- by Anna Pha
- The Guardian
- Issue #2043
Photo: Evita Fechner – flickr.com (CC BY 2.0).
When the Albanese government released a superannuation consultation paper last month, it brought the usual suspects out of the woodwork. The hysteria was a reminder of the Coalition’s scare campaign, fuelled by the Murdoch media, when Labor in 2019 proposed progressive reforms to negative gearing and franking of dividends.
Labor is proposing to enshrine a core goal of superannuation in law. The consultation paper raises a number of possible goals and principles for discussion.
When Labor introduced the compulsory Superannuation Guarantee (SG) payment of three per cent in 1992 existing funds (mostly public sector and well-paid professionals in large corporations) $148 billion was held in existing accounts. Some trade unions had already won superannuation in awards.
The government’s aims were three-fold:
To wind down the public, centrally funded age pension as part of the general drive to “small government” and hence avoid the “burden” of providing pensions for an ageing population. This would free up government income to fund income taxes, in particular for the wealthy and corporations.
To privatise retirement income, and so divest the government of previously accepted social responsibilities in line with its neoliberal economic policies. Financial institutions are waxing fat on income from administration fees imposed on superannuation investments. In Parliament, then Treasurer John Dawkins described the policy as increasing “self-provision for retirement.”
To create an ever-increasing massive pool of savings to be employed as a major source of investment capital available to the private sector.
That pool has grown to $3.3 trillion today, larger than Australia’s Gross Domestic Product.
At present there is a tax of 15 per cent on employer contributions which are 10.5 per cent of ordinary wages excluding such payments as penalty rates and overtime and it is set to rise to 12 per cent in July 2025. There is also a 15 per cent tax on salary sacrifice contributions to superannuation up to a certain limit. The investment earnings within your fund are also only taxed at 15 per cent. Withdrawals are tax-free if you’re 60 or older.
For all but those on low incomes, these tax rates are far lower than on income earnt outside of a superannuation fund. These concessional tax rates have acted like a honey pot to bees for the wealthy.
Around 80,000 super accounts have balances over $2 million. The income from their investments is being taxed at 15 per cent – just one third of the highest marginal rate of 45 per cent on taxable incomes over $180,000 or the corporate tax rate of 30 per cent.
Last week the government announced that tax on earnings for savings over $3 million will double from 15 per cent to 30 per cent in July 2025, contributing an estimated $2 billion for the budget over four years.
The government is seeking feedback on what the legislated objective of superannuation should be. “The objective of superannuation is to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way,” the consultation paper proposes. It also suggests several variations in emphasis of wording around that objective.
It goes on to define several of these terms.
Preservation of savings means restricting withdrawal from superannuation funds to retirement only. This is something that Treasurer Jim Chalmers is quite adamant about. The Coalition let people raid their funds to the tune of $20,000 during COVID and has advocated for early withdrawals being used to towards a deposit on purchasing a house. Early withdrawals ultimately mean more retirees qualify for the age pension increasing the cost to the budget. They also have an impact on the final outcome at retirement depending on at stage they are drawn.
Government support in retirement refers to the age pension, its interaction with superannuation as well as other government support (eg concessions).
Equitable is defined as “similar outcomes for people in similar circumstances.” The higher your income in the workforce, the higher your superannuation payment. Women and others on low incomes during their working life would continue to be disadvantaged. There is no suggestion that any attempt will be made to overcome this inequity.
Equitable also includes the principle of targeting support to those most in need. There is a debate around whether tax concessions should be cut or reduced. Action to cut the rorting would be a progressive step but would not make the system equitable.
Sustainable goes straight to cost-cutting measures to balance the budget. Chalmers is quite open about his government “needing” more money for “defence” – more accurately described as war preparations.
Treasury estimates that tax concessions on superannuation will cost the public purse close to $50 billion in 2022-23. This is just a little under the cost of the age pension at a cost of $55 billion. For a neoliberal treasurer seeking to balance a budget, this presents an opportunity to make cuts.
The government is also encouraging retirees to withdraw their super savings during retirement and not leave them in their accounts as an inheritance – one of the attractions for wealthy rorters of the system.
SECURITY IN RETIREMENT
The present superannuation system which is based on accumulation through investment of savings is a gamble for workers – both during the savings phase and in retirement. Returns on money invested on the stock market, in cash and other financial products are not guaranteed. For example, during the global financial crisis (2007-2009) $200 billion was wiped from superannuation savings. Someone who retired in 2006 would be far better off than if they retired in 2009.
Cutting back the tax concessions and reinvesting the money in the age pension would provide workers a far higher and more dignified retirement. The flat tax of 15 per cent on contributions and fund earnings is a regressive tax, favouring those on high incomes. Tax concessions should be made progressive and capped.
One of the areas where the current super scheme fails is that it perpetuates working life inequalities in retirement, with women, people with disability, Indigenous, and other low paid and vulnerable workers bearing the brunt.
Workers also have a right to expect that their savings will be safely invested, managed well, and invested in socially desirable areas.
No matter how much legislation is implemented, private superannuation and “self-provision” for retirement cannot be made to work efficiently or equitably nor can outcomes be guaranteed.
The government could solve many of the issues referred to above by setting up a national superannuation fund that workers could opt into on a voluntary basis and transfer their savings to. This fund would be administered democratically by representatives of trade unions and other community organisations. Savings would be guaranteed.
The fund would be invested in projects such as renewable energy development, public services including housing, schools, TAFE colleges, transport, aged care, and other projects of benefit to working people and retirees.
A universal age pension, which used to be Labor policy, would overcome so many bureaucratic inefficiencies and administrative expenses. There would not be all the problems associated with multiple funds, means and assets testing. CentreLink staff could be redirected to services such as JobSeeker.