A new video campaign by advocacy group GetUp! criticising the tax concessions afforded higher income earners has drawn a mixed response from the superannuation industry, with some questioning the accuracy and validity of the message.
On its website, GetUp! is calling for the public to sign up for “fairer super”, with a video that says a disproportionate amount of tax concessions go to Australia’s wealthiest and that the money could be more equitably distributed.
The AIST response
AIST chief executive Tom Garcia said the association supports equity within super, but argues the system is not designed to pay for other parts of the economy.
“It’s made a considerable difference in terms of Australian savings, and large parts of that money is used to invest back into Australia, either through infrastructure, creating jobs, these sorts of areas, it is part of the economy.
“And then to just slice and dice and say this money could be spent here… it’s not really considered long term, this is very short term in nature,” he said.
Garcia said the ad campaign does not consider the Age Pension, and that more information is needed.
“When they say, the lowest paid get no tax concession, I’m not sure how they’ve calculated that and I don’t know where the Age Pension sits in there.”
Garcia was critical of a pick-and-choose approach to assessing the super system, saying it lacks consideration of “how the whole system interacts and then how it interacts within itself, and with the economy”.
“Let’s take a considered look and make proper changes for the long term.
“We need all of the facts presented, no just particular facts in isolation,” he added.
Rubbery numbers, misleading message
Michael Rice, chief executive of Rice Warner Actuaries said the campaign is “cleverly compiled but the numbers are extremely rubbery and the message is grossly misleading”. He agreed that the Age Pension is a crucial point of consideration.
“Clearly, there is a very poor understanding of how superannuation works.”
Rice said the transfer of taxes to the poor in Australia is one of the best systems in the world, and the Age Pension is a valuable benefit for retirees.
According to Rice Warner figures, the present value of an Age Pension for a 65-year old couple retiring now is close to $700,000 (based on a male and female retiring at age 65 and being on a ful Age Pension for the rest of their lives, assuming normal life expectancy).
“So people who save nothing in super, or who save $200,000 to 300,000 in super and keep that money, are going to get $700,000 from the government over the course of their retirement,” he said, noting further discounts in pharmaceutical benefits, utilities and the like.
“The issue is that the Age Pension is an extremely valuable safety net and those low income people may not get the same tax concessions as wealthier people, but then they make it up in other ways.”
Rice said a person earning $200,000 a year might, over the course of their lifetime, save a benefit of approximately $1.5 billion in super, and will not get an Age Pension, meaning there is $700,000 the government won’t be giving them.
“So there’s already, if you like, a progressive tax system in the heavy means testing in the Age Pension.”
GetUp! communications director, Rohan Wenn, said the organisation’s members are supportive of Australia’s “world-class” superannuation scheme, but there are concerns about its design.
“The campaign is not about raiding anybody’s super, we’re not touching existing savings – that’d be crazy, we’re not Cyprus. The campaign is simply about redesigning, tweaking our fantastic super system to make it more equitable.”
Wenn said tax concessions could be money collected that is spent elsewhere.
“We’re talking about where the money goes, and we feel, our members feel, that the money should not be going to the wealthiest people throughout the superannuation system. That’s the real concern. It’s an equity issue. [The extra money] could go to infrastructure or education.”
Pauline Vamos, chief executive of the Association of Superannuation Funds Australia (ASFA) said a sustainable superannuation system should be supported, not attacked.
“Any conversation about changes to superannuation needs to be had in the broader context of its role in the economy and in consideration of the growing pressures placed on the budget with an ageing population.”
| The super facts according to Rice Warner |
| Michael Rice, CEO of Rice Warner Actuaries, analyses the facts presented in the GetUp! campaign video, including tax concession figures.· The tax concessions are not $30 billion a year. Treasury assumes that wealthier people who are limited in making contributions will simply take salary and be taxed at their highest marginal rate. In fact, if the concessions were removed, they would change their pattern of savings and shift into other long-term savings. If they negatively geared, the taxes received would be much lower. In other words, the Treasury figures are totally meaningless.
Even if the concessions were $30 billion a year, why should the government collect that on top of the taxes it already receives? Doesn’t it collect enough already? It simply spends far more than it receives – so Labor has shown itself to be an incompetent manager.· Low-income earners receive huge concessions. The present value of the Age Pension to a new couple is about $700,000. See the example below to see how the concessions are tilted towards the poorer members of the community. · Superannuation is taxed heavily – about $16 billion a year. Most of these taxes are borne by wealthier Australians who have larger account balances. |
| Case study |
| Let’s compare a couple who have a terrible savings habit. They might build a combined super benefit of $200,000 from compulsory superannuation. They will receive $900,000 in retirement including the Age Pension.Conversely, a diligent couple who save $900,000 saved might receive Age Pension payments of $200,000 during their retirement. Their total retirement income is not much more considering they have saved conscientiously throughout their working careers.Who has received the greater public subsidy? In other words, the concessions have a purpose – they make people self-sufficient in retirement, which is a worthy aim.For Rice Warner’s paper on Taxing Long-Term Savings, go to the Touchstone Newsletter page. |
()
Regardless of where people sit with this current super debate, surely it’s worthwhile to encourage people to save for their retirement, especially as we now live longer. It’s a pity that the received messages from Canberra seem more about penalising saving for an adequate retirement.
I think calling those who save 200k terrible savers, and those who save $900k diligent is a bit rich. The average balance at retirement is less than $150k. Superannuation is linked to salary and plenty of people in the real world as opposed to the finance sector earn less than 70k per year.
Note that the current average balance at retirement is less than $150k, but that is because the number of people who have had part of their income deferred into a superannuation style account for their entire careers is quite small, considering SG was only introduced in 1993.
Fiona is 100% correct.
What is also interesting in this debate is the lack of disclosure of the inherent conflicts of interest of some people working in the superannuation and finance sector who are commenting on the tax system for superannuation. From current and former bank executives to partners in consulting firms and the executives of some of the industry’s numerous lobby groups, these people are all highly paid and receive substantial personal tax support now and for the rest of their lives by advocating that the current structure remain unchanged.
This is not their only conflict. Growth in the industry will translate into higher remuneration for these people and the continued high levels of tax support underlie the industry’s rapid growth.
This is an industry that prides itself on good governance as do the professions that support it. Where is the disclosure? Of course their views should be heard but the conflicts should be disclosed. People can then consider those views from a position of full information.
Disclosure – I receive substantial financial support from the current taxation arrangements for superannuation and any increase in tax rates will be detrimental to my personal financial position.