Over the past week, we seem to have hit a tipping point in the superannuation debate.
It began when the lobby group for Australia’s industry funds, Industry Super Australia (ISA), unexpectedly admitted that Australia’s superannuation concessions structure is grossly unfair and weighted heavily in favour of higher-income earners:
ISA said a person earning more than $124,000 a year – putting them in the top 10% of taxpayers – gets an average tax advantage on their contributions to super of $3,677 a year, 75 times the $49 a year reaped by someone on $22,000…
“It is clear that the equity and efficiency of government supports, including tax concessions, need to be considered to ensure the supports are being appropriately targeted at those that need it the most – not the least,” ISA chief executive Bernie Dean said.
“Entrenched inequities must be examined as part of the retirement income review, otherwise we will continue to see women retire with about half the amount of super than men, and low-income earners retire with persistently low super balances”…
This was a seminal moment because this admission effectively demolished ISA’s persistent claim that the superannuation guarantee (compulsory superannuation contributions) must be lifted to 12% from 9.5% currently in order to ensure that working Australians retire in dignity.
A few days later, the Australian Council of Social Service (ACOSS) claimed that increasing the superannuation guarantee to 12% would unambiguously hurt low-income earners, and demanded that the “flawed system” of tax breaks for superannuation concessions be fixed before there are any further increases in the superannuation guarantee:
ACOSS chief executive Cassandra Goldie said the $3 trillion system of “forced saving” under superannuation “paid too little heed to the needs of people struggling on low incomes during working life” and must better consider people on low wages when they are younger.
“The flawed system of tax concessions for super contributions should be fixed before compulsory contributions are lifted to 12 per cent”…
“For people on lower incomes, who often struggle to meet the basics of life now, the benefits are not so clear.
National Seniors Australia similarly stated that superannuation concessions need to be reformed so that they are targeted and cost-effective:
“Ideally, concessions should be cost-effective and targeted,” the group said.
“They should encourage the greatest number of retirees to become more self-sufficient rather than directing large benefits to a small number of people who would be able to fund their own retirement regardless.”
Yesterday, the nursing union joined the conga-line, calling for superannuation to be made voluntary:
The Nurses Professional Association of Queensland, which represents about 5000 nurses and is growing in popularity, said compulsory super was a benefit almost exclusively to “fund managers, industry groups and unions”…
“The main losers from compulsory superannuation are low- and middle-income workers, young families, and people wanting to buy a house, who are forced to save the wrong amount of money in the wrong way at the wrong time,” it said in a submission written by University of Queensland economist John Humphreys.
“For most people, compulsory super is either unnecessary (since they would choose to save anyway) or counter-productive.”
The Grattan Institute also released research showing that around 80% of increases in superannuation are passed onto workers in the form of lower wages, and recommended scrapping plans to increase the superannuation guarantee from 9.5% to 12% (see here). Whereas Dr Cameron Murray went one step further and recommended scrapping the superannuation system entirely (see here).
Recall that the Australian Treasury explicitly stated in November that “over a lifetime, more public support may be provided to those in higher income brackets” than ordinary working Australians (see next chart).
These inequities have arisen because of the existing flawed concessions structure, whereby a flat 15% tax is levied on superannuation contributions and earnings, which means those with the highest marginal tax rates generally receive the highest tax concessions (see next table).
Yet, despite this near universal condemnation of Australia’s superannuation structure, and against all evidence, the Australian Labor Party remains steadfast in its view that the superannuation guarantee should be lifted to 12% as soon as possible:
Labor’s financial services spokesman Stephen Jones said… “The original timetable has already been delayed twice costing workers who are retiring today between $60,000 and $100,000 in their superannuation balance.”
Mr Jones said it was a “very risky strategy” for ACOSS to resist lifting super to 12 per cent in the hope the government would raise super taxes on the wealthy to fund benefits for pensioners and the unemployed.
One thing’s for certain, there is no way that the superannuation guarantee should be lifted 12% until the concessions structure is overhauled and made equitable.
Raising the superannuation guarantee without first fixing the concessions structure would simply heighten the current inequities and inefficiencies, rob workers of disposable income, and punch a bigger hole in the federal budget.
The only winners would be the rent-seeking superannuation funds, which would glean fatter fees from the extra funds under management.
