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It's super tax concessions, not pensions that are killing the budget

EXCLUSIVE

The age pension currently costs $39 billion and superannuation tax concessions will cost the budget around $35 billion in 2013-14.

The age pension currently costs $39 billion and superannuation tax concessions will cost the budget around $35 billion in 2013-14. Photo: Nic Walker

Australia's generous superannuation tax concession designed to make Australians provide for their own retirements should be scrapped because it disproportionately benefits the rich and will actually cost the budget more than the age pension in coming years anyway, according to new research.

With the government weighing up significant changes to the age pension in a bid to curb a projected blow-out, including raising the eligibility age to 70, The Australia Institute has crunched the numbers and concluded that revenue foregone through the low 15 per cent tax rate applied to super contributions, is fast becoming the fiscal drag.

And it says the two retirement income systems - the means-tested age pension, and the blanket subsidy for superannuation contributions - are working against each other with the former acting as a personal wealth disincentive, and the latter encouraging savings but dramatically skewing the benefits to the wealthiest.

Four in five retirees eventually get either full or part age pension, with the remaining one in five failing a combined asset and wealth test.

However, that cohort of wealthier retirees, currently enjoys a major advantage over other taxpayers because the flat 15 per cent rate on super contributions is much lower than the top marginal rate they would be liable for on all other income.

The study, to be formally released on Tuesday, found the rate of growth of super tax concessions is greater than that of the pension despite the ageing population, meaning the cost of the tax concession will soon overtake the pension to become ''the single largest area of government expenditure,'' by 2016-17.

'''The age pension currently costs $39 billion and superannuation tax concessions will cost the budget around $35 billion in 2013-14,'' the study found.

It notes that the Commonwealth bill for these concessions is projected to rise at a staggering 12 per cent annually to be $50.7 billion in 2016-17.

''The overwhelming majority of this assistance flows to high-income earners,'' the report finds.

''Low-income earners receive virtually no benefit. The combined cost of these two policies will be $74 billion in 2014 alone.''

To address the problem, the report's authors, David Ingles and Richard Denniss, have called for an end to the favourable taxation of superannuation and the introduction in its place of a ''universal age pension'', which would be non-means tested.

Individual superannuation would then be used to top-up retirement incomes but its accumulation would not receive preferential tax treatment.

Dr Denniss said the current arrangements were inconsistent, unfair, and ultimately unsustainable.

''We're not saying 'scrap super', people would still be putting 9 per cent of their income into super, and they'd still be free to put additional payments into their super, but they wouldn't be getting the massive tax concessions for doing so,'' he said.

He cited the example of someone on $200,000 who is forced to take 9 per cent of their income as employer super, and thus gets that income at a 15 per cent rate rather than paying tax in the top bracket.

''Under the current scheme, the more your earn, the bigger the benefit you get, and if you don't earn very much, you actually pay more tax,'' he said.

''If the cost of age pensions is ballooning, then tax concessions for super are the Hindenburg.

''You can get your super from age 55, well, we're now saying you can't get the pension until you're 70, if the purpose of super is to take pressure off the age pension, why are we letting people get their hands on it15 years earlier?''

The study comes as the Prime Minister is reported to have dismissed a plan to stiffen the pension assets test, favouring instead the gradual move to a 70-year-old eligibility threshold.

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270 comments

  • Yet another prime example of the social engineering on the agenda.
    How's Hockit going to address these chasms in costs and his furphy on the aged pension?
    Everyday more revelations of the gross unfairness and incompetency of the amateur hour currently running the show.
    When are the masses going to finally wake from their denial of what the agenda is?
    Repressive extremists in charge not adults.

    Commenter
    A country gal
    Date and time
    April 22, 2014, 6:59AM
    • So you want the Labor control back in do you? I know who's in denial.

      Commenter
      WotTha?????
      Date and time
      April 22, 2014, 7:39AM
    • ''Under the current scheme, the more your earn, the bigger the benefit you get, and if you don't earn very much, you actually pay more tax,'' he said.

      So the person on 200k is getting 9% at 15% tax. Guess what, the other 91% is being taxed at 48.5% (incl Medicare levy). The person on average wage is getting taxed way less than that. The person on minimum wage is paying hardly any tax at all. The person on 200K is unlikely to be getting a raft of other taxpayer handouts, like the schoolkids bonus and PHI rebate. So the person on 200K is still paying a ton more tax and getting a lot less benefit overall than someone on the average wage and someone on minimum wage.

      Gillard and Rudd were great at fighting the class war by pitching one end of the street in Mt Wavery against the other (not Altona against Toorak) and hitting the upper middle earners at every turn; hopefully Abbott & Hockey won't fall for this.

      Commenter
      David
      Location
      OutEast
      Date and time
      April 22, 2014, 7:56AM
    • @Country Gal. What is missing here? Extremist social engineering?Arent super contributions taxed at a flat 15% across all income groups? How is that not fair? If you earn more or contribute more then you have more in retirement. To use the example in the article, the $200k wage earner is already paying the top marginal rate on the part of their salary which is outside super while the person on $50k is paying a much lower rate and takes advantage of additional tax advantages outside super such as franking credits. People need to realise you need to save and invest for retirement and not expect higher income earners to carry you. Modelling the opportunity cost of tax revenue foregone at 15% on higher incomes is not a realised cost like the pension, by the way. If we used this example there are a lot of foregone tax opportunities in any government program like R&D. The break exists as an incentive to do something with a poditive result. In the case of super, this allowing self funding into retirement. The reason 4 out of 5 claim a full or part pension is that the generation of retitees has minimal super as it only came in during the 1980s. The major asset is the home, where they still live.

      Commenter
      Bang Banh
      Date and time
      April 22, 2014, 7:57AM
    • Whattheeeeeee?
      No, I want to see the duopoly broken. An egalitarian and fair system governed by representatives for the common good of the nation. The blatant move to create further division is plainly wrong. Empowering the rich, whilst disenfranchising others in need is unjust. In "my Australia" people have a right to the basic needs of life. We are a bountiful country and there is plenty to share. Attacking the OAP and the DSP exposes the real agendas on show. As Peter's article clearly alludes the figures don't add up, it's Govt spin or they failed Maths 101.

      Commenter
      A country gal
      Date and time
      April 22, 2014, 8:01AM
    • Wow the leftists haters are home for easter, Super drives less demand for Pensions right? - I won't have enough, maybe half what i need to survive. Why would we tax super more just don't understand the Labour logic? - again

      Commenter
      Tabitha
      Location
      Melbourne
      Date and time
      April 22, 2014, 8:04AM
    • well said Country Gal , and WotTha - just wait and see the Liberals will wreck this country with their extreme right wing agenda - Why?- because they can't help themselves

      Commenter
      John
      Location
      Wynnum
      Date and time
      April 22, 2014, 8:15AM
    • 20% of the principal residence should be included in the age pension assets test. People on the top marginal tax rate should pay 30% on concessional contributions. Block the stupidity PUP.

      Commenter
      smh guru
      Date and time
      April 22, 2014, 8:19AM
    • @wot tha??? - I want a socially responsible government that governs for the fair go, not steals from the poor to protect the well off. I don't care which party delivers it, but I have no faith that the Abbott government will. Australia will slide downhill if they don't.

      Commenter
      alto
      Date and time
      April 22, 2014, 8:32AM
    • WotTha, nobody wants the infighting that went on before but as far as efficiently managing the economy and having some plans for the future, Labor leaves this motley crew in the dust.

      Commenter
      jofek
      Date and time
      April 22, 2014, 8:38AM

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