Deloitte offers “fair” super reform blueprint

By Leith van Onselen

Deloitte financial services has offered a so-called “circuit breaker” on superannuation reform, estimating that the Budget could save $6 billion per year if super concessions were taxed at a worker’s marginal tax rate with each worker then receiving a flat rebate of 15%. From The Canberra Times:

For high earners on the 45¢ marginal tax rate, the rebate would leave them paying 30¢ in the dollar. For low earners on the 19¢ cent rate, the rebate would pay just 4 per cent. Earners below the tax-free threshold would receive a payment from the government of 15¢ in the dollar…

“We’re suggesting a truly level playing field,” Deloitte partner Chris Richardson said…

Mr Richardson said while stability was important to the super system, the system would be unstable until it was affordable and seen to be fair.

Deloitte’s proposal makes a lot of sense. It is also identical to the approach advocated for years by me, which has called for the 15% flat tax to be replaced by a 15% flat deduction, whereby every income earner would receive the same concession, thus maintaining the progressiveness of the system.

The key problem with the current superannuation concession system is that the amount of 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

This system has led to a situation whereby the lion’s share of concessions flow to high income earners, while the poorest workers are penalised, thereby reducing the progressiveness of the tax system and blowing a big hole in the Budget (see next chart).

ScreenHunter_3316 Jul. 15 13.21

We already know that Deloitte’s proposal has the support of the Greens, which earlier in the year also advocated replacing the current 15% flat tax rate with a progressive system that is closely based on a person’s marginal income tax rate.

This makes super concession reform a fairly easy prospect for either of the two major parties given it would be passed in the Senate.

Put simply, it’s a policy no-brainer on political, equity and Budget sustainability grounds.

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Unconventional Economist
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  1. “Put simply, it’s a policy no-brainer on political, equity and Budget sustainability grounds.”

    LOL – After Tory Rabbit, Bill Shorten, Joe Hockey, et al. demonstrating the complete lack of use of their undoubtedly large mental capabilities over the last 6, 8, 10 years, I have a feeling that the no-brainer bit will have to wait until we truly get some no-brain politicians in office.

    VOTE 1 AUSTRALIAN ZOMBIE PARTY, we know how to use brains

  2. Think about it, all the money they are taking from the super wealty, wont go into the pockets of Joe Average, it goes toward lowering the company tax rate. Ah, who owns all the companies??

    • The super funds!

      Let’s just cut out the middle man. The guv can buy these companies and pay me a pension directly. Oh wait…

    • proofreadersMEMBER

      It’s always about reducing the company tax rate, which is in any event “not over the top” and not about reducing personal income tax rates which are ridiculously high and only about mouthing platitudes on fixing “bracket creep”. At an effective 47% top marginal tax rate, there is SFA incentive for personal exertion.

      • Considering that we have dividend imputation, it’s not the most meaningful tax anyway.

        This bleating comes from foreign interests.

  3. Leith, very sensible suggestion from Richardson. But according to my wussonomics manual, this concept needs years in committees before it can be considered.

  4. arescarti42MEMBER

    Deloitte’s points on negative gearing seem less sensible to me.

    “Negative gearing…isn’t a loophole in the tax system. It simply allows taxpayers to claim a cost of earning their income. That’s a feature of most tax systems around the world, and a longstanding element of ours too.”

    Correct me if i’m wrong, but I believe Australia’s tax system is fairly unique in allowing losses to be claimed against unrelated income, which is what creates the loophole whereby rental losses are used to reduce tax paid on wage income.

    • proofreadersMEMBER

      On the basis of what Deloitte seems to be saying about negative gearing, theoretically shouldn’t they be advocating that capital losses be deductible against ordinary income (and not just against capital gains, albeit they are subject to a ridiculously generous CGT discount)?

  5. If you like the present generation stealing from the next, this is a great idea.

    This will reduce super balances in the future, thus increasing the need for future generations’ taxpayers to cover that reduction.

    Maybe we should pay for our present government services from present taxes, allow super balances to increase more and then tax the outgoings at the full rate.

    For example, under the present arrangements, average super lump sum at 65 is just over $200k.

    Imagine if that was 15% greater, that would be $230k.

    Now, just imagine if we reformed super fees and instead of 25% of the balance being taken, it was only 8%, that $230k would be $270k.

    At which point, reduction in pension amounts would occur, and tax payable in the future as well. Just when we need it.

    But hey! Let’s just take money from the future for current consumption.

    Oh, and if super were tax free during accumulation, and taxed at full marginal rates at withdrawal, then someone taking money out for the Rhine cruise would pay through the nose, and it would be a nice effective and unavoidable death duty.

    But nah, let’s just keep feeding the FIRE industry.

    • In your scenario, the $200k figure is the lower limit. People are free to contribute more.

      Contributions to super are not some benign, structurally secular flow of money. Their deductions mean this shortfall has to be made up from elsewhere.

      • Sure RP, but if they do contribute more, that reduces old age pension in the future, and increases tax take in the future. It’s the “in the future” bit that most commentators miss. The one where future generations are expected to pay pensions out of their tax. If superannuants have to pay tax then, and get less pension in the future, there is less intergenerational transfer. Something I thought people here were onto. Maybe.

      • So you’re saying tax receipts should be a secondary consideration to what level of income superannuant feels entitled to?

        “So yeah, let me get to whatever level I want, then tax what’s surplus to that”

      • That’s not what I am saying at all.

        What I am saying is that this generation should pay the full amount of tax for its current uses now.

        In addition it should fund its future expenses by putting money into super tax free now, but then paying tax when it goes into super withdrawal mode.

        That is the way to minimise intergenerational transfers.

        You of all people, who derides a certain demographic for intergenerational theft should understand that. Having taxes taken from future provisions to fund present expenditures is just that – theft from future generations to pay for our expenditure, and increasing the social security burden on future generations is just as contemptible.

      • I understand what you think you’re trying to say. Perhaps it’s a seniors moment that cannot see through the BS.

        1) So pay for current expenditure, yep, consolidated government revenue.

        2) Pay for future income streams, via a fully funded superannuation payment… and you’re saying to ensure it gets there, don’t make the super contributor pay the full tax amount.. ‘allow it to build’ ….continue to give it tax breaks to ensure it reaches its final target… hence impairing the 1) consolidated revenue bit.

      • RP,

        I’m saying don’t have tax on super during the accumulation stage, but tax it FULLY at the pension phase at full mtr. So that the present generation has to pay more tax now outside super, and more tax in the future under a fair scenario.

        At the moment, the present generation is paying only a part of the present tax load, and zero in the future. The proposal in the OP just tinkers at the edges. How is that fair? If having a senior’s moment is wanting our generation to pay its full taxes now and in the future, and not impose on future generations, well your attitude to intergenerational fairness is noted. Having the FIRE industry take a huge chunk from present and future generations is also unfair.

  6. Makes sense but even the rebate offered should be subject to a cap. Govt has to stop allowing super to be used as a tax dodging wealth creation tool by the wealthy and start ensuring all get to use it simply to provide for a reasonable level of retirement and no more.

    • PlanetraderMEMBER


      There is a cap on super contributions that has come down considerably from previous years and maxes out at $35k so is a drop in the bucket for someone earning big dollars. So the flat rate plus these caps would make a big difference and would make the system fairer.

      • Yes, agreed. What I’m suggesting is that say a wealthy person reaches a total of $2m (or some other “sufficient” amount) in their super account, then any contributions thereafter don’t attract the 15% rebate that Deloittes is talking about. In essence, whether you do / don’t put any more into super after that cap is reached, your underlying income is taxed at your full MRT rather than concessionally.