tip off

Super tax lurks deliver the wealthy $35 billion — and rising

The top 5% of taxpayers will enjoy tens of billions in superannuation tax concessions in coming years — and the cost is growing rapidly. But Joe Hockey isn’t interested.

Australia’s richest taxpayers will collect over $35.5 billion in tax concessions via the superannuation system over the next five years, and by 2017-18 they will be taking over $8 billion a year, an analysis of budget figures reveals.

And far from contributing to the burden of helping repair the deficit, the top 5% of taxpayers will enjoy an increase in tax concessions above current levels of over $2.9 billion dollars by 2017. That increase by itself is almost enough to wipe out the revenue generated by the government’s temporary deficit levy on incomes over $180,000, which is forecast to yield just over $3 billion in that period.

Using 2007 data, the Australian Council of Social Service in 2012 estimated that the top 5% of taxpayers obtain 17% of superannuation tax concessions, while the top 12% get 48% of them. That’s a significantly more conservative figure than an earlier Australia Institute estimate which suggested the top 5% received 37% of tax concessions.

According to Australian Tax Office statistics, the top 5% of taxpayers is currently around 640,000 individuals earning upwards of just below $150,000 a year. Based on ACOSS’ more conservative estimate, this 5% group by 2017-18 will be costing taxpayers $8.4 billion in lost revenue via superannuation alone, while the top 12% of taxpayers — people earning around $100,000 a year and above — will cost over $23.6 billion in forgone revenue through superannuation.

As Treasury revealed in the budget, the annual cost of superannuation tax concessions is set to surge in coming years, making the current cost — nearly $32 billion — look paltry as it rises to a remarkable $50 billion in 2017-18. At that point the cost of superannuation will exceed the cost of the age pension — despite one of the core goals of Australia’s superannuation system being to reduce the call on the budget from retirement.

The cost of superannuation tax expenditures surged under the Howard government, which opened up a series of lurks for high income earners to siphon more money into super: contributions and earnings are taxed at a base rate of 15%, while payments to superannuants are not taxed at all. Between 2004-05 and 2005-06, the cost of super tax concessions rose from $17.4 billion to over $23 billion. Subsequent growth was hit hard by the financial crisis, but is now set for a period of strong expansion right when the budget needs all the revenue the government can collect.

Treasury in its 2013 Tax Expenditures Statement estimated that the government could secure around 86% of the revenue forgone through superannuation tax concessions through their removal (the remainder would shift to other tax breaks), meaning just curbing the growth between now and 2017-18 could deliver nearly $15 billion to the government, several times more revenue than the temporary tax levy, twice as much as the cuts to foreign aid, and many multiples of savings through punitive cuts to Newstart.

However, last year Treasurer Joe Hockey walked away from a Labor commitment to begin taxing superannuants’ earnings over $100,000 per annum, foregoing over $3 billion in revenue and ensuring that, for the next five years, the richest Australians will not merely prosper under our super system, they will actually cost the rest of us more than they currently do.

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  • 1
    nmcguinn
    Posted Thursday, 15 May 2014 at 2:01 pm | Permalink

    About time you journos cottoned on to this one. Massive rort that has been under reported because those in the know are all beneficiaries or else too awed by Keating’s legacy to think there could ever be anything wrong with our sacred super schemes.

  • 2
    Posted Thursday, 15 May 2014 at 2:04 pm | Permalink

    For those born after 1965, the super tax leak is, or soon will be, the biggest single reason why you have to wait until you’re 70 before you qualify for the age pension.

  • 3
    Pete from Sydney
    Posted Thursday, 15 May 2014 at 2:34 pm | Permalink

    just a question, and i don’t know the answer to this, do these 640,000 tax payers expect to get the pension…and if they aren’t going to, what’s the saving?

  • 4
    Paddy Forsayeth
    Posted Thursday, 15 May 2014 at 2:51 pm | Permalink

    I would have thought that $150 000 was hardly rich. The distortion of the wealth distribution is due mainly to the super rich…the millionaires and above.
    A point to ponder: why not scrap all taxes and simply apply a low tax rate, eg 0.5%, on all money moving in and out of financial institutions? This would raise a lot of money and everyone would pay an equal tax rate.

  • 5
    AR
    Posted Thursday, 15 May 2014 at 4:05 pm | Permalink

    How very unexpected that this bunch of tory toadies daren’t touch the filthy lucre of their Masters.

  • 6
    CML
    Posted Thursday, 15 May 2014 at 5:43 pm | Permalink

    The whole business is obscene!
    And Pete, many of these people will just rearrange their affairs to make sure they get a pension. I know a lot of people who do this, because they say after a life time of paying tax, they are ‘entitled to a pension’.
    Apart from sheer greed, it doesn’t seem to have filtered through to this lot that we do NOT have a pension plan, as many other countries do. We have superannuation. And as Bernard says, the greedy are already over compensated in that department.
    It is high time Labor contemplated doing something about this - almost the biggest rort ever introduced. It sounds like we would all be better off if everyone was paid the aged pension, and then taxed at their marginal rate on ALL super contributions, earnings and payouts for life, over a set threshold.

  • 7
    Jock Webb
    Posted Thursday, 15 May 2014 at 6:38 pm | Permalink

    Met Abbott once, so very unsurprised by the budget, except he went beyond even what I thought. Example on the ABC site of a single on 45K who was losing about half what the PM will lose in tax, but he has 11 times her income. Why do we allow the family trusts like the Obeids and Rineharts(for money laundering?)? As for regional Australia, I reckon they should try the Nationals for treason. Gutless, useless, spineless: we used to call them the Multinational party in the 70s. What has changed?

  • 8
    PaulM
    Posted Thursday, 15 May 2014 at 8:28 pm | Permalink

    @nmcguinn To which part of the Keating legacy do you refer. Compulsory, universal super from the early 1990’s, or his 1983 decision to tax superannuation lump sums to stop the few who had super in those days from double dipping and getting a pension as wel. You’d be forgiven for not remembering the latter, becasue Costello did away with that towards the end of the Howard era. Now there are even more people who can grab a super (in more than one sense of the word)lump sum at 60, and then put their hand out for the pension.

    But the age of entitlement is over, isn’t it?

  • 9
    col gradolf
    Posted Thursday, 15 May 2014 at 8:37 pm | Permalink

    Should I point out the irony of having an ad to boost super ‘pot’ beside this article?

  • 10
    Chris Hartwell
    Posted Friday, 16 May 2014 at 8:39 am | Permalink

    Honestly Gavin, I’m not even thirty yet - I expect I’ll be working literally unto death, super or no.

  • 11
    Jimmyhaz
    Posted Friday, 16 May 2014 at 10:26 pm | Permalink

    that the top 5% of taxpayers obtain 17% of superannuation tax concessions, while the top 12% get 48% of them.”

    Something seems significantly off about this maths, surely this isn’t right.

  • 12
    Brangwyn
    Posted Monday, 19 May 2014 at 8:09 am | Permalink

    I am so sick of people saying things are” free” -medicare is not free we are taxed, and rightly so, plus there is a medicare levy - the state pension is not “free”, again we are taxed during our working lives to provide it. In the UK everyone who has paid their “stamp” for 40 years gets a full pension - some of the rich may never claim it but that is their choice. Such a system acknowledges who has made the wealth for the next generation and the people feel they own it.

  • 13
    Marnie Simpson
    Posted Monday, 19 May 2014 at 4:17 pm | Permalink

    I’m torn about the super thing. If there is no incentive at all for people who can, to save a lump sum to live off in retirement (& not get a pension) & Australian’s refuse to pay the kind of taxes across the board that will fund a pension, what are the alternatives? I never see this discussed. I don’t expect to ever qualify for a pension (in my mid-40’s now & expect it’ll be gone by the time I retire) but what am I supposed to do at the point in my life when I can no longer earn, if the money I put away now for 25-30 yrs hence gets double or triple taxed?

  • 14
    The Pav
    Posted Monday, 19 May 2014 at 5:04 pm | Permalink

    I’m more than happy for the super system to be fixed up. I’ve rorted it ( legally as a high income earner) for years which has allowewd me to quit work and live in idle luxury. As I am outside the pension system I have shifted the funds now (legally) and I am quarantined from any changes. In seven years time under the present rules I will get an age pension..Legally….Crazy and all thanks to John Howard

  • 15
    Bill Gates
    Posted Monday, 19 May 2014 at 8:19 pm | Permalink

    Australian Superannuation Laws have been altered/changed and fiddled with more times than any other legislation.
    Why?
    Because it is BIG BUCKS when accrued as a Nation!
    At present they have tied up access unless your DYING before the Pension Age!
    Oh ..hang on…after age 60 (if u loose ur job)then you can have it tax free and in a Lump Sum!
    But if you do that….No Dole till its all spent!
    What is the Point of the eh?
    At present the Punishment Mentality Rules!
    What happened to Reward for over 45yrs working & paying Higher taxes?
    Small Minded Morons run this Country….have for last 20yrs.
    Anyone with Vision for the Future get railroaded out of Parliament as a Do Gooder!….not wanted…
    We have anti-discrimination laws that do not apply to Government. We age Discrimination Laws that also do not apply to the Government!
    The List is endless….even if we had a Anti-Pensioner Discrimination Law….you could bet the Government would ignore it as well!
    No wonder why people has no faith or belief in our so-called leaders!
    They want everyone to work till they are 70….but freely allow Companies to get rid of the over 55’s first and they themselves won’t employ you over that age…..well not unless your are a mate with at least 4 degrees that is!
    What a bunch of Crooks with no Morals they are!

  • 16
    Marnie Simpson
    Posted Tuesday, 20 May 2014 at 10:14 am | Permalink

    How Pav? Anything above the concessional cap is taxed at your highest marginal tax rate, so there’s never been benefit in stashing money in Super - well for at least the last decade. Above the concessional cap, Superannuation is one of the worst investments you could make - inflexible in terms of access & investment types. The idea that really wealthy people are (individually) sticking truckloads of money into Super & retiring high on the hog from that just doesn’t stack up. I know cumulatively it’s a tonne of cash, but at the individual level very few people retire with millions in their Super fund. Really wealthy people don’t use Super at all, they buy governments & park millions made off the business subsidies they lobby for, in off-shore tax-havens. This is where governments need to go to balance the budget. Let small business people & wage earners save to fund their own retirements adequately & pay for those who can’t out of appropriately taxing the mega-profits of major corporations & mining magnates.

  • 17
    The Pav
    Posted Tuesday, 20 May 2014 at 5:10 pm | Permalink

    Trust me Marnie It’s worked and I started over 10 years ago and I fluked it on age and a conversion from one fund type to another.

    Plus a few other wriggle throughs before they closed the stable door

  • 18
    Marnie Simpson
    Posted Thursday, 22 May 2014 at 7:10 pm | Permalink

    Yeah I think fluke is the operative word. This claim that at the individual level the stable door hasn’t already been firmly shut is nonsense. Hysteria is such a lagging indicator isn’t it!

  • 19
    geoff burton
    Posted Friday, 30 May 2014 at 11:41 am | Permalink

    Rubbery figures again:oh dear. Firstly, general discussion ignores the government’s income from our Super. We are told that there is $1.7 Trillion now in Super. Ok,earnings in super are taxed at %15. If average returns this year are about 10% then they earned about 170 billion. 15% of that is about $25.5 billion. No bad really. Secondly when you put concessional money in the government tales 15 % of the capital immediately and then takes 15% of earnings every year until you retire or die. Yes, the current system does not work for low income workers, precisely because they have low incomes or for women with fewer years in the work force, or the ill or injured. Those are the issues we need to think about. Geoff Burton

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