Stop the piecemeal changes to make much-needed and lasting Superannuation reform

28 March 2013

Comments this week suggesting that households on $250,000 annual income are struggling as much as anyone else have provided a less than useful contribution to the debate about Australia’s superannuation system, says the Australian Council of Social Service.

ACOSS CEO Dr Cassandra Goldie said, ‘These comments were unhelpful because they ignore the fact that the average wage in Australia is around $70,000, and 2,265,000 people – including  575,000 children – are struggling to survive below the poverty line of a paltry $39,104 for a family. But the real issue is that superannuation is costing Australia billions of dollars, while its benefits go disproportionately to high earners at the exclusion of those on low incomes. That’s why we need a revenue-neutral restructure of the current unfair and wasteful tax breaks for superannuation contributions.

‘The reality is we need deeper reform to make our superannuation system work for everyone. We cannot continue to bury our heads in the sand and deny the need for such reform. It’s time to stop the merry go round of changes at the margins and reform superannuation properly.

‘In the coming Federal Budget, ACOSS has called for tax concessions on superannuation contributions to be restructured to make the system fairer and simpler, with tax breaks being redirected to those who need them most – low and middle income earners.

‘This is simply a modification of the system advocated by the Henry Review and would be much simpler than the present mess that is just inequitable. Its main purpose would be to make superannuation fairer and more sustainable, not to save the Government money in the short term. Yet even if the reform was revenue neutral, it would yield fiscal savings because future age pension costs would be reduced. The bottom line is that unlike many attempts at reform in the past, this one would “stick” because at least three quarters of wage earners would be better off.

Fast facts on superannuation:

  •     Super tax concessions are currently skewed heavily in favour of high income earners

  •     In 2015-16, spending on super tax concessions is expected to overtake spending on the Age Pension.

  •     The cost of superannuation tax concessions will increase from $31.8 billion in 2012-2013 to $44.8 billion by 2015-15.

  •     Superannuation tax concessions became the biggest tax expenditure in 2012-2013, exceeding the cost of tax concessions for owner-occupied housing for the first time:

       o   Superannuation tax breaks are by far Australia’s largest tax expenditure – estimated by Treasury to cost $32 billion annually, about the same as the age pension.

       o   Half of this total cost, $16 billion, is ‘spent’ to subsidise contributions to superannuation funds, especially those made by employers. Those contributions are taxed at a flat rate of 15% instead of the individual’s marginal tax rate. As a result it is strongly biased towards those on the top marginal tax rate, who save over 30 cents in tax for every dollar contributed to super by their employer compared to no tax saving at all for those on the lowest wages.

       o   We estimate that half the $16 billion spent on this tax break in 2007 went to the top 12% of taxpayers.

  •     Tax concessions for superannuation contributions should be restructured to make the system fairer and simpler:

o   Implement a scheme along the lines of that proposed by the Henry Report where employer contributions are taxed at the individual’s marginal rate before they are deposited into the fund, and this is offset in full or in part by a rebate on all contributions up to an annual cap. This revenue-neutral reform could roughly double the gains in retirement incomes for low income earners from higher compulsory contributions. It would cap poorly targeted tax breaks for the top 20% of taxpayers, who currently receive half of the benefits of $16 billion in annual tax concessions for superannuation contributions.

       o   The Government’s proposal to increase the annual cap for contributions that attract a tax break from $25,000 to $50,000 for individuals over 54 should not proceed as this would mainly benefit taxpayers who are already able to secure their retirement future.

       o&nnbsp;  These reforms would help to curb the current avoidance of personal income tax through ‘churning’ income through superannuation funds, by reducing the caps for concessional contributions by the amount of any benefit paid during that year ($500 million in 2014-15).

See Opinion piece by ACOSS CEO Cassandra Goldie: Super breaks inefficient and unfair: tinkering won’t help

First Published in The Age March 29, 2013