Dr Cameron Murray, co-author of the book Game of Mates, has published an interesting straw poll on his Twitter account seeking views on whether “Australia’s compulsory superannuation system make the ownership of assets in the economy more or less concentrated?”:
Does Australia’s compulsory superannuation system make the ownership of assets in the economy more or less concentrated?
— Cameron Murray (@DrCameronMurray) January 14, 2020
Interestingly, nearly three quarters of respondents believe that Australia’s compulsory superannuation system does concentrate asset ownership, which makes sense given the way that superannuation concessions are distributed.
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.
This was made abundantly clear late last year when the Australian Treasury released a paper showing that Australia’s retirement system is giving the wealthiest Australians twice as much financial assistance as those on the lowest incomes because of the superannuation system:
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…
Thus, Australia’s compulsory superannuation system is helping to concentrate asset ownership among the wealthy.
The obvious solution to improve equity is to replace the 15% flat tax on superannuation contributions/earnings with a flat-rate refundable tax offset (e.g. 15%). This way, everyone that contributes to superannuation would receive the same concession, the system would be made progressive, and lower income earners would receive a better deal.
One thing Australia definitely does not need is for the superannuation guarantee to be lifted from its current level of 9.5% to 12%. All this would do is heighten the above inequities, rob lower paid workers of disposable income and worsen the long-term sustainability of the Budget.