Compulsory superannuation drives wealth inequality

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?”:

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.

Leith van Onselen


  1. HadronCollisionMEMBER

    selection bias? those likely to follow him are the kind who think like MB/readers and are reasonably well-informed?


    • Yes, a massive selection bias. I think across the general public (and especially the wonk class of political and economic observers) the result would be the opposite. At least, that’s the impression I get when I raise this issue.

      • HadronCollisionMEMBER

        As always with everything you do

        Thanks for reminding me to buy game of mates
        Although I don’t know if I need more angry fueL

  2. Compulsory is such a dirty word.
    Anything compulsory in this country is a rort that companies take full advantage of.
    Super, private health, rego and 3rd party, Strata, voting…

  3. Ignoring the selection bias and other factors that render the poll result largely meaningless, it’s also interesting to contemplate what exactly is meant by the term “concentrated”. We all know the majority of wealth in absolute terms is held by the wealthy elite, so clearly concentrated on that metric alone. However, the compulsory nature of superannuation means that many more people (in number) who may otherwise not have held investments in shares do so by virtue of their superannuation. In this regard, concentration (by number of holders) is probably dramatically lessened. The devil is in the detail here.

    I am not making an argument for or against compulsory superannuation, simply noting the expected effect of the current scheme vs the counterfactual of no enforced saving scheme at all.

  4. The Low Income Superannuation Tax Offset refunds the contributions tax paid by those under $37K. So those on such incomes pay an effective concessional contributions tax rate of zero.

    Meaning that the above table with the ‘super tax concessions’ is wrong for the first two tax tier rates — the first one should be 0 (not -15) and the second should be 19 (not 4).

    • Counterfacts aren’t welcome here.
      Be careful or you will be bestowed the mantle of troll, paid shill or astroturfer.

  5. This is a nonissue

    No one on 37k or less is ever going to be able to fund their own retirement

    No one on 250k or more is ever going to be relying on the pension

  6. Jumping jack flash

    Superannuation is a ponzi, so they need to have the poor people pay more and receive less so the returns for the rich people can actually be paid. If they relied just on contributions then the rich people would never be able to receive the return they expect.

    If you mess with the system you need to be very careful.

    There is no magic, nor is there magic-pudding money. At the end of the day someone has to pay and someone needs to lose, for someone else to get paid and for someone else to win.