superannuation has matured, its practicalflaws have cast doubt on both the
fiscal and paternalistic arguments that chiefly justify it.
10.4.1Misguided Savings
In 2015The Australian, a national right-of-centre broadsheet newspaper, edi-
torialized in favour of compulsory superannuation‘as a way to improve public
finances and keep taxes lower by reducing pressure on pensions’.^18 While this
is the most popular supporting argument, the effect of superannuation is the
exact opposite. In short, the forgone revenue as a result of the tax concessions
for superannuation contributions and earnings dwarfs the savings in age
pension outlays. Far from the Hayekian ideal of replacing the age pension,
projections show 67 per cent of retired Australians would still be receiving it in
2053, down from 70 per cent in 2015—after what would be more than 60
years of compulsory saving!
‘An increase in the superannuation guarantee would...have a net cost to
government revenue even over the long term’, said the 2010 tax inquiry,
explaining that the resulting boost to private saving was more than offset by
a fall in public sector saving. The forgone revenue of the two main tax
concessions—aflat 15 per cent tax on earnings and contributions—amounted
to $27.3 billion in the 2015financial year according to Australia’s Treasury,
offset by superannuation tax of $6.2 billion.^19 The Australian Institute of
Actuaries, in its submission to the tax inquiry, estimated this net cost to the
federal government budget would rise from 1.1 per cent of GDP to more than
2 per cent over the next thirty-five years.
Naturally, this net budget cost induces extra savings that reduce the pension
payments some Australians receive, but not, in aggregate, by enough to make
the concessions worthwhile.‘This is primarily because the structure of the tax
expenditure in superannuation results in most of it being directed to high
income earners who are never likely to draw the Age Pension’, the Institute
said. Almost 60 per cent of the concessions by value accrue to income earners
in the top income quintile according to the government’s 2015financial
inquiry.^20 This is also the case because of the generosity of the age pension
eligibility test, which means extra savings in superannuation have little
impact on pension payments. In 2015 the government sought to tighten
(^18) The Australian, 8 July 2015.
(^19) Calculating forgone income is difficult because of alternative opportunities to minimize tax
such as 20 ‘negative gearing’of property.
Australia’s income tax rates rise from 19% for earnings above $18,400 to 49% for income
above $180,000, implying a significantly larger superannuation tax discount for taxpayers in the
top tax bracket.
Adam Creighton