Superannuation tax breaks top $40b

The Australian Treasury has released its Tax Benchmarks and Variations Statement 2020-22, which reveals that the budgetary cost of superannuation concessions has ballooned past $40 billion:

The cost of superannuation concessions over the forward estimates are shown below:

Treasury’s Intergenerational Report showed that the cost of superannuation concessions will over take the cost of providing the aged pension by around 2040:

Cost of superannuation to overtake aged pension by 2040.

Meanwhile, Treasury’s Retirement Income Review, released in 2020, estimated that the superannuation system will cost taxpayers more in net terms over the long-run, that is after taking account savings in Aged Pension costs. The Retirement Income Review also showed that superannuation concessions are poorly targeted to high income earners, thereby increasing inequality:

To the extent that superannuation tax concessions are contributing to higher superannuation balances of lower- to middle- income earners, they help to reduce Age Pension expenditure. But the main influence behind the growth in superannuation balances is the SG. Tax concessions are largely concentrated among higher-income earners who are close to and above preservation age. Across the income distribution, the lifetime cost of superannuation tax concessions is projected to outweigh the associated Age Pension saving (Chart 13)…

Therefore, the biggest winners from Australia’s superannuation system are the funds themselves, which get to glean fat fees from the strong growth in funds under management.

But for Australian taxpayers, it would make more sense to unwind the superannuation system altogether and direct the budget savings into providing a more generous and comprehensive Aged Pension.

The decision to lift the superannuation guarantee to 12% was the entirely wrong policy that will only succeed in further feathering the industry’s nest.