Is there a bigger bunch of rent-seekers than the Australian superannuation industry?
A few weeks back, following the release of Deloitte’s “circuit breaker” on superannuation reform, which estimated that the Budget could save $6 billion per year if the 15% flat tax on superannuation concessions was replaced by a 15% flat deduction in which every income earner would receive the same concession, Pauline Vamos of the Assocation of Super Funds of Australia (ASFA) lobbied against reform:
PAULINE VAMOS: It is broadly equitable, because people who do collect their bit of amount in their super end up not being on the aged pension.
TOM IGGULDEN: And she says making large changes to the system like those proposed by Mr Richardson could have unintended long-term impacts.
PAULINE VAMOS: The cost of delivering the pension is much higher than the super tax concessions but that’s going to be nothing in the future compared to the cost of delivering health care. So let’s look at health care, aged care, the aged pension and super through the modelling of that and then make the changes…
Any budget savings is going to be very attractive for any government, but the last thing we want in the community is short-term revenue to displace good long-term policy.
Now Industry Super Australia (ISA) has released modelling to the Turnbull Government claiming that workers would be worse-off under Deloitte’s proposed 15% progressive concession. From The Australian:
Industry Super Australia, which represents not-for-profit funds that manage about $430bn, has submitted new modelling to Scott Morrison’s officials in the hope it will trigger a rethink of the reform and an increase in the rebate.
A worker earning $180,000 a year would pay $3249 more in super contributions taxes every year under the rebate model that is under consideration, the ISA modelling shows. Assuming that worker is aged 40 and retires at 70, the compound impact would wipe $150,000 from his or her super fund balance upon retirement, after adjusting for inflation.
But the impact would extend far beyond the wealthier employees to hurt those at the other end of the income scale, including women working part-time and those earning less than half the average wage.
A worker on $60,000 a year would pay $342 more in super contributions taxes every year, a loss that would be compounded over time…
“So the rebate needs to be higher and we model it at 25 per cent to ensure that lower- and middle-income earners are getting their fair share of the concessions”.
What ISA fails to acknowledge is that those people contributing to superannuation are also taxpayers. So if the Budget saves $6 billion by replacing the 15% flat tax on superannuation concessions with a 15% flat deduction, this leaves money to fund tax cuts in other areas, increase expenditure on public services, or to pay down public debt. Either way, ordinary tax payers will benefit through other ways, which will more than offset any reduction in their retirement nest eggs.
More importantly, those on the lowest incomes would benefit under Deloitte’s proposed reform, giving them more funds in retirement. As shown in the next table, it is those earning less than $37,000 that are penalised the most through the current flat-tax arrangement:
Ultimately, the super industry’s criticism of Deloitte’s proposed changes to superannuation concessions reek of self-interest. Many in the super industry either want the status quo to remain. Or they want a progressive concession to be implemented, but at a much higher level than 15% (ISA wants 25%). Either way, the goal is to increase the size of funds under management so that they can continue to ‘clip-the-ticket’ and earn huge fees.
Pity about the taxpayer, who would be left funding an expensive superannuation concession system and the Aged Pension.
