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Federal

May 15, 2014

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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19 comments

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19 thoughts on “Super tax lurks deliver the wealthy $35 billion — and rising

  1. nmcguinn

    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. Gavin R. Putland

    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

    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

    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

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

  6. CML

    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

    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

    @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

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

  10. Chris Hartwell

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