Future gazing: It is unlikely top-end tax breaks on super can last forever. Photo: Andrew Quilty
Tony Abbott has promised not to make big changes to the superannuation tax rules before the next election, but here's a longer-term prediction.
Future governments will face intense pressure to rein in the web of tax breaks in our super system, because they are so generous to people who least need government help.
Super is often described as a retirement savings system aimed at relieving pressure on the age pension. This is true enough, but it's also accurate to describe super as a mammoth source of tax breaks.
Concessional treatment of super cost the budget about $35 billion in foregone revenue in 2013-14, according to the Australia Institute. This is projected to hit $50 billion in a few years, when it will overtake the cost of the age pension.
There's nothing wrong with tax breaks when they achieve something that is in the national interest, such as giving people a dignified retirement and making pension payments sustainable.
But how much are today's super tax concessions really achieving these goals? The government's financial system inquiry appears to have some doubts.
The inquiry's interim report provided this week's graphic, which shows more than half the benefits of super tax breaks go to the top fifth of income earners.
As the report noted: "These individuals are likely to have saved sufficiently for their retirement, even in the absence of compulsory superannuation or tax concessions."
Another issue is the very generous treatment of large account balances.
For instance, there are about 8500 people with accounts with assets in retirement of more than $5 million. Under the current system, these retirees receive tax breaks that are five times larger than the cost of paying the aged pension for a single person. It's hard to see how that's saving the government money.
The reasons why these tax benefits are shared so unevenly are well known: they relate to how super is taxed.
For people earning less than $300,000, super contributions from employers and salary sacrificing are generally taxed at the flat rate of 15 per cent, irrespective of your marginal tax rate. This means high income earners - who pay higher marginal tax rates - receive the biggest benefits.
There's a good argument that people should be "incentivised" to save through super, and the tax system is an effective way to do this. But at the same time, the inequities in super suggest the system is allowing some of the country's richest people to amass even more wealth while paying very low rates of tax.
As governments look for budget savings, it will get harder for them to ignore the billions the taxman is losing through superannuation perks for people who would probably have a very comfortable retirement anyway.
Or as the inquiry puts it, somewhat more meekly: "While not conclusive, some evidence raises questions about whether the current policy settings are efficiently targeted and robust."