Superannuation is a tool for the wealthy

By Leith van Onselen

The ABS yesterday released the below chart showing the disproportionate superannuation benefits received by high income earners:

Superannuation benefits received are recorded as a memorandum item of the household income account. Superannuation benefits received in the ASNA are treated as financial transactions of households and are not recorded as income; instead they are recorded in the financial account and balance sheet.

In 2017-18, total household superannuation benefits received was $112,009m. Households in the highest income and net worth quintile received 47% and 74% of total household superannuation benefits, by comparison households in the lowest income and net worth quintile received 3% and 2% of total household superannuation benefits. There was an increase in the share of total household superannuation benefits received by households in each quintile from the lowest to the highest for both income and net worth quintiles, with the increase being particularly steep from the fourth to the highest net worth quintiles. The ratio of the value of the highest to lowest quintiles was 15.5 and 45.7 for income and net worth quintiles for superannuation benefits received.

The below chart highlights why compulsory superannuation is a dud policy in its current form. Because the lion’s share of concessions flow to higher income earners, “both the short and long term, superannuation tax breaks cost the budget more than they save in pension payments”, according to the Grattan Institute:

As well as the Henry Tax Review:

“An increase in the superannuation guarantee would … have a net cost to government revenue even over the long term (that is, the loss of income tax revenue would not be replaced fully by an increase in superannuation tax collections or a reduction in Age Pension costs).”

The ABS chart also highlights why raising the compulsory superannuation levy to 12% is such a bad idea. It would cost the Federal Budget another $2 billion a year, would exacerbate inequities already present in the system, and would rob lower paid workers of vital disposable income.

For these reasons, the Henry Tax Review explicitly recommended against raising the superannuation guarantee:

“The retirement income report recommended that the superannuation guarantee rate remain at 9 per cent. In coming to this recommendation the Review took into the account the effect that the superannuation guarantee has on the pre-retirement income of low-income earners”.

Rather than blindly raising the superannuation guarantee, superannuation concessions should be made more progressive. This way, low income workers could enjoy a boost in their retirement savings without also incurring a reduction in their take home pay, while also improving equity.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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