Why is reform to the gross inequities of the superannuation system so difficult to pull off? We have had a few adjustments over the past couple of years but these don’t really reform the system to make it fairer, just reduce some major rip-offs.
In a recent Facebook post Richard Denniss, from the Australia Institute, names the problem as political cowardice. He states:
"The cost of the most expensive form of middle class welfare, tax concessions for super, are about to blow out from $30 billion per year to $45 billion per year! The blowout alone is enough to fund Gonski, NDIS and with change! It gets worse though, it’s not even very middle class welfare, with Treasury estimating that 37 per cent of the total cost goes to the wealthiest 5 per cent while the poorest third get literally none of it!"
I would be tougher on those who defend tax concessions that richly reward the well-off tax avoider and that, until now, have overtaxed the lowest income super contributor. I suspect that personal and organisational self interest drives their reluctance to support change. It would cost them!
Wayne Swan is again concerned about the state of the possible budget surplus and there is another rumour that some of the super concessions are being examined. Note that the suggested changes are to self-managed super funds that are owned mostly by high-income earners. The forces of equity retirement darkness are already fighting back!
The self-managed super funds are reported to hold assets worth $440 billion, and earnings are only taxed at 15 per cent. They are increasing in numbers and generally hold exceptionally large assets. The AFR reports Tax Office figures that show there are more than 6000 self-managed super funds with assets of more than $5 million. Five have assets of $100 million, implying superannuation payouts of $25 million per individual. Cutting these concessions would have considerable advantages as it would add maybe $10 billion to the budget bottom line and not tangle with union run industry funds or the big finance industry players.
Unfortunately, those who have the power to make or influence the possible reduction of unfairness are those who are most likely to benefit from it. It would be interesting to find out how many senior politicians, union officials and particularly financial power brokers have made effective use of the extra super tax concessions that are so beneficial in their income bracket? Even though some of the concessions have been reduced, such as the capacity to contribute large extra sums in pre retirement years, the concessions are still generous to those who can afford a $50,000 extra contribution. Why would people whose role it is to build super contributions support anything that cuts his personal or business income?
The mix of finance industry power with government/union commitments and their membership of fund boards means that there are few voices who oppose the industry self protection racket. Therefore changes will be opposed, even if the targets are not necessarily the big funds.
Briefly, the problems with superannuation come from the tax concessions on both contributions and their earnings. The 15 per cent flat tax on both of these means the more your usual tax rate is, the more concessions you get. So those who are below the tax threshold have been overtaxed at 15 per cent and those whose average tax is, say, 30 per cent get twice as much back as they put in. So the more you earn and put into super, the more the federal government subsidises your retirement.
The fuss made by powerful men about family payments as middle class welfare stands in stark contrast to the missing critiques of these areas of rich men’s welfare. They benefit from the general lack of understanding about superannuation as few actually realise the extent of the rorts and rip-offs, particularly those who have little super, including some welfare advocates. The snow job is therefore easier, as most people believe super is to their advantage, even when it isn’t.
It’s not that opposing arguments about super aren’t in circulation. Here’s what Richard Dennis had to say in the AFR earlier this month:
"You would think that a $15 billion blowout in the annual cost of any policy would attract the attention of the federal Treasurer and the ire of the opposition, but it seems neither the class warrior Wayne Swan nor the fiscally conservative shadow treasurer Joe Hockey is keen to take on the lobbyists for the most profitable form of middle-class welfare Australia has ever seen." "Defenders of the most costly form of middle-class welfare in Australian history often like to pretend that the scheme is worthwhile because it "takes pressure off the age pension budget".
This was followed by Laura Tingle and Katie Walsh’s judicious leak in the AFR.
"The federal government is considering cutting billions in superannuation tax concessions to pay for expensive new policies in education and disability services. Generous capital gains tax breaks for self-managed superannuation funds which invest in property are the government’s clearest target. For the first time, the government is also focusing on super tax benefits after people retire, when pensions paid by superannuation are tax free."
Tingle and Walsh show how the latest tax expenditures statement show employer contributions concessions cost about $14.9 billion last financial year and the low tax rate charged on super entity earnings added another $14 billion in forgone income. The industry jumped in by stating any changes would undermine the super system. I wish!
Ross Gittins added his voice in support of Denniss’ proposals in August:
"But as Dr Richard Denniss and David Richardson of the Australia Institute suggested last week, there’s another, less obvious source of revenue: reform the concessional tax treatment of superannuation to make it more effective and less inequitable."
He concluded:
"It’s not hard to see why the super tax concessions offer other taxpayers such a rotten deal. As a supposed incentive to people to make their own provision for retirement they’re hopeless."
There is at least $15 billion — maybe $20 billion — per annum wasted in funding the retirement of those who never would have drawn a pension. This is enough money to fund Gonski and the NDIS and leave some for avoiding the deficit. As the costs of these concessions already exceeds the costs of the aged pension, and is in no way equitable, isn’t it time to ask why they’ve survived for so long.