The superannuation vampire is bleeding the federal budget

Actuarial firm, Rice Warner, is the latest to acknowledge that Australia’s superannuation system costs the federal budget more than it saves in aged pension costs, and estimates that raising the superannuation guarantee (SG) from 9.5% to 12% would cost the economy 0.22% of GDP “through this century”:

The Australian government gave up A$41bn (€25bn) in tax revenue last year to support its universal superannuation scheme…

The government’s annual revenue loss through tax concessions to super will rise steadily as the pool grows in coming years. The impact of forgone revenue will accelerate as the next round of legislated increase in the super levy – or superannuation guarantee – kicks in from July this year.

It aims to gradually lift the employer contribution by 0.5% each year from the current 9.5% to 12% by 2025…

Actuarial firm Rice Warner said that lifting compulsory super contributions to 12% would not have much impact on the age pension for many years, and would save the budget only about 0.1% in lower age pension spending in the second half of this century.

In contrast, extra super tax breaks from higher compulsory super would cost an average of 0.22% of GDP “through this century”…

Rice Warner’s estimates are supported by The Grattan Institute, which last year estimated that lifting the SG would cost the federal budget an additional $2 billion to $2.5 billion a year:

Lifting compulsory super from 9.5% to 12% as is legislated over the five years from 2021 to 2025 will deprive the Treasury of an extra A$2 billion to A$2.5 billion per year.

In 2013 the Treasury estimated that the extra revenue foregone from tax breaks after contributions were lifted from 9% to 12% would exceed the budget savings on the pension by 0.4% of GDP a year.

Eventually – by 2050 – the net budgetary cost of super tax breaks would be “only” 0.2% of GDP a year. The extra cost of the tax breaks would continue to exceed the savings on the pension until about 2060, with the resulting debt not paid off in savings on the pension for decades.

Remember, too, that the Henry Tax Review (here and here) explicitly warned that lifting the SG to 12% would harm the federal budget and recommended against doing so:

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 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.

No wonder the superannuation industry is so strongly in favour of lifting the SG, since it represents a transfer from taxpayers into their coffers.

Unconventional Economist


  1. For us lazy bumbs can you give us the number of people who are of age who could receive the aged pensions and give a $ figure if they all received the pension vs the governments cost of forgone revenue due to the super tax breaks.

    I.E it is cheaper to just give everyone the pension than to have super at all.

    • Probably even cheaper to give everyone a housing deposit and let inflating house prices take care of retirement!

      After all with the RBA standing ready to guarantee a floor price or minimum rate of fluffing there is zero risk.

      The alternative would be to offer interest free deposit accounts at the RBA for risk free saving and then let risk and reward without a guarantee look after those that want more.

      • Just to be clear. The alternative I describe is in addition to a decent pension.

        Pension + plus what you have saved up to a reasonable limit before some means testing of pension.

    • age pension costs just over 10% of federal budget
      age pension is just over 3% of GDP
      age pension can be fully funded just from GST

      clearly the reason for push for super is not funding issue

      without super wages in Australia would have been at least 50% higher because unions would still care a bit about employees

  2. super is private tax designed to feed financial sector and union bosses and boost share market via forceful investments

    what happens is that government declares its adult citizens incompetent, forcefully takes money from them, gives the money to bankers to take care of it and promises that one day people may get something back.

    super was a Labor’s Trojan horse designed to destroy unions

  3. The problem is not with the total size of the subsidy, but the fact that it goes disproportionately to the wealthy. The Government will also be paying pensions to those who didn’t get their fair share of the subsidy, as well as those with a $2mil house exempt from the assets test.