THE select few Australians earning more than $290,000 per annum - a mere 1 per cent of the workforce - rake in an astounding $2 billion in superannuation tax concessions, according to Treasury calculations being used to guide the government as it hunts for savings ahead of the May budget.
Although there are are just 130,000 such Australians, they gain 6 per cent of all the Australian government superannuation tax concessions. The high earners include executives on multimillion-dollar contracts who get a disproportionately large share of the pool.
Asked twice at a press conference on Thursday whether Labor's present system of superannuation tax concessions was "fair", Financial Services Minister Bill Shorten refused to answer. Asked twice whether the super concessions - now worth $32 billion - were sustainable, he also declined to answer. He said he could not speak about what might be in the May budget.
In 2009-10, the most recent year for which the Treasury has done a full simulation, the top 1 per cent of Australian earners received an average benefit of $19,200 each. By contrast, an earner in the middle of the pack got $800.
Government support for retirement is somewhat more even than this suggests. The worker in the middle of the pack also gets a part pension. But even so, the Treasury simulation suggests the tax concessions offered to Australia's highest earners are worth twice as much as the combination of concessions and pension payments offered to those workers in the middle.
If the purpose of super is to take "pressure off the pension", as repeatedly claimed by Labor, the government's tax breaks do it in the daftest possible way. The biggest tax breaks go to the handful of Australians who would not get the pension in any event (about 5 per cent of seniors).
So expensive are the tax breaks and so fast are they growing, it would be cheaper to extend the full aged pension to all Australians and abandon super tax concessions altogether.
Labor created the system it is now belatedly trying to improve. In an odd turn of events, the Coalition is pledging to maintain it, promising "stability and certainty" should it be elected in September.
Tony Abbott says he "won't move the goalposts". But without attention, the costs are set to explode. At $32 billion this financial year, the superannuation tax concessions are on track to grow to $45 billion by the end of the next government's first term. As a comparison, defence spending is $22 billion, set to climb to $25 billion.
Labor introduced compulsory super in 1985 and ramped up compulsory contributions from 1992 with next to no discussion about how the concessions would be paid for. The most recent decision to slowly increase contributions to 12 per cent (against the advice of the Henry tax review) was presented as if it was to be paid for by the new resource super profits tax, since replaced by the minerals resource rent tax, which is raising a trickle of the billions expected.
The best-known of the costs is the ultra-low 15 per cent tax rate applied to salary paid into super up to a generous cap. It is a big advantage if you are earning in excess of $180,000 and otherwise paying the top marginal rate of 45 per cent. It is a substantial advantage if you are on a middle income and paying a marginal rate of 32.5 per cent. But it is no advantage at all if you are below the tax-free threshold.
In fact, until July last year, the 15 per cent tax rate penalised low-income Australians who would otherwise be paying no tax. In an overdue move, the government cut their rate of tax on super contributions to zero. (Using apparently inconsistent logic, Abbott says he will reverse the measure because it is funded by the mining tax.)
Treasurer Wayne Swan has also belatedly boosted the super contributions tax rate for earners on more than $300,000 to a still-concessional 30 per cent.
The biggest inequity and fastest-growing cost with super is less well known. It is the flat 15 per cent tax on fund earnings. Applied no matter how low or how high the member's tax rate, its benefits are so skewed that the latest Treasury simulation (for 2009-10) shows 11 per cent of the benefits going to the top 1 per cent of earners. Critics of the Treasury's methodology say it exaggerates the benefit going to high-end earners because they would find other ways to minimise tax if they could not use super.
It is increasingly common for high-income earners to direct 20 or 30 per cent of their salary to super (well above the 9 per cent requirement) even if they have to pay full tax on the way in.
The Howard government's 2006 decision to abolish tax on the way out for Australians aged over 60 led to an explosion in so-called do-it-yourself funds, where small-business owners and others put into super what they want, knowing the returns will be taxed at only 15 per cent.
Practically non-existent 15 years ago, self-managed funds now account for $439 billion. By contrast, industry funds account for $267 billion and retail funds $371 billion. There is an expensive gorilla in the room and it's getting bigger. Labor now recognises this and will act in the May budget. Given time in government, the Coalition will recognise it, too.
Peter Martin is the economics correspondent. Twitter: @1petermartin