- by M Santos
- The Guardian
- Issue #2183
Photo: Ken Teegardin – flickr.com (CC BY-SA 2.0)
On 10 March Parliament passed its Building a Stronger and Fairer Super System bills. The legislation is posed as reforming super tax concessions, “so that they are better targeted for large balances.” It might be better targeted, but the superannuation system is still skewed in favour of the super wealthy.
According to The Australia Institute the richest 10 per cent rort the super system to the tune of $22 billion a year.
When introduced 32 years ago by the Keating Labor government the compulsory Superannuation Guarantee scheme had several aims. One was to be in a position to phase out the age pension as super savings surpassed the assets test for the pension.
Another was to provide a large and ever-growing pool of capital for the financial sector and corporations to profit from. It has served this aim well, but as for retirement incomes millions of workers have been short-changed. Instead it has become yet another tax slashing scheme for multimillionaires and billionaires.
MINOR CHANGES
At present the tax rate on earnings in all superannuation funds is 15% – a massive tax concession for the wealthy who would be paying a marginal tax rate of 45 cents on each $1 of income over $190,000.
At present, someone with up to $10 million in their fund and an income of $1 million would only pay $150,000 in tax on their earnings. Outside of super, the same $1 million would incur income tax of $416,138. That’s almost three times more.
The government’s “better targeted” reforms increase the tax paid on income between $3 million and $10 million of assets to 30 per cent.
The “better targeted” legislation would see $235,000 tax paid on that same $1 million in income. So that multimillionaire’s tax on income in their super would rise by $85,000. That’s still a super rort to the tune of $181,138. Not bad for not lifting a finger.
The concessional tax rate applying to future earnings on balances above $10 million will be 40 per cent, and both the $3 million and $10 million thresholds will be indexed.
Why should someone with more than $3 million, let alone $10 million, in their super account receive a tax concession? This is outrageous. Let’s not forget they still pay only 15% on the income on the earnings derived from the first $3 million.
Earnings corresponding to balances below $3 million will continue to be taxed at 15 per cent in the accumulation phase. In addition, superannuation will remain tax free in the retirement phase when income is withdrawn.
The not-so-super superannuation reform is a slight improvement but falls far short of any sense of decency or fairness.
MISDIRECTED
Compare those tax rates to those imposed on the income of shop assistants, hospitality workers, nurses, other workers on the minimum wage, and part-time workers.
They earn a fraction of what the wealthy are receiving in tax concessions.
While the reform is a tiny step in the right direction it does little to redress the growing gap between the wealthy and workers.
The wealthiest 10 per cent of Australians are still rorting the system for $22 billion. Meanwhile, millions of families are struggling, charities are inundated, and housing is unaffordable. How does someone pay $600-$800 rent for a family when their income is less than $50,000?
Families, not just individuals are house-sharing. Imagine how much public housing could be built with $22 billion. Imagine the benefits of transferring some of that money to fund an increase in social security payments for the unemployed, age pensioners and carers.
99.5% of workers currently in the workforce will never see $3 million in their super fund. Yet listening to the uproar you could be forgiven for thinking that the multimillionaires would be impoverished.
LISTO
Legislation to increase the low-income superannuation tax offset (LISTO) is due to come into effect on 1 July 2027. LISTO was established in 2017 in response to the Henry Tax Review.
It was established to provide a refund of up to $500 paid into a person’s superannuation account if they paid higher taxes on their income than on their superannuation and earned a taxable income of $37,000 or less per annum.
Since then the income test has been frozen at $37,000, resulting in many on low incomes becoming ineligible. After lobbying by superannuation and other groups the government agreed to lift the eligibility threshold to $45,000 and the maximum payment to $810. The threshold will be indexed annually.
This reform will benefit around one quarter of the current workforce, in particular, working women as around 60% of them qualify.
It only applies to workers on incomes between $28,000 and $45,000. If your taxable or non-taxable income is less than $28,000 then you miss out.
Around 3.1 million workers will gain from LISTO reforms next year. But there are thousands more with incomes below $28,000, in particular young people, women, Indigenous Australians, and people with disability, who don’t.
SERIOUS REFORM OVERDUE
“How cooked is our tax system that the 10 Australians with the biggest superannuation accounts, averaging $423 million, will pay a lower rate of tax than the nearly three million Australians who are going to work and earning the minimum wage,” Greens Senator McKim said.
Over past four decades or more there has been a gradual flattening of the tax system, eroding its progressive nature whereby the higher your income the higher the rate in the dollar your tax bill.
The Howard government’s introduction of the flat 10% GST made the system even less progressive as the wealthy pay a far smaller proportion of the income on goods and services. The rich don’t need to resort to credit cards with exorbitant interest rates to pay bills. Corporations are exempt from the GST.
Much more work needs to be done to eliminate the rorting of superannuation.
The tax concessions should be abolished on super savings over a certain amount along with those on capital gains tax.
