Poor “slugged” on their super contributions

By Leith van Onselen

Fairfax’s Nassim Khadem posted an article over the weekend arguing that 120,000 highest income earners – i.e. those earning above $300,000 – were “slugged” with extra tax bills of $380 million under changes to superannuation rules implemented by the former Labor Government:

In its dying days, the Labor Gillard government introduced the extra 15 per cent tax on people earning more than $300,000, which the Coalition government retained.

ATO data shows it issued $378.9 million in assessments and collected $325.8 million of this in 2014-15. This is up from $294 million in assessments the year before, and $217.4 million tax collected.

The tax, known as Division 293, applies to an individual’s income and pre-tax superannuation contributions. If these amounts total more than $300,000, the individual is liable to pay the extra 15 per cent tax. (This is on top of the 15 per cent tax on super contributions – resulting in a 30 per cent tax on their super contributions)…

For once I would like to see an article highlighting that Australia’s lowest paid are in fact “slugged” the hardest on their superannuation contributions.

Under Australia’s perverse 15% flat tax, those earning below the tax free threshold of $18,200 are effectively penalised 15% on their superannuation contributions, whereas those earning between $18,200 and $37,000 receive a superannuation concession of just 4.0%. In both cases, they receive fewer concessions on their superannuation contributions than someone earning above $300,000, even after accounting for Labor’s Division 293 reform (see next chart).

ScreenHunter_7130 Apr. 22 08.12

What is clear from the above table is that the superannuation concession system is badly lacking in progressiveness, with those at the lower end of the income spectrum treated poorly while those earning between $180,000 and $300,000 make out like bandits.

As argued by Deloitte last month (and literally dozens of time on this site), the logical policy response is to replace the 15% flat tax on contributions/earnings with a flat-rate refundable tax offset (e.g. 15%). This way, everyone that contributes to superannuation would receive the same concession, the system would be made progressive, lower income earners would receive a better deal (reducing their burden on the Aged Pension), and there would be less pressures on the Budget.

With the ATO collecting an extra $380 million from just 120,000 high income earners under Division 293, imagine how much the Budget could save if superannuation concessions on contributions and earnings were set at 15% for all workers?

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Unconventional Economist
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  1. Won’t happen. The government doesn’t care about “fairness”, it cares about dipping it’s hand into your pocket, and at the moment, they’re collecting much more than $380M from the small fish.

  2. Slugged? An average of $3,166 each? That’s not a slugging! That’s not even a minor inconvenience…..

    • I’m still yet to figure out why a flat tax rate is any other than fair ? What is perverse is paying more tax the more you earn. Whats to point of being successful or working hard to earn more money when it just means you have to pay more to the government so they can give it to someone who chose to sit at home and smoke fags all day ???

      • Success comes from a lot more than working hard.
        It comes largely from a combination of most of the following:
        1. Getting good genes so having above average intellect, height and or looks.
        2. Getting a good education and being able to be supported through uni without debt or working lots
        3. Being habituated into a good work ethic by your family and social network
        4. Gaining social training in the ways of the successful though family and private education
        5. Gaining the great social networks for sucess that come from being in a well off family and going to a private school.
        6. Inheriting a significant amount of wealth
        7. Not having significant physical or mental health issues or deformity

        Labourers at Kalgoorlie working in the heat on 35 C days are people who really are working hard, plumbers clearing sewage, tradesmen and their labourers, chefs, hairdressers on their feet all day. All these people work hard, but very few of them achieve much above average financial success over their lives.

        Don’t fall for this “self made through hard work” bullshit, for most people who are really successful they have such an abundance of other blessings most of which they think is just normal but is not. Of course there are some exceptions to the rule and they are to be recognised and given full credit for their achievments.

      • re: Explorer
        x100, you have nailed it on the head.. I have known people who were gifted private education, a leg in the door to an A-grade job, a car for their 18th, an brand new flat or massive deposit when they got hitched or moved out from home and all of them thought their life chances and circumstances were normal.. I know people who are getting paid (I wont say earning) over $150kpa who think they are slap bang in the middle of the pack and absolutely believe that every bogan working his arse off for $45kpa is in fact on more than $100k for sitting around all day + benefits.
        This is the world that right wing politicians occupy and half of Labour politicians.

      • No question there are many more factors than hardwork. Some of the hardest workers I know get paid stuff all. Ever heard of the saying, ‘work smarter, not harder’ ? It doesn’t answer the question, why should someone who has managed to have financial success have to pay more because you weren’t? Go back to your CFMEU meeting you clown !
        You don’t get Rich by sitting around complaining that everybody else has got more money than you. For the record I earn less than 80k a year, I’m just another worker bee like everyone else, changing the tax rate on super won’t change a [email protected]#ing thing. There will be wealthy and successful people and there will be poor underachievers and alotta people in the middle. All the tax policies in the world won’t change that( neither will your whinging!)

      • It doesn’t answer the question, why should someone who has managed to have financial success have to pay more because you weren’t?

        Because they can afford it and have derived the greatest benefits from society.

        Your whole argument is based on circular reasoning: rich people deserve to be rich because they’re rich and poor people deserve to be poor because they’re poor.

      • Lol, you don’t really understand life do you??
        Hey you, you’ve got all this cool stuff that I don’t have! Imma gunna hafta take it from you coz I was unlucky n shit, but its ok coz youse can afford me to stealz it. I coulda started a biznuss or developed some gadget that betterz society n stuff but its much easia to sit and complain that I don’t have everything I want an hopefully the gubermint just gives it to me……..

      • Ronin8317MEMBER

        The tax system has to be progressive because most workers have a wage that is barely sufficient for survival, so asking them to pay more tax means they’ll starve.

  3. If you further subtract fees, it makes the picture even worse.

    Not only for those on the lowest mtr either.

  4. Love the super concessions table Leith. How many times have you posted that now? Over a hundred?

      • Keep playing the Socialist Anthem on repeat. Sooner or later the government will figure out that the less people achieve the more they should be rewarded. Your continued twaddle about so called super tax concessions is literally he economic equivalent of a participation trophy.

        The so called poor got there as a result of life choices (as with the so called wealthy) not because of a flat rate tax on super!

      • NMT,

        How many of those “rich” got there by virtue of hard work, and how many by inheriting, and how many by unfair market manipulation?

        How many of those poor got there because they were lazy, and how many because they were made unemployed by others?

        Rich people should pay more, because they have more to lose.

        It was arch-conservatives like Bismarck and Churchill who supported social security. If you know better than them , go found an empire, or defend one against overwhelming odds like they did, then get back to us.

      • Lol, you’re hilarious. If Winston came up with it then it must be the way to go huh. Like the way the British maintained food rationing years after the war finished and in the complete absence of any necessity to do so apart from some mental ideology.

        Perhaps the ‘Rich’ were fortunate enough not to inherit your feeble brain and came up with an idea or a service or a better way to do something that the rest of society recognised as beneficial and hence were willing to pay said ‘Rich’ person money for said service/idea/product, thus making them rich.
        Perhaps said poor person decided to party and get drunk and smoke weed whilst at school, dropped out at year 10 with no marketable skills other than perhaps manual labour. Then perhaps the aformentioned now rich person (but previously not) came up with a machine or idea that meant that the labour of said poor person was no longer required…..? Business pays a lessor amount to the inventor (and now rich) than the wages of poor labourer making the poor person unemployed.
        Is it the now rich persons fault for being innovative or cleaver ? Is it the poor person’s fault for decided partying is more important then self improvement, knowledge and upskilling?

        Cause and effect my friend!

      • The so called poor got there as a result of life choices (as with the so called wealthy) […]

        Lizzie certainly made some intelligent life choices to become Queen, didn’t she ?

      • lol, she receives income from taxation paid by others…….you should love her, her beliefs are the same as your own!


      • “The so called poor got there as a result of life choices (as with the so called wealthy) not because of a flat rate tax on super!”

        Most poor people I know have some sort of mental or physical illnesses are not capable of holding onto jobs (or working full time). It’s a competitive world out there and a lot of businesses don’t want to employ people who are periodically unreliable (even if it’s not their fault).

        But it must be nice living in your black and white world. Added bonus, it obviously doesn’t require you to think too hard.

      • And how is having a progressive tax rate of super contributions going to fix that? It certainly isn’t the cause of those with mental or physical illness and how much they get taxed on super doesn’t matter as they’ll be on a disability pension..

      • lol, she receives income from taxation paid by others…….

        Like I said. Excellent life choices, right ?

        Your trolling is boring and predictable. Can you at least try and make it amusing ?

      • LOL! NMT, is the hive mind at Catallaxative a bit boring at the moment?

        Guess what, rich people gotta pay more tax, because they have more to protect, and more to lose. It’s like any insurance policy that charges more if you want higher coverage.

        You are seriously deluded if you think that you can just ignore the opinions of Bismarck and Churchill, and then claim any right wing cred. They were people who did things and succeeded. Who are you? LOLOL!

        But by all means, if you think you have it in you, give us some justification for your assertions (most of them pretty dodgy so far). Either that or go back to the other Catallaxatives, and they’ll pat you on the back and tell you what a clever little feller you are.

      • @ NMT my point is I believe your assumptions about the poor, which underpin you argument on fairness, are deeply flawed.

  5. The AFR is getting painful to read in the way they spin how wealthy readers (this weekend it was superannuants) are “slugged” all this extra.

    For an MB reader, it makes for cognitive dissonance.

    I suppose as a compromised journo you have to perform some fairly nifty yoga like poses to make what is regarded as a rort, look like a poverty-making tax.

  6. I agree with MB that a lot of the tax breaks including this one are highly regressive, but you’ve got to admit its a good political negotiating tactic. Complain that the current systems is already unfair to the wealthiest members to make it seem like no change to the current policy is already generous. The author of the article is simply raising the anchor point for the anti-tax stance to counter-balance what they perceive as a grass-roots shift towards a more progressive policy.

  7. Super contributions should be tax free, earnings tax free but withdrawals should be taxed at the normal tax schedule rate. That would be fair and to prevent the “rich” from doing better, a cap placed on the maximum super held. Anything above that has to be withdrawn and taxed at the usual Capital Gains tax rate. That would be fair, but when Keating brought Super in , that was roughly what was intended , but, he had to fund Bob Hawke’s no child “need live in poverty” promise. Now it is too complex to change. Everyone seems to assume that if you increase the tax on Super the wealthy will just pay it. The other answer is to setup a company owning Blue Chip shares, gear it 40% and collect franked dividends. The Profit will be taxed at 30% but about 3/4 of this will go in interest payments and no Capital gains tax will be payable until the shares are sold. The net result is that the Government collects even less tax, but now the market is more unstable as many share holders now risk “margin calls”. Just leave things as they are or at worst increase the contribution tax on high income earners, but then where is the incentive to work in this country. The fairest system is a Wealth tax. A lot of low income earners are “Asset Rich”. How about an annual tax of 0.5% on each and every Australian’s total assets, house included. Seems to work well for Local governments with rates. Simple, fair, cheap to collect and difficult to avoid.

      • You obviously did not read past the first sentence. The idea is to reduce compliance costs. The Wealthy will be paying a “wealth tax”. The electorate is being scared off super because they know that in time the threshold will be cut as to who pays the higher tax rate. Labor is already talking of reducing the threshold from $300,000 to $250,000 when after inflation it should be rising not falling. As I stated above, the wealthy will shift from Super that is not geared to companies that are geared increasing the risk of a financial collapse. The US does not tax 401K contributions. In fact I think that the majority of countries who have super, tax it on the way out, not the way in. Your lower income earners will have twice as much super in the end by removing the 15% tax on earnings. Consider that up until the GFC the share market was returning 14% compound ( when dividends and franking credits are included), over the last 40 years. This is reduced to 12% after the 15% tax. At 14% you double your money in just over 5 years whereas at 12% it takes 6 years ( the rule of 72). Therefore over a period of 30 years 14% gives 64 times what was contributed compared to 32 times at 12%. The people with large Super balances can withdraw more but will be paying 50% on the margin. If this had been done in Keating’s time, the government would now have a flood of tax as people withdraw their super in retirement.

  8. There should be no super concessions, after all this is just another tool for politicians to bribe voters. Less tax all round and less middle class, vote buying welfare.. After all even Menzies, no communist said I look after the middle class, the rich can look after themselves.