Bill Kelty: Lift superannuation guarantee to 15%

Former ACTU secretary Bill Kelty has urged the federal government to press ahead with the legislated increase in the superannuation guarantee from 9.5% to 12%. Kelty has also told a conference hosted by the ACTU that serious consideration should be given to increasing it to 15% in order to take into account the fact that more Australians are living into their 80s and 90s:

Mr Kelty, a former secretary of the ACTU, said the “best system” for retirement income would be a model where employees are forced to carve off 15 per cent of their wages into superannuation, with the 3 percentage points on top of the legislated 12 per cent specifically earmarked for dealing with longevity…

“Over the course of the next decade or more, people will regret not going to 15 per cent,” Mr Kelty said. “People are already starting to regret not having the best system for the aged”…

“At least get it to 12 per cent,” Mr Kelty said. “And then the nation should have a serious look at whether that is enough to look after the [population aged in their] 80s and 90s. It will become apparent that the country made a terrible decision not going to 15 per cent.”

Is this guy on crack?

Lifting the superannuation guarantee to 12%, let alone 15%, would be a disaster for Australia’s working class, which ACTU stalwarts like Bill Kelty are purported to represent.

As shown comprehensively by the Henry Tax Review, the Grattan Institute, the Reserve Bank of Australia, the Australian Treasury, the Productivity Commission, and the Parliamentary Budget Office, the SG trades-off current wages for more savings in requirement.

Thus, lifting the SG will necessarily come at the expense of future wage growth, thereby resulting in less disposable income today – a disastrous proposition for lower-income earners already struggling to make ends meet.

Lifting the SG will also damage the federal budget, since the cost of superannuation concessions outweighs any future gains from lower pension costs.

Modelling by Rice Warner was explicit on this point:

Our modelling shows that the legislated increase in the SG will not have much impact on the Age Pension for many years but will reduce it by about 0.1% of GDP in the second half of this century on current means testing settings. Conversely, the tax concessions from the increase are more immediate and they will average about 0.22% of GDP throughout this century.

In other words, the federal government wouldn’t break even on compulsory superannuation until well into the 22nd century. Hardly sound like a wise policy, does it?

Let’s also remember that impartial modelling from the Grattan Institute also showed that “both the short and long term, superannuation tax breaks cost the budget more than they save in pension payments”:

As did the Henry Tax Review:

“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).”

Moreover, where is the sense in raising the SG when we know that, because of the 15% flat tax on contributions/earnings, the lion’s share of benefits will flow to higher income earners?

The below chart from the ABS tells the story:

In 2017-18, total household superannuation benefits received was $112,009m. Households in the highest income and net worth quintile received 47% and 74% of total household superannuation benefits, by comparison households in the lowest income and net worth quintile received 3% and 2% of total household superannuation benefits. There was an increase in the share of total household superannuation benefits received by households in each quintile from the lowest to the highest for both income and net worth quintiles, with the increase being particularly steep from the fourth to the highest net worth quintiles. The ratio of the value of the highest to lowest quintiles was 15.5 and 45.7 for income and net worth quintiles for superannuation benefits received.

As does the next chart from the Australian Treasury, which shows that higher income earners receive a disproportionate share of superannuation concessions:

As shown above, 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.

Rather than blindly raising the SG, superannuation concessions should be made more progressive. This way, low income workers could enjoy a boost in their retirement savings without also incurring a reduction in their take home pay and destroying the federal budget, while also improving equity.

Unconventional Economist
Latest posts by Unconventional Economist (see all)

Comments are hidden for Membership Subscribers only.