The AFR reported over the weekend that there were 2,000 wealthy Australians that have accumulated at least $20 million in their superannuation accounts, raising further concerns that Australia’s super system is being used as a tax shelter and tax planning purposes rather than for relieving pressure on the Aged Pension:
Australian Tax Office figures show there are 990 people with self-managed super funds worth $10 million or more and 944 accounts in large pooled funds with $10 million plus.
Six accounts have balances of more than $100 million each.
While limits have made it impossible to now reach such high balances, under current settings it is still possible to tip $6 million into super over 30 years, experts say.
Super’s potency in generating wealth is that tax is minimised. Earnings on investments in super are taxed at only 15 per cent and capital gains at 10 per cent.
What’s more, once a person enters retirement the money is tax-free. Assistant Treasurer Kelly O’Dwyer’s reference last week to super tax concessions as a “gift” from government was welcomed by those who argue the system disproportionately benefits the rich.
The AFR’s analysis is backed-up by research from the Association of Superannuation Funds Australia (ASFA), which last year, which found that wealthy retirees are collecting $10 billion worth of income tax free, courtesy of the Howard Government’s short-sighted decision in 2006 to scrap taxes on the retirement income from super.
According to ASFA, there are over 200,000 people who have superannuation account balances in excess of $1 million, with around 70,000 with balances in excess of $2.5 million.
Within these, there are 24,000 self-managed superannuation fund (SMSF) members in the pension phase with balances in excess of $2 million that are receiving around $5.2 billion in tax-free income stream payments, or an average of around $216,000 a year.
A further 51,700 retirees with balances between $1m and $2m are receiving $4.9 billion a year tax-free income streams, or an average of around $93,000 per year.
The inequities of the current system were also 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%:
Blind Freddy can see 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 hate to sound like a broken record, but below is a list of reforms that would make the superannuation system fairer, as well as sustainable from a Budget perspective:
- Making concessions on superannuation contributions progressive, by replacing the 15% flat tax with a flat rebate from one’s marginal tax rate.
- Restoring the 15% superannuation earnings tax for those aged over-60.
- Unwinding Peter Costello’s overly generous “transition-to-retirement” rules.
- Placing either a lifetime cap on superannuation nest eggs or annual caps on contributions.
We know that reforming the superannuation system would save the Budget many billions in forgone tax revenue, thus helping in the task of Budget repair.
We know that the Greens and the overwhelming majority of economists and commentators support making superannuation concessions fairer, meaning that the Government would have a relatively easy time passing such changes.
And we know that more than 60% of Australian voters support raising the tax on superannuation contributions for higher income earners, making reform reasonably popular electorally.
In short, the Turnbull Government would be wise to embark on fundamental reform of superannuation. It offers big Budget revenue gains without the political backlash attached to things like the GST, whilst also promoting fairness.
