For conservative politicians, it’s never too early to start drinking from the hyperbole cup (the hyperbowl, if you will) over the issue of retirement incomes. We saw it this week as the Albanese government announced a review into superannuation.
The government wants to legislate the objective of superannuation. If you thought the objective of superannuation was clear, you might be surprised to learn that there actually isn’t one.
This is important because without an objective there is scope for allowing super to become anything. For example, the previous government made efforts to enable people to use their super to fund various things such as medical procedures, and during the pandemic they allowed people to withdraw up to $20,000 to help with living costs.
The Association of Superannuation Funds of Australia found that about 3 million people applied for the early release of super funds during the pandemic, and a quarter of them were left with less than $1,000 in their super after doing so.
The former government also went to the last election with a proposal to allow people to access their super to buy a home.
In effect, super was in danger of becoming a solve-all. Got problems with the health system, housing affordability or a collapse in employment? Hey, just open up super.
The cacophony from the Coalition has been that the Albanese government is about to raid your super with its review, with Peter Dutton saying the whole thing was “code for more tax”.
This last part is important, because while you and I might think the objective of superannuation is to provide a retirement income, in reality for many it is a tax dodge.
A very expensive tax dodge.
My colleagues at the Australia Institute estimate that the cost of tax concessions for superannuation is on par with the cost of the entire aged pension:
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It is rare that you can come up with anything that costs more than the stage-three tax cuts, but super tax concessions do. And like the tax cuts, they also massively favour the wealthy.
Superannuation contributions are taxed at a lower rate than income tax – at 15% compared with the marginal tax rates of 19%, 32.5%, 37% and 45%. But it is clear that the advantage is much greater the higher your top tax rate is, and so it benefits the rich more.
Well, it is clear to most. The shadow financial services minister Stuart Robert told the ABC this week that such a suggestion was “cherrypicking numbers to try and drive an emotive response” and said “tax concessions benefit everyone equally”.
But basic maths and many years of research show Robert to be wrong. A decade ago, the Treasury estimated that 31% of the benefits of the super tax concessions went to the richest 10%:
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The annual taxation data shows that while those with a total income above $150,000 account for 7% of all individuals and 27% of all income, they make up 32% of all personal superannuation contributions:
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So large have these concessions become to the wealthy that in 2020 the Treasury estimated that “higher-income earners receive more lifetime Government support in dollar terms than lower- and middle-income earners”.
That means people on high incomes get more from the government through tax concessions than low-middle income people via the aged pension.
“Self-funded” retiree is a massive misnomer. When it costs the government more through forgone revenue than it would to provide you the pension, you cannot really say you did it all on your own.
This issue however is not just about incomes, but also how much super you actually have.
If superannuation is meant “to deliver adequate standards of living in retirement in an equitable, sustainable and cohesive way” (which is one proposed objective), then we don’t need to provide benefits to those whose superannuation fund is already achieving that aim.
This would mean capping the super balance at which you are able to get any tax concessions – commonly suggested as $2m or $5m.
When your super is that large you are not putting away money for your retirement, but using the system to avoid paying tax.
And we are not talking about many people.
The share of people in 2019-20 with a super fund above $2m was just 0.5% – 79,540 people, including 384 people under the age of 30. But that 0.5% of people account for 12% of all superannuation funds held:
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That includes a lot of people a long way from retirement, but even if we only count those aged 55 to 69 with funds above $2m, they still only account for 1.2% of people, but a whopping 13.9% of the total super balance:
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Those with large super balances are also the ones most likely to make personal contributions. The 2% of people with a super fund of more than $1m made 18% of all personal super contributions in 2019-20:
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Much like negative gearing is a tax dodge disguised as a housing policy, too much of superannuation has become a tax dodge disguised as a retirement income policy.
We need to limit the massive benefits flowing to those who do not need it, and use that revenue to help those in retirement who do.
And stating the objective of superannuation is a good place to start.
• Greg Jericho is a Guardian columnist and policy director at the Australia Institute’s Centre for Future Work
