Super tax breaks not super at all
Mooted changes to superannuation tax concessions worth billions of dollars have been high on the political agenda since November, when Treasury secretary Martin Parkinson questioned whether the tax breaks were too high and favoured the rich. He said the super system risked becoming too much of a burden on the budget given the ageing population.
Treasury estimates the budget misses out on more than $30 billion a year in tax revenue through super, a figure it expects will hit $45 billion by 2015, overtaking the capital gains tax break on housing as the single biggest concession.
But financial consultancy Mercer said when compared with the world's best retirement savings systems, super rules in Australia were not overly generous.
"When the Australian approach is compared to countries with world-class retirement income systems, the after-tax retirement benefits provided to Australians are lower than five of the eight countries," said David Knox, a senior partner at Mercer. Mercer modelled its retirement systems against eight other countries that are considered to have the best pension systems in the world.
It showed the net retirement benefits for an average British worker would be 16.4 per cent, or $43,534, higher than for an Australian, while an American worker would be 11 per cent, or $29,273, higher.
Australian retirees were also expected to be worse off than those in Canada, Switzerland and the Netherlands, but better off than those in Denmark and Sweden.
The debate surrounding super tax breaks has escalated since Prime Minister Julia Gillard announced the September 14 election date.
Opposition Leader Tony Abbott has pledged to close the low-income super tax concession, while opposing Labor's mooted plans to increase super tax rates on the top few per cent of income earners.
Mr Abbott says Labor is punishing the rich in a bid to repair its budget position. Ms Gillard argues the Coalition was being fiscally reckless and a champion of the rich.
"The taxation treatment of superannuation may be controversial, as the greatest benefits are inevitably received by those who participate to the greatest extent: primarily the higher-income earners," Dr Knox said. "However, it's also important to look at our retirement savings system in its entirety and the impact altering the tax model could have on the future costs of funding the age pension."
The scrutiny on superannuation tax breaks forced Ms Gillard to rule out reintroducing tax on withdrawals for wealthier over-60-year-olds.
Mercer's managing director, David Anderson, said he was relieved at the Prime Minister's decision. "The last thing Australians need is more tinkering," he said.
Frequently Asked Questions about this Article…
There’s active debate. Treasury figures and some politicians say super tax concessions are large and getting bigger, but industry voices and consultants such as Mercer argue Australia’s rules aren’t overly generous when compared with the world's best retirement systems. Mercer’s analysis and comments from its senior partner David Knox are often cited in that pushback.
Treasury has estimated the budget currently misses out on more than $30 billion a year in tax revenue through super, and it expected that figure to rise to around $45 billion by 2015, making it one of the largest tax concessions.
The article notes that the greatest benefits tend to go to those who participate most in the system — primarily higher‑income earners. David Knox of Mercer highlights that unequal participation means more advantaged earners receive the biggest gains.
Mercer modelled Australia against eight countries considered to have top pension systems and found Australians receive lower after‑tax retirement benefits than five of those nations. For example, the average British worker’s net retirement benefit was modelled as 16.4% (about $43,534) higher than an Australian’s, and an American’s was modelled as 11% (about $29,273) higher. Australia was shown to be better off than Denmark and Sweden in Mercer’s comparison.
Political debate has focused on changes: Opposition Leader Tony Abbott pledged to close the low‑income super tax concession, while the Labor government discussed raising super tax rates for the top few percent of earners. Prime Minister Julia Gillard specifically ruled out reintroducing tax on withdrawals for wealthier over‑60s.
Mercer’s senior figures have cautioned against frequent tinkering. David Knox warned changes should be considered in the context of the whole retirement savings system and the cost of funding the age pension, while Mercer managing director David Anderson welcomed the PM’s decision not to reintroduce withdrawal taxes, saying Australians don’t need more tinkering.
Yes. Treasury has raised concerns that generous concessions could place a growing burden on the budget as the population ages, and Mercer’s analysis warns that altering the tax model could affect the future costs of funding the age pension.
Keep an eye on official Treasury estimates, policy announcements from government and opposition (especially around election periods), and independent analyses such as Mercer’s. The article highlights recent political pledges and the PM’s ruling out of certain changes, so announcements from politicians and Treasury are the immediate drivers of any rule changes.
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