Australia’s superannuation system drives inequality

Robert Lechte, a welfare-state advocate living in Melbourne, believes that Australia’s superannuation system “enshrines inequality”:

Like other market-based schemes, superannuation has reinforced and accelerated existing inequalities. Because super is primarily funded by employer contributions, it is self-evidently terrible for the unemployed or those out of paid work due to disability, sickness, or caregiving. They earn a 9.5 percent contribution on zero — namely, zero. By contrast, professionals, managers and other high-income employees earn 9.5 percent super on six-figure salaries — earning increased interest.

Lower-income groups are also at a disadvantage…

It’s commonly asserted that a higher contribution percentage will simply fix things, but super contributions cannot fix income inequality because super balances are themselves nothing more than income, determined by the labor market, forcibly saved.

Similar sentiments were echoed by The Australia Institute’s (TAI) chief economist, Richard Denniss:

According to research from my Australia Institute colleague Matt Grudnoff, 60 per cent of superannuation tax concessions go to the top 20 per cent of households, with just 11 per cent going to the bottom half of all Australian households…

According to Treasury, when you compare the age pension and superannuation tax concessions, taxpayers spend at least twice as much supporting the retirement of someone in the top 1 per cent of income earners as they spend on someone receiving the age pension…

The people who invented our compulsory superannuation system, and the tax concessions that accompany it, didn’t set out to make a system that takes the disparities in working-life incomes and magnifies them in retirement.

Since the size of one’s superannuation nest egg is a function of how long one works and how much they earn, and because the 15% flat tax on superannuation contributions and earnings provides the most benefits to those on higher marginal tax rates, superannuation drives inequality.

Anybody disputing these claims only needs to examine the below chart from the Australian Treasury, which shows the lifetime taxpayer support provided via the retirement system:

Clearly, higher income earners receive a disproportionate share of superannuation concessions.

For instance, the top 1% of earners are projected by the Treasury to receive more than $700,000 in superannuation concessions over their working lives, which dwarfs the $50,000 of concessions received by the bottom 10% of income earners.

Accordingly, Australia’s compulsory superannuation system is actually enshrining inequality by concentrating asset ownership among the wealthy.

For these reasons, Australia’s superannuation system is really more of a tax avoidance scheme for the rich than a genuine retirement pillar.

Therefore, the absolute last thing the federal government should do is go ahead with the legislated lift in the superannuation guarantee to 12%, given this would worsen inequality.

Unconventional Economist
Latest posts by Unconventional Economist (see all)


  1. Also giving the plebs early access to Super is a complete brain fart idea. it just means they have less money in there for retirement later but also less ability to leverage existing money and compound it for future returns.

    But Scotty and Josh would rather we use our own savings in the crisis than give the plebs any kind of stimulus or UBI. Only lifters get stimulus.

  2. Tassie TomMEMBER

    “Australia’s superannuation system drives inequality”. Absolutely! But it doesn’t have too.

    The first cut & paste contradicts the repeated assertion that super in funded by lower wages (I believe the latter, not the former). If the high-earning professional or manager didn’t receive compulsory super, then their take-home pay would be 9.5% higher still, making the first cut & paste a zero-sum game (tax gifts aside).

    The second cut & paste talks about the “top 20% of households”, but it doesn’t define the top 20% of what. I assume TAI means the top 20% of income-earning households (which would be consistent with Treasury’s graph), but the “top 20%” should really be talking about the 20% of wealthiest households (of which 1/3 are in the “top 20%” of high income households and 2/3 are not, and similarly 1/3 of high income households are in the wealthiest 20% and 2/3 are not). I’d imagine that the graph of lifetime tax gifts would be even more skewed if wealth deciles were on the X-axis instead of income deciles, particularly as earnings concessions are the major component of tax gifts for the better off.

    Super could be made much more equitable if the tax concessions were reduced and aligned with personal income tax rates (for example a 10% discount or rebate, and get rid of the tax-free allocated pension thing), and if a broad-based annual levy on capital was introduced to shift some of the burden of taxation from income to wealth (eg, a 1%pa wealth tax, including on superannuation balances).

    Yes it would still be inequitable as people with zero income would receive zero tax gifts, but it would be far better than it is at present.

    • The wealth versus earned income split is almost never examined here.
      Also never, ever examined by the (quite conventional in this respect) economist is the disproportionately high income tax burden borne by high income earners which thus leads to all these “gifts” from the government.
      As for the Treasury modelling, anyone is free to accept it. I would need a bit more detail about the underlying assumptions given Treasury’s fabulous track record and their recent JobKeeper modelling.

      • Tassie TomMEMBER

        Olaf while I wholeheartedly agree I’d like to just clarify that I don’t dispute that high income earners should bear their fair share of the tax burden.

        The problem is that the 2/3 of high wealth households that are not high income households (whether you define both of these thresholds as top 20%, top 2% etc) are not asked to contribute their fair share which by definition they can better afford than someone less wealthy regardless of income, hence the 2/3 of high income earning households which are not high wealth households then have to contribute proportionally more to make up this deficit.

        The biggest problem income tax problem is not actually with households earning $200,000 pa, but with households who are paying tax while also having their welfare tapered (Jobseeker, Family Tax Benefits, etc). These households find themselves in the 60%, 70%, even the 89% effective marginal tax bracket. Or otherwise they are in this EMTB until April at which point their welfare is reduced to zero, and then they have just 2 months of “clear” earnings at their headline marginal tax rate.

        A simple example – the farmer who has inherited a farm worth $20 million (ultimately aboriginal wealth, but that’s a whole other story) is richer than I’ll ever be regardless of how long I educate and how hard and long I work, but the rich farmer is likely to be paying far less tax than I do. Their profits are often reinvested as “repairs” which are really capital improvements (“I had to repair my paddock that has gotten lumpy by laser levelling it, and bugger me, now I can flood-irrigate it”), so their net worth goes up in the form of unrealised hence untaxed capital gains.

        PS – Don’t tell me these rich farmers aren’t also paying their $25,000pa into their super account. Possibly the other $100,000 non-concessional too for future earnings tax concessions.

        • NoodlesRomanovMEMBER

          I did some book keeping (definitely not accounting) for a friends parents for some holiday work in the 90’s. It was running at a book loss, mum and dad paid themselves a salary so they had some cash for the purchases they couldn’t put on the Elders agent tab (that in itself is a lurk I couldn’t believe – the agent would duck up to the pub and buy a pallet of beer for you and hide it on the bill – there were invoices that had $8k – Misc/Sundries), and the kids qualified for full Austudy at uni. All operating profit was plowed back into capital improvements that were ‘repairs’. During the mid 00’s drought they were on Landline as hard hit battlers because they had no incentive to save money during the good times.
          You touched a nerve there.

          • You’ve just described the lifestyle of the average self employed tradie. A fencer mate of mine pulls $50K less than I do, yet we worked out his family is $60K a year better off, owing to his ability to dodge the taxman with write offs, cash jobs and keeping himself below the thresholds for FTA/B and all the other assistances.

          • Yep exactly Jimbo. I was a high income sucker paying way too much tax as part of my income. I paid $90k last year (income tax not including the $53k in stamp duty) with no ability to write it off or deduct it. I should have been negatively geared.

          • drsmithyMEMBER

            LOL. Careful, any suggestion that farmers might also be rorting the system will have a certain poster whose name triggers spambot in here abusing you.

      • Jumping jack flash

        be careful and don’t conflate wealth with debt.
        It is easy to do. Banks feed us the lie that debt is wealth constantly, otherwise nobody would take on debt to get “wealthy”.

  3. MountainGuinMEMBER

    It’s not just the % of earnings which are placed into superannuation but other voluntary contributions. While limits have changed overtime, early in the policy huge amounts of voluntary contributions were permitted under the guise of letting older workers catch up to a position as if they had super for more of their career. Rolling in more funds to the low tax environment of super is purely a tax play for wealthy, normal savings would have still supported retirement

    • Not to mention that Howard doubled down and made income earned in retirement phase completely tax exempt.

      • That gives me the shytes too. I argue with my retired mum over that. Income is income and if you’re retired you should still pay tax!

        • Hear! Hear!
          I often go at my Dad for all the little benefits he gets. He eventually gets back to “Well, you’ll get less when I pass away.” Frankly, my Dad, I don’t give a damn. I would rather for myself and others to be able to accumulate my own wealth and for those with wealth to contribute back into society. A better society is better for me than myself having more in a broken sh1tshow.

  4. it drives only inequality between those poor (young who are not part of 1%) and those just above the poverty (BBs who are not part of 1%)
    real inequality is between top 1% and the rest and super has nothing to do with that in this sense but it was important part in bribing unions to sell off members to rich business owners …

  5. Wealthy inequality has been the ‘topic du jour’ for some time now — many economists have had a crack at this, but, outside of AET none have put their finger on the true cause – the thing that matters most (there will never be equality in ‘wealth’ and nor in anything else, because it’s simply unattainable). The primary reason for wealthy in equality is the ownership of assets – those that have them and those that don’t. Easy access to credit allows those that can get loans to leverage into assets while those that can’t get left behind. The inflationary monetary system then takes care of the rest …

      • In a way, yes. The way to profit from the system has been to buy assets. However, while many speculators view themselves as ‘savvy’ (and some, crazily intelligent), most don’t understand the true reason for their apparent success i.e. an inflationary monetary system.

        That’s not to say people will continue to profit as they have done in the past – the system feels to me like it’s on its last legs, so the bulk of the profit has been extracted, meaning the next real opportunity may not come for generations (when the next ‘new and shiny’ fiat money system comes into being).

        In the meanwhile the powers that be will try to keep this ailing nag alive with ever more injections of printed money

    • Yep the biggest driver of inequality in this country is access to good quality housing in good suburbs. If you don’t pay rent and can contribute 20k extra to Super each year instead you’ll be better off in retirement.. high income earners could have high expenses and not really leverage that money into assets which central banks keep propping up with manipulation of fiat.

  6. “Clearly, higher income earners receive a disproportionate share of superannuation concessions.”

    They do, and clearly, high income earners (particularly PAYG earners) pay a disproportionate share of ALL OTHER EXPENSES. Argue the issues with the system all you want, but doing so by focusing on one side of the P&L is just pure propaganda.

    I’ll ask again (like I do every time that chart is presented) Where is the chart that compares lifetime govt ‘support’ vs lifetime taxes paid? The 20th vs 80th percentile is classic case in point, the person in the 80th percentile receives almost the same level of total retirement ‘support’ despite having contributed to the system 5x, 10x what the other percentile has, and that is before considering the ‘support’ is solely taxes forgone vs pension paid to you and before factoring in any other ‘support’ that 20th percentile earner has received over time)?

    Sure, that is the nature of a progressive tax system, but to simply sit there and look at a one sided expenditure chart at call it ‘unfair’ is BS.

    As other’s have pointed out, this argument also focuses purely on INCOME, therefore any change to this system will likely target those still contributing to super (those attempting to convert income into wealth), leaving the wealth already accumulated largely untouched. This simply entrenches the generational wealth divide that MB frequently rages against.

    PS: I’m all for simplifying the system.
    – Put money in and receive a small flat tax concession (to compensate for the huge liquidity and govt uncertainty)
    – Leave it in there to earn an ROI, pay no tax on those earnings (that’s your major incentive)
    – Pay marginal tax on it when you eventually withdraw it (for retirement or inheritance).

    Some lumpy cash flow issues for the govt budget to deal with but otherwise a highly simplified and fair wealth accumulation system for all.

    • Forgot to add:
      – make it non compulsory (evidence appears clear on this, allow workers to derive the best place to save and if that saving is not going to materially impact their retirement owing to their income situation, then allow it to be consumed today).

    • Jumping jack flash

      Yes. Pre tax income going in therefore tax the income going out. Remove ridiclous contribution taxes. Simple.

      Surely theres enough people retiring with super now for the government to get their pound of flesh from that kind of a system?

      And yes, since super is grossly inadequate for providing income to last an entire retirement in this debt bubble we call an economy, allow people to use the super money to buy protected houses that are mandated to double in value every 7-10 years, unlike super.

    • Most OECD countries tax superannuation contributions and earnings lightly or not at all in the accumulation phase, allowing people to benefit from compounding, but tax withdrawals in the pension phase. It seems to be a much fairer system. If you are retired but have a high income, you pay taxes like anyone else.

      The other OECD countries also tend to do a better job at protecting people from fee gouging.

      • SchillersMEMBER

        Not only do we tax contributions going into super very lightly (15%) and withdrawals (in pension phase) not at all, there is no tax on the earnings (profits) made within superannuation funds in the retirement phase. The last TES (tax expenditure statement) I saw from Treasury estimated the concessions on superannuation “earnings” to cost the federal budget $19.25 billion in 2017/18. I’ve since seen estimates that this has now ballooned out to over $25b. That’s in addition to the $20b lost every year in concessional contributions.

        Nice work if you can get it.

        • Strange EconomicsMEMBER

          Thank Costello as the self titled “worlds best Treasurer” for removing tax on withdrawals in the “will go on forever” mining boom. (and gifting a massive hole for future budgets).

  7. Jumping jack flash

    “Australia’s superannuation system is really more of a tax avoidance scheme for the rich than a genuine retirement pillar.”

    100% up until a few years ago when high income earners could plough as much pre-tax income as they liked into super to avoid tax. They can still do that of course but not as much before they need to pay extra tax.

    This in itself removes the “soul” of super because as you say those earning enough to do that, already contribute more from the 9.5% rate.

    As it stands currently, unless one contributes a lot extra, or ideally supplements super with a property portfolio, 9.5% of an average wage will be nowhere near enough to pay an average wage for 30 years of retirement, and many who think that they’ll be fine for retirement, fooled by the great super lie and trillions of dollars of nonproductive debt inflating everything that is necessary, except wages, will be in for a big dose of reality when they find themselves clutching a can of catfood, shivvering under a blanket for warmth in their tiny, likely rented, home, living on a government pension, if it even exists.

  8. As an aside. Back in the day at the highly respected (back then) scientific research institution where I earned a meal ticket “percentile” used to be plain old “centile” . We don’t have “perquartile” or “perdecile” or “pertertile”. So why “percentile”? Just another example of the boganisation of the English language.

  9. Leith get with the program the world is all about inequality its just making sure you on the right side. Until the revolution that is … guessing resentment in Aus will be far slower to come that elsewhere …

  10. That graph would drive the point home better it the top decile weren’t split into three!