Treasury: Superannuation system favours the wealthy

A new Treasury paper, released on Friday, claims Australia’s retirement system is giving the wealthiest Australians twice as much financial assistance as those on the lowest incomes:

The overall level of public support provided by the retirement income system should be targeted to those who need it most. Higher income earners generally have a greater capacity to accumulate savings pre-retirement and make larger superannuation contributions. This can lead to higher tax concessions being provided to this group as a result of the generally flat rates of tax on superannuation contributions and earnings. The application of an additional 15 per cent tax on superannuation contributions for those with total remuneration of $250,000 or more, combined with the LISTO (which effectively refunds contributions tax for low income earners) are designed to reduce the ‘gap’ in tax concessions between low and high income earners. The Age Pension means test also acts to narrow the gap in retirement outcomes across groups with different levels of household wealth by targeting government support in retirement to lower wealth households. Nevertheless, cameo modelling suggests that over a lifetime, more public support may be provided to those in higher income brackets (Figure 4)…

Superannuation earnings attract the largest superannuation-related tax concession in dollar terms, closely followed by employer superannuation contributions. The revenue forgone as a result of superannuation tax concessions is expected to continue to grow as the superannuation system matures…

Indeed, one of the biggest knocks on Australia’s compulsory superannuation system is that because of Australia’s flat 15% tax on contributions, those on lower incomes receive minimal concessions (or are penalised), whereas those on higher incomes receive the biggest tax concessions on contributions:

Division 293 remedies the situation for those very high income earners above $250,000. But even then, the lion’s share of superannuation concessions still flow to the highest income earners, whereas the lower income earners continue to be disadvantaged by the system, as illustrated clearly in Figure 4 above.

An obvious solution to improve both equity and Budget sustainability would be to abandon raising the compulsory superannuation guarantee and instead 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 tax concession, the system would be made progressive, and lower income earners would get a better deal.

It’s a no-brainer.

Leith van Onselen

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.

Comments

  1. What really gets me after coming home is the tax is based on the individual – but when you retire and you need to gain benefits there is a test based upon the family.

  2. Tassie TomMEMBER

    This report does NOT say that the superannuation system favours the WEALTHY.

    This report DOES say that the superannuation system favours those on HIGH INCOMES.

    The accidental-on-purpose mixing up of “high income” and “wealthy” is a deliberate, sustained campaign driven by those with a 7+ figure inheritance (and in this case perpetuated by Macrobusiness) such that the burden of taxation remains largely confined to income and those with unearned wealth remain virtually untaxed.

    • You are correct. Tax paid by those on high incomes is never mentioned either. Just use wealth and income interchangeably and voilà the only taxpayers are the little Aussie batters who don’t receive their fair share in return.

      • Tassie TomMEMBER

        I don’t mind people on high income paying a decent amount of tax. What I don’t like is that people who are 10 times as rich as those on high income pay less tax. Those rich often earn more income, just it’s not “taxable income” but rather capital gains (realised or unrealised), or superannuation earnings, etc.

        • Your second comment here is much better expressed than your first comment. In the first comment, you unfairly criticise the author for deliberately overlooking an issue, which is not the subject of his article. A bit unfair, I would have thought. The author wasn’t writing a comprehensive critique of the total tax system.

    • That’s right. Inheritance of property is a major driver of perpetuated inequality.

      Difficult to rationalise, like hereditary monarchy, once we get beyond the divine right of kings…

    • +1. The exact error that lost Labour the election, just because you take home a decent income does not make you “the top end of town”.

    • A bloke on $180k can have several investment properties. A bloke who is having his wages stolen can not own any property.

      Good looking men keep defending the negative gearing rort instead of ranting against the wage theft rort.

      • Tassie TomMEMBER

        Fair call Jacob. I guess my rant isn’t against the bloke on $180K paying a decent share of tax – he(she) should.

        My rant is against the bloke who inherits a $20M farm whose value goes up 5% in a year hence they “earn” $1M, but because it’s called “unrealised capital gains” they pay less tax than the bloke who’s actually sacrificed years of young adulthood to get the education required to work long hours in a high value job to earn $180K.

        The rich farmer is also the one thieving wages from his workers. And now they’ve got the gall to ask the government to make their wage theft legal by introducing “special awards” for farmers. As if they aren’t already thieving enough wages (and sex) from their steady stream of backpackers.

  3. How the hell is an “earnings tax concession” considered the same a transfer payment! (the age pension)

    To suggest that the bottom 10% of earners “ONLY” receive roughly the same lifetime support as the 80th percentile is disingenuous to the extreme.

    Leaving aside any arguments on the structure of the tax system (CGT vs income etc etc) You are suggesting that not confiscating the fruits of ones labour and receiving the fruits of someone else labour should be considered as equivalent “support”.

    What country is this again???

    • You’re in Peachystan, buddy.

      Keep you valuables concealed and close to you. Because the landlord is out to get them. Or if the landlord can’t, …government will do it on their behalf.

    • So it seems your Centrelink is the ATO. Much more civilised- the cheque is in the mail and no waiting in line with the riff raff. And one dollar of ATO “concession” enjoys purchasing parity with a dollar of Centrelink transfer. Except concession usually purchases excess while transfer likely goes to staple food and shelter. But full marks for narrative.

      • So what if it enjoys purchasing parity? that’s a straw man if ever there was one. You falsely equate Centrelink and the ATO, as if the person whom EARNED an income through their labour is equally entitled to its fruit as the individual that didn’t. (Notwithstanding that the research concerns itself with super concessions).

        I for one support the notion of a welfare state and don’t mind a portion of my earnings being used to supplement the basic consumption needs of those less fortunate. But to sit here an pontificate that you or anyone less has equal or more rights to a workers earnings than the worker themselves….what a narrative indeed!

        • Pontificating? Nah. Just pointing out your entitlement attitude to “concessions” on tax owed, the same level of concessions denied to many others who accrue superannuation through work. If that ain’t “government welfare”, I don’t know what is. Your “narrative” is “pea and thimbles”. You are doing great in the super system, just exactly as I did. As a fellow beneficiary of this stuffed system, I can never “pontificate”. But I can call it for what it is.

          • “Just as I did” and there it is!

            Let me get this straight, so now that you have benefited from the arrangement, now it is your duty to “call it as it is”. All the while making an assumption that I too have benefited…. or perhaps here I am, attempting to convert that labour into capital (via the PAYG system) while enduring constant claims of “entitlement” from those who have never earned it or have already achieved their labour to capital conversion…. which will no doubt be grandfathered from the very reforms they seek. Perhaps I am working away in the full knowledge that the single biggest item of govt expenditure will NEVER be available to me or my family in its present form (and nor will healthcare or education for that matter), yet here I am, being told to fund it for everyone else….. on account of my self entitlement. How very noble and enlightened of you.

            “Tax owed” don’t give me that dribble, There are many self entitled people in this country, and the army of aged pensioners whom will consume more in NPV pension and health care entitlements than they have ever likely contributed in their own “tax owed” is right up there on that list.

          • Yes, I don’t know why I didn’t see. It was never a dodgy Policy at fault but my personal moral greed all the time. Light the pyre Pontifex Maximus.

  4. Yes, an welfare favours the poor. I fail however to see a point.

    Please don’t fall into the realm of the ABC or Fairfax and automatically equate “topic/policy X favours the wealthy’ and therefore by default is a vice or failing.

    The purpose of superannuation is to have retirement income self-funded, rather than equal like the old page pension prior to 1986 was.

    People who make more, have greater economic access to things. yes. That’s a feature, not a bug.