have established Christian schools. It works well in the UK – and academically, they out compete normally public schools substantially – and many are on par with the top tier Grammar schools. My son went to one and it was fabulous. They have effectively no fees and follow the national school curriculum. What is really ironic, is the mad rush by secular parents to get their kids into these schools… turning up to the local parish for a fews weeks desperate to get the priest or vicar to sign the forms.

        You have to ask the question why?.

        In regards to the health care system – thats universal, and not really applicable for comparison in this instance. Most people do want to see the Americanisation of the health care system. That would be a disaster – its remarkable that the US spends 16% of its GDP on healthier and has worse outcomes than either Australia or the UK, France, etc which typically spend 9% of GDP. Why follow something that fails?

      • drsmithyMEMBER

        I remember not being allowed to do a certain math class at school because it would have gone over the student limit – and the teacher was going to call in the Union. That would never happen at my kids school.

        So your school will just keeping adding students, regardless of how many are already in the class ?

        Sounds like a grand idea.

        You have to ask the question why?.

        Like I said, decades of systemic undermining of the public education system.

        Why follow something that fails?

        Ask the Liberals. They’re the ones chomping at the bit to do it, by hook or by crook.

      • Drsmithy – have some stats regarding healthcare costs and why we really, really don’t want to down the US route… sorry they are 2013 stats to be comparative via Mauldin (conservative Republican southerner – who after pointing these obvious stats was basically forced to modify his position just a week later) and the World Bank stats:

        (a) US currently spends 17.9% of its total GDP on health services… projected to rise in the near future by about another 1% due to the population’s aging and a further 3% due to the growing incidence of chronic illnesses. Anticipated increases would raise the nation’s healthcare costs to an unsustainable 22% of GDP

        (b) By contrast, the Netherlands spends 12% of its GDP on healthcare; Switzerland, Germany, France, and Canada about 11%; New Zealand 10%; Sweden 9.4%; and the United Kingdom 9.3%. As we travel through these countries, there is frequently a clear, if anecdotal, perception that people are healthier than in the US.

        (c) …data backs up that perception. The US spends more money on healthcare because we are in fact far less healthy on average than the rest of the developed world. This difference is in large part due to poor lifestyle choices…

      • Drsmithy – have some stats regarding healthcare costs and why we really, really don’t want to down the US route… sorry they are 2013 stats to be comparative via Mauldin (conservative Republican southerner – who after pointing these obvious stats was basically forced to modify his position just a week later) and the World Bank stats:

        I’m a little confused as to why you think you need to convince me we shouldn’t be implementing a US-style healthcare system.

  2. moderate mouse

    “If Gotti had any morals….”

    LOL. People like Gotti are where they are today because of nickel and diming every possible tax dodge they can from the system and not losing a wink of sleep over it. Morality is the last of their concerns.

  3. Using percentages masks the real inequity. If you assume that the “low paid worker ” under this scenario earns, say, $14,000 p.a at a 9.25% employer contribution rate then this inequity is valued at $194.25 per annum or twice that if you wish to hand out the 15% on the tax they are already not paying.

    It is on this basis that some would argue that more money should be allocated to the boffins in Canberra to do exactly what with?

    And if $15 billion is ginormous perhaps it would be a good idea for the conversation to instead focus on why healthcare costs have ballooned by $60 billion since the year 2000.

    It’s not just demographics.

    • focus on why healthcare costs have ballooned by $60 billion since the year 2000.

      Rent-seeking elites no doubt. Simply follow the money to find out who they are.

  4. ceteris paribus

    Following Gotti’s writing on super betrays a high level of paranoia. I don’t see why. No one, but no one is talking about retrospective raiding of cash in accounts.

    The debate is about the question of changing the equity and sustainability of conditions going forward. In terms of changing conditions, especially the level and distribution of tax breaks.

    I think there are only two matters on which consumers can justifiably call foul. They are increasing the preservation age and the options for draw down on already accrued super savings.

    Having said that, I strongly believe that a higher preservation age and use of annuities should be compulsory for all future super savings. We need an open community debate about changing conditions on accrued savings.

    (Gotti is of an age where he won’t be affected personally by even these two latter mentioned changes).

  5. Crocodile Chuck

    I first read that guy in BRW back in the late ’80’s. What a hack.

    28 years on, & he’s still got a byline?

    New pundits, please.