Australia’s superannuation is a broken system that works to give the richest 10% over $20bn a year in tax breaks, while nearly a quarter of retirees live in poverty due to the miserable level of the age pension. The government is trying to reduce some of the most egregious abuses of superannuation – and yet misleading fear campaigns look likely to win out.
Let me put some numbers in your head.
Australia is the ninth-richest country among the advanced economies of the OECD. We are richer on average than Sweden, Germany, Canada and the UK.
Among the OECD, Australia has the fifth-highest rate of retirees living in poverty – 23% of those over 65 live in poverty, compared with 14% in Germany, 13% in the UK, 12% in Canada and 9.4% in Sweden.
Ninth-richest country; fifth-highest poverty.
And here’s another number: Australia has the second-lowest level of the age pension in the OECD. Taking into account taxes, the age pension is around 33% of average earnings – well below the OECD average of 61%:
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Oh, here’s one final number, a little tidbit to ruminate over and laugh about as you contemplate if you or your children will ever afford a house or be able to retire. According to the ATO, in 2020-21, 178 Australians under 30 years of age had more than $2m in their super – but also had a taxable income of less than $18,200.
Gotta love a system that helps the battlers, eh?
While you keep those figures in your head, let us turn to the news this week that the government is struggling to get the numbers to change the tax concessions on superannuation earnings.
Currently, earnings on your super are taxed at a flat rate of 15% - below what most people pay for income tax and well below the 45% top marginal tax rate.
The government is trying to change it so that the earnings related to superannuation balances above $3m would be taxed at 30% – still well below the top tax rate of 45%.
The average super balance for people in their 60s is just under $370,000, so these changes affect those with around 715% more super than the average retiree – or around 80,000 people.
The ATO only provides data for the number of people with super balance above $2m, but even at this amount we’re talking a very small number of people:
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Crucially, the 30% tax would only apply to the portion of earnings from your fund above $3m and they would still be taxed less than the 45% that would be paid if it was just normal income.
But these changes were met by fear campaigns from vested interest groups and the conservative media who appear to advocate on behalf of those rich 80,000.
A column in the Australian, for example, argued the tax changes were bad because if one person in a couple died and the surviving partner received their super, the combination might mean the survivor now had more than $3m.
The article calls it the “grandmas and farmers tax”. Seriously.
Others have also pushed overwrought fears about the changes also including the taxing of unrealised capital gains. This is because some farmers and small businesses are rorting the concessions by placing their businesses in their super.
They do this purely to reduce the tax they pay on their business earnings and pretend it is about saving for retirement.
And yet despite talking about just 0.5% of Australians, apparently they are (according to the Australian piece) “middle-income grandparents”.
The AFR, not to be outdone, ran an article suggesting these changes would amount to “stealing my children’s inheritance”.
At this point we should note that superannuation concessions are not designed to increase an inheritance, or to reduce the amount of tax you pay on earnings from your business, or even to minimise your tax at all.
The concessions are purely designed to encourage people to save for retirement in order to reduce dependency on the age pension – not to allow people who would never have qualified for the age pension to avoid paying tax.
We have a system which pretends even people as wealthy as Gina Rinehart need tax breaks to help them save for retirement.
And these concessions are not cheap.
The Treasury estimates that the tax concessions on superannuation contributions and earnings cost the government $55.15bn in forgone revenue – just below what the entire age pension costs:
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That $55.15bn in concessions is what enables people to go around calling themselves “self-funded retirees”.
In reality, they should call themselves “tax-break funded retirees”, because the poorest half of Australian receive only 13% of all of the superannuation tax concession:
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The superannuation concessions are not helping people be less reliant on the age pension. Instead they mostly allow the richest in society to avoid tax so they can have more money to give their already rich kids and grandkids.
Nearly 80% of people in Australians earn less than $100,000 and yet they accounted for just 34% of all the contributions to super accounts:
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It is beyond absurd.
At this point let us cast our minds back to my earlier points: Australia is a rich country, with the second-lowest age pension in the OECD, and as a result nearly a quarter of retirees live in poverty.
The government’s attempt to change superannuation concession is almost the smallest change that could be done – affecting less than 1% - and yet it is unlikely to pass.
If we as a society are unwilling to either reward politicians who try to improve the system or punish those who vote to keep the system unfair, then we are sentencing our nation to worse inequality and a much more fractured society ruled by vested interests and fear.
Greg Jericho is a Guardian columnist and chief economist at the Australia Institute and the Centre for Future Work
