Is there a bigger bunch of rent-seekers than the Assocation of Super Funds of Australia (ASFA)?
Back in October, 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 ASFA lobbied strongly against reform claiming that it would place a huge burden on the Aged Pension:
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 Ms Vamos has taken a confused position against reform, warning that Deloitte’s concessions plan would accelerate bracket creep for 1.3 million Australians. From The AFR:
[ASFA] said taxing contributions at marginal rates less a rebate would have the biggest affect on those earning between $37,000 and $80,000 a year.
An estimated 650,000 people in this category would go from being taxed at 32.5 cents in the dollar to 37 cents in the dollar.
A further 120,000 would move from the second highest bracket to the highest bracket and therefore encounter a rate of 45 per cent.
“If we transitioned to such a system there would be a significant unintended consequence for over 1.3 million Australians, who would transition into a higher tax bracket,” ASFA chief executive Pauline Vamos said.
“Overall salaries would rise, but this would not be reflected in take-home pay…”
Ms Vamos’ argument does not make sense. Marginal tax rates are set by one’s taxable income and, as far as I am aware, superannuation contributions and earnings would remain separate to taxable income, not added to it. If I am correct, then ASFA’s latest argument against reform is null and void.
Time and time again, ASFA has failed to acknowledge 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:
The inequities of the current system were laid bare by Mercer and the Australian Institute of Superannuation Trustees, which published research estimating the total amount of government support in retirement a person receives over their lifetime across 10 categories of income, taking account of both the Aged Pension and superannuation tax concessions.
According to this analysis, the top 10% and top 1% of income earners receive more government retirement support than the other 90%:
The above facts tell us that the current super concession system is out-of-whack with far too much support going to those who least need it and would never be reliant on the Aged Pension anyway (i.e. high income earners), and not nearly enough concessions going to those that do (i.e. low income earners). Deloitte’s proposed reform obviously helps to overcome this issue, while saving the Budget an estimated $6 billion a year.
Ultimately, ASFA’s ongoing criticism of Deloitte’s proposed changes to superannuation concessions reek of self-interest. They want the status quo to remain so that they can continue to ‘clip-the-ticket’ and earn huge fees on funds under management.
Pity about the taxpayer, who would be left funding an expensive superannuation concession system and the Aged Pension.
