Fact check: Are superannuation tax breaks fair, or do they favour the rich?

Updated

As iron ore prices plummet and government revenue continues to shrink, there has been much discussion of ways to balance the federal budget and shore up revenue sources into the future.

Released in March, the Government's tax discussion paper, Re:think, includes superannuation tax concessions, which are designed to drive retirement savings, among tax changes to be considered and it's one area where the Opposition may be willing to work with the Government.

The claim: Shadow treasurer Chris Bowen says the top 10 per cent of income earners get more than 30 per cent of tax concessions in superannuation.

Shadow treasurer Chris Bowen says the top 10 per cent of income earners get more than 30 per cent of tax concessions in superannuation. The verdict: Yes, Mr Bowen's claim that the top 10 per cent of income earners receive over 30 per cent of super tax concessions is correct, but when other government support is included, the imbalance is not so pronounced. There's more to it.



Shadow treasurer Chris Bowen said he thinks the current superannuation tax concession system is unfair.

"I'm pointing out that it's not appropriate that the top 10 per cent of income earners get more than 30 per cent of the tax concessions in superannuation," he told ABC 7.30.

ABC Fact Check takes a look at the superannuation tax system, and who benefits the most.

Tax breaks

The Government gives tax concessions to encourage people to put money away for retirement, instead of spending it while they are still working.

The concessions mean that people pay lower tax on the portion of their income that is put into superannuation than they do on the portion they are free to spend as they choose before retirement.

Retirement savings can be taxed in three ways. For more information on how the super tax system works, read our fact file.

Low income earners can miss out

Under the current tax system, people who pay less than 15 per cent of their overall income in tax would be worse off if they made superannuation contributions, because those contributions would be taxed at 15 per cent.

To address this, the government makes super co-contributions for low and middle income earners to encourage them to save for retirement.

For every dollar put in on top of the standard employer super contribution the government will match it. This government contribution is capped at $500.

In addition, a low income super contribution (LISC), also up to $500, is currently given to people earning under $37,000, with no personal contribution required.

The LISC was designed to offset the 15 per cent tax low-income earners were paying. But the low income payment was repealed in September 2014 and will be phased out by 2019.

Who benefits from super tax concessions?

A spokesman for Mr Bowen told Fact Check his claim comes from the Murray Financial System Inquiry, which released its report in 2014.

The data comes from Treasury calculations based on 2011-12 data from the Australian Tax Office.

The chart shows that the top 10 per cent of income earners reap about 38 per cent of the government support provided via superannuation tax concessions.

This money would otherwise be paid in tax if the superannuation concessions weren't available.

The chart shows that the bottom 10 per cent of income earners are actually disadvantaged by paying 15 per cent tax on their superannuation, because their overall tax rate is below 15 per cent.

Fact Check asked Treasury for the dollar value of the superannuation tax concessions underlying the chart. No response was received.

The LISC, introduced in July 2012, was designed to return this money to these people but was not in effect when these data were calculated.

The inquiry report quoted evidence from consultancy Rice Warner: "It is self-evident that the tax concessions for superannuation are tilted towards those Australians who have the most income and wealth, and who have the highest personal marginal tax rates."

Danielle Wood, a fellow at the Grattan Institute has performed a similar calculation on the same 2011-12 ATO data used by the inquiry and generated an almost identical result.

"You're giving a significant tax discount to the highest income earners," Dr Wood told Fact Check.

Earlier Treasury data, from 2009-10, does include an estimate of the value of the concessions.

The estimated amount of government support that went to the top 10 per cent of income earners in 2009-10 was $8.3 billion, compared with $13.4 billion for the remaining 90 per cent of taxpayers.

The percentage of benefits flowing to the top 10 per cent that year was 38.2 per cent.

The superannuation 'legacy'

David Knox, a senior partner at investment consultancy Mercer Australia, says the very generous concessions high net worth individuals are getting on the income earned on their superannuation investments is a consequence of past policies.

One of the most significant was announced by then treasurer Peter Costello in 2006, as part of the Howard Government's transition arrangements to reform superannuation.

People who planned to make a large superannuation contribution under the existing rules were allowed to add up to $1 million of post-tax contributions between 10 May 2006 and 30 June 2007.

"So we are dealing with a big legacy to some extent of history, where people have taken advantage of opportunities to put money into super that are no longer there," Dr Knox said.

Overall government retirement support

While the Government's tax discussion paper, Re:think, says people on high incomes receive the greatest benefits from superannuation tax concessions, it also says overall taxpayer support for retirement should be taken into account if comparing the benefit of superannuation tax concessions for people on different incomes.

"The policy merit of this level of tax concessionality has to be judged taking into account Australia's full retirement income support arrangements, including the means-tested age pension," it said.

George Kudrna, a research fellow at the Centre of Excellence in Population Ageing Research at the University of NSW, told Fact Check that a lot of government support for retirement is flowing to high income earners.

He pointed to Treasury data produced in April 2012 that combines age pension and superannuation tax concessions across 10 categories of income earners.

The chart shows the total government support via the age pension and superannuation tax concessions that a man would receive in retirement.

Even after considering the age pension, which benefits low income earners more than high income earners, the top 10 per cent of income earners still receive more government retirement support than the other 90 per cent, and support for the top five, and top one, per cent is even higher.

The top five per cent of income earners are getting around $430,000 in government support, compared to around $250,000 for the bottom 10 per cent of income earners.

"I think its very striking that you basically have the largest recipients of government support for retirement incomes going to the top one per cent," Dr Kudrna said.

Fact Check asked Treasury for information on the assumptions behind these calculations, but received no response.

Dr Kudrna said low income earners are being forced to make superannuation contributions but don't get any concessions.

"The government is basically telling them, don't worry about superannuation, you'll get the age pension," he said.

"And then on the other hand, you're saying to high income earners, don't worry about the age pension, you'll get this superannuation."

Mercer and the Australian Institute of Superannuation Trustees have also published research projecting the total government support from combined age pension and superannuation tax concessions.

The chart estimates the total amount of government support in retirement a person receives over their lifetime across 10 categories of income.

It is composed of superannuation contribution concessions based on the superannuation guarantee, superannuation investment earnings concessions and age pension payments and shows that the top 10 per cent and top one per cent of income earners receive more government retirement support than the other 90 per cent.

Income earners in the people on higher than average incomes but not in the top 10 per cent are receiving the lowest government support.

Low income earners benefit most from the age pension, whereas high income earners get the most benefit from tax concessions on their superannuation investments.

Dr Knox said the data shows that across most income bands, government support is "a reasonably equitable outcome" when superannuation tax concessions and pension payments are considered.

He said the data assumes that people stay on the same income percentile all their lives, which in practice is not what happens, but he says in reality most people don't move around the income percentiles much.

Additionally, only the 9.5 per cent employer superannuation guarantee is included and Dr Knox acknowledged people on high incomes will add more money by salary sacrifice.

"I think what the graph shows is that the top 10 per cent of income earners are getting a good deal throughout their career," he said.

The verdict

Mr Bowen's claim that the top 10 per cent of income earners reap 30 per cent of superannuation tax concessions is based on Treasury data, which shows that the top 10 per cent of income earners get about 38 per cent of superannuation tax concessions.

A similar analysis done by the Grattan Institute reaches the same conclusion.

But experts say discussions about the equity of retirement income should include both superannuation tax concessions and the age pension.

Even when the age pension is included, the top 10 per cent of income earners still benefit more than the other 90 per cent from government support.

Yes, Mr Bowen's claim that the top 10 per cent of income earners receive over 30 per cent of super tax concessions is correct, but when other government support is included, the imbalance is not so pronounced. There's more to it.

Sources

Topics: tax, government-and-politics, alp, australia

First posted