There are no self-funded retirees in Australia – there are just those the government supports through the age pension and those that get government support via tax concessions for superannuation.
Of course millions of people collectively spend billions on tax and legal advice trying to get both.
In Australia today a retired couple with up to $935,000 in assets, in addition to owning their own home, can still get a part pension. It’s very generous of Australian taxpayers to ‘top up’ the retirement incomes of millionaires, but our generosity only stretches so far.
For decades we have been told we can’t afford to provide public housing to the older women who are one of the most likely groups in Australia to experience poverty or homelessness.
‘Top ups’ trumping welfare
Democracy is all about the choices we make, and for decades we have been choosing to spend tens of billions of dollars per year ‘topping up’ the retirement incomes of our wealthiest citizens while pretending we can’t afford to help our poorest citizens with their most basic needs.
If tax concessions for superannuation were designed to help get people off the age pension, then it never made sense to provide them to people who were already too rich to get the age pension.
And if tax concessions for superannuation were designed to ‘top up’ people’s age pension, then why would we spend so much ‘topping up’ those at the top and literally nothing to top up the retirement incomes of the lowest-paid workers?
The cost to the budget of tax concessions for super this year is estimated (both by Australia Institute research and by Treasury) to be about $53 billion per year, just shy of the $55 billion cost of the age pension.
But while the majority of the age pension goes to those with the least, the majority of our tax concessions go to those with the highest incomes and the highest super balances.
Of course it doesn’t have to be this way. A simple solution would be to scrap all tax concessions for superannuation and give the full age pension to all retirees. Indeed the Australia Institute has previously modelled the cost of not just making the age pension universal, but increasing it by 20 per cent; and it still came out cheaper than the cost of providing tax concessions for super.
Labor’s step in the right direction
But assuming Australia isn’t ready to give more public support to our poorest retirees and less to our richest, the latest announcement to curb the tax breaks for the 0.5 per cent of Australians who have more than $3 million in super is another small step in the right direction.
Ironically, even though the Turnbull government went further back in 2016 when it made many changes to the super system by making it harder to create huge super balances, Labor will likely get more flack.
Indeed while Angus Taylor was quick to defend his government’s tax increases as fiscally responsible, he was just as quick to attack Labor for being grossly unfair.
The cost of Australia’s tax concessions for superannuation is staggering, but so too is the hypocrisy and hand wringing about what to do about it.
For decades the costs of super tax concessions have been among the fastest-growing costs to the budget, and for decades the commentators who rage against the ballooning cost of welfare stayed silent about the ballooning cost of super.
Labor’s proposed changes won’t take a cent out of a single super account, not even from the $544 million that one wealthy Australian has put aside to ensure they retire with dignity.
But what the changes will do is slow the rate at which nest eggs over $3 million grow.
While the just-over $2 billion per year that the government hopes to raise will come in handy, it’s chicken feed compared to the $250 billion cost of the Stage 3 tax cuts due to kick in next year.
That said, if Labor can win the argument that now is the time to collect more tax from those with the most in order to spend more money on those with the least, then this week’s announcement could be far more significant than its impact on the budget bottom line would suggest.
Richard Denniss is executive director at the Australia Institute Twitter: @RDNS_TAI
