Australia has a complicated and messy Superannuation situation
Further views :
There are many flaws in Australia’s retirement system. A universal public pension funded from current revenues (rather than accumulated financial accounts) would be best. And the existing inequities of super must be fixed, and fast: rolling back super tax benefits for high-income earners, preventing super evasion by employers, supporting low-income workers with tax offsets, and banning wasteful retail funds altogether.
None of those problems will be fixed by abandoning the principle of an adequate, compulsory, universal system. Labour compensation has lagged behind productivity for a generation; Australian employers can well afford to both raise wages and boost super contributions. They shouldn’t be let off the hook for either.
- Jim Stanford is economist and director of the Centre for Future Work, and the author of a new report, The Relationship Between Superannuation Contributions and Wages in Australia.
How Australia’s superannuation system steals from the poor to give to the rich
Richard Dennis is chief economist at the Australia Institute Melbourne Nov 2019
There’s a golden opportunity to right this $43 billion wrong, and we can all make a difference. So don’t get bored, get angry Welcome to the Topsy-turvy land of superannuation in which taxpayers give the most assistance to those who need it least and no assistance to those who need it most.’
Outgoing Westpac chief executive Brian Hartzer will receive more taxpayer support for his retirement than the men and women who clean his former bank’s branches.
While executives with mult-imillion-dollar pay packets often receive tens of thousands of dollars a year from other taxpayers, low-income earners such as cleaners, childcare workers and part-time teachers literally receive nothing. In fact, it’s possible for a low-income earner to work their whole life and receive no boost from fellow taxpayers to their personal super account.Welcome to the topsy-turvy land of superannuation, in which taxpayers give the most assistance to those who need it least, and no assistance to those who need it most.
John Oliver once said: “If you want to do something evil then put it in something boring.” If those responsible for managing our life savings weren’t so brilliant at making superannuation seem so boring, there would be riots in the street.
Much is made of the enormous size of Australia’s $trillion n pool of superannuation savings, but we talk much less about the fact that the only reason it grew so big was that we literally force the vast majority of employees to spend 9.5% of their income buying superannuation every week. Let’s be clear: if we forced all Australians to get a massage every week or buy a new Australian car every year, we would have an enormous massage and car industry as well.
For more than 10 years, I’ve been trying to explain just how unfair, un- affordable and inefficient the Australian superannuation system has become, but you don’t just have to take my word for it any more. The commonwealth Treasury recently concluded that “modelling suggests that over a lifetime, more public support may be provided to those in higher income brackets”.Those folk at Treasury are so good at being humble that I’m starting to yawn myself.
But let me describe Treasury’s data differently. In Australia, taxpayers contribute 10 times as much money to the superannuation accounts of the people in the richest 1% than they contribute to the people in the poorest 10% of workers.Put another way, the graph below also shows that, over the course of their lives, those Australians lucky enough to be in the top 1% of income earners will receive over $700,000 in taxpayer contributions to their personal superannuation account, while those in the bottom 10% will receive less than $50,000.
Now, of course tax concessions for superannuation aren’t the only form of public assistance for retirees; there’s the age pension as well. But while the age pension is capped at $24,268 a year for singles, there is no cap on the lifetime value of taxpayer support for superannuation. There are people with tens of millions of dollars in their superannuation funds who receive millions of dollars’ worth of tax concessions each year. The lifetime cost of taxpayer support for wealthy retirees’ concessions is enormous and growing rapidly. But when it comes to explaining the budget deficit, it’s more likely that those on meagre unemployment benefits will get the blame.
We will never know exactly how much money taxpayers will eventually give to Hartzer or Gina Rinehart to help fund their retirement. But what we do know from Treasury is that it costs twice as much to give tax concessions to the top 10% of income earners as it would cost to simply pay them the age pension and scrap tax concessions for super. Imagine if we had to have a public debate about who got $43bn each year to help fund their retirement
As an economist and as a citizen I like the idea of compulsory superannuation. I think most people struggle to plan for their future and requiring them to put some money away when they are young to spend when they are old is as good an idea as forcing kids to go to school when they are young so they can read when they are old. While lots of kids don’t want to go to school, there aren’t many retirees who regret being forced to go.
But just because I like compulsory superannuation, doesn’t mean I like the way we hand out $43 billion a year in tax concessions for super. It’s obscene and it only survives because the superannuation industry is so skilful at confusing people, boring people, or both.
It doesn’t have to be boring. Imagine if we had to have a public debate about who got $43 billion each year to help fund their retirement. That sounds a bit more interesting than reading about superannuation, doesn’t it? One option would be to divide it up between all 19 million adult Australians and deposit the same amount in each of their retirement savings accounts. Another option would be to “means test” the payments so that people who earned high incomes, or already had a large superannuation balance, got less and those with low incomes and no assets got more deposited into their accounts each year.
Or, we could stick with the current approach and give tens of thousands of dollars a year to the best-paid CEOs and executives (most of whom are men) and give literally nothing to the lowest income Australians (the majority of whom are women).
Believe it or not, the government has recently announced an inquiry to answer precisely this $43bn question. But both the government and the finance industry are hoping, with good reason, that you will be too busy, confused or bored to get involved.
Assuming you are interested in who gets the $43 billion every year, the first thing you need to understand is that while ordinary income is taxed progressively, from zero percent on income up to $18,200, to 47% on incomes over $180,000, contributions to superannuation are typically taxed at a flat 15%. That’s a nice big tax break for someone earning $200,000 a year, and no tax break at all for someone earning $15,000 a year.
It gets worse – but stick with me, because those making millions out of this rort are betting you will get bored rather than get angry.
Once your money is invested in a superannuation account it (hopefully) earns interest and dividends each year. This income is also taxed at a flat 15% instead of your marginal tax rate. If, like many wealthy Australians, you had $10 million in your super fund and it earned $800,000 in dividends and interest last year, that $800,000 would be taxed at a flat 15% instead of the top marginal tax rate of 47%. Cool huh!
But now imagine if you were a part-time cleaner earning $15,000 who had accumulated $100,000 in super over the past 30 years. If your super fund earned $8,000 in interest and dividends it would be taxed at the same 15% rate as someone with $10m – even though someone earning $15,000 per year is below the income tax threshold and has a marginal tax rate of zero.
Put simply, when it comes to our super funds, we tax the earnings of those with millions at far less than their marginal tax rate and we tax the earnings of those with small balances at far more than their marginal tax rate. Tax concessions for superannuation literally amplify inequality in Australia.
If you have made it this far, I have a confession: that was even boring to write. But that’s the superannuation industry’s best defence mechanism. It bores people into accepting the status quo by making the system seem impossibly difficult to understand, let alone describe.
But let me make it simple again. There is no link between supporting a system of compulsory superannuation and supporting the current system of tax concessions that gives billions of dollars per year to those with millions and nothing to those with low incomes and low balances. We can fix it if we want to.
It would be easy to cap the generosity of tax concessions to those with the most and boost support for those with the least. We do it with the age pension and we could do it with super, if we wanted to.
The government is currently holding an inquiry into the superannuation system. Both the government and the superannuation industry are betting you will be too busy or too bored to make a fuss about the fact we allocate $43bn in tax concessions mostly to wealthy retirees each year
Rich are getting richer, but stagnating wages mean income inequality is steady
Posted 12 Jul
AFR’s rich list shows the wealthiest 200 Australians increased their net worth by 20 per cent last year.(Supplied: Masteka Charters)
It’s official: the rich are getting richer.
Well-off Australians are pulling away from the rest of the nation, with inequality of wealth rising in recent years, new figures from the Australian Bureau of Statistics show.
The data is detailed in the ABS’s latest Household Income and Wealth Australia 2017-18 report, released today.
The figures show income growth has been virtually non-existent for many — average household incomes have stagnated, with virtually no growth since 2013, although income inequality has also remained relatively stable.
However, the report shows that wealth is highly concentrated in Australia.
The average net worth of the top 20 per cent of households is more than 93 times that of the lowest 20 per cent — some $3.2 million compared to just $35,200.
The top 20 per cent of households have 93 times the wealth of the bottom 20 per cent.(Supplied: ABS)
And the high-wealth households have enjoyed substantial gains, while those at the bottom have had almost none.
After inflation, the worth of the top 20 per cent jumped from $1.9 million in 2003-4 to $3.2 million, a rise of more than 68 per cent.
In contrast, low-wealth households did not experience any real increase in net worth over this time period, with their average wealth of $35,200 in 2017-18 similar to 2003-04 ($34,200).
The average net worth of all households in Australia in 2017-18 was $1 million, a rise of more than 37 per cent in a decade, driven in part by increases in superannuation balances and growth in house prices.
Housing now makes up 57 per cent of Australians’ wealth, with 42 per cent coming from the family home and 15 per cent from investment properties. Super now accounts for 18 per cent of wealth, and the average household balance has grown to $213,700.
ABS chief economist Bruce Hockman told ABC News that superannuation balances are closing the gap with housing as the compulsory super system matures.
“There’s 90 per cent growth over that decade in superannuation holdings. Only about 37 per cent in property.”
But this total wealth figure was dragged up substantially by the wealth of the top. Half of all Australians had a net worth of $558,900 or less.
Average household wealth has grown more sharply than median wealth, highlighting a rise in inequality.(Supplied: ABS)
In a media release, Mr Hockman said the figures showed “that there was a marginal increase in wealth inequality in 2017-18 and that wealth continues to be less equally distributed between households than income amongst Australians”.
But this graph, from the ABS’s publication, appears to show a fairly sharp rise in the core measure of inequality, the Gini coefficient, since 2015, at least in terms of wealth distribution.
The Gini coefficient that measures inequality has risen when it comes to household wealth.(Supplied: ABS)
Overall income growth extremely weak
While wealth inequality has risen since 2007-08, Mr Hockman described the distribution of income between households as “relatively stable”, although income growth overall has been extremely weak.
Over a decade, average weekly household incomes increased by $44 to $1,062 in 2017-18.
Household incomes have stagnated since the global financial crisis.(Supplied: ABS)
That compares to a $220 gain in average weekly incomes over just four years leading up to the global financial crisis in 2007-08.
The average also flatters the situation for the typical Australian, the median, smack bang in the middle of the income distribution.
“The median was lower, however, at $899 per week,” the ABS report noted.
“This is due to the larger proportion of households with middle or low income and the small proportion of very high-income households.”
And it is precisely the ultra-high income section of the population that is poorly captured in measures like this ABS one, based on a survey of 14,060 households from July 2017 to July 2018.
ABS says ‘ultrawealthy’ are included
Mr Hockman said very wealthy people are covered by the survey.
“The ultrawealthy are included in the report, but we don’t publish data at those levels,” he said.
“Partly because it may actually tend to identify individuals and the confidence in Australia’s statistics actually relies on us being able to maintain the confidences of people actually answering those surveys.”
However, the survey is statistically unlikely to capture any of those who made AFR’s richest 200 list earlier this year.
This group had a combined net worth of $342 billion.
The wealth of the top 200 richest Australians is shooting upwards (amounts in unadjusted dollars).(ABC News: Alistair Kroie)
This group increased their net worth by an estimated 20 per cent last year, and have enjoyed a staggering 17-fold increase in real wealth (after inflation) in the 35 years since that report started.
Some experts say, given the size of Australia’s economy and the wealth of its middle and upper classes, the absence of 200 super rich is unlikely to shift the dial much on the measures of wealth inequality.
But others disagree. In an article published earlier in May, political economists Dr Christopher Sheil and Emeritus Professor Frank Stilwell used OECD and ABS data to estimate that Australia’s richest 10 per cent now hold more than 50 per cent of the nation’s wealth, a share that increased substantially over the four years to 2016.
Almost all of that increase went to the top 1 per cent, which increased their share of the nation’s wealth from 14.2 to 16.2 per cent.
In contrast, both the middle-class segments recorded a declining share of wealth — collectively, the majority of households between the 40th and 90th percentile own 47.1 per cent of the wealth, down from 49.1 per cent in 2012.
As for the poorest 40 per cent of households, they remain stuck with just 2.8 per cent of the nation’s wealth between them.