Outgoing Westpac chief executive Brian Hartzer will receive more taxpayer support for his retirement than the men and women who clean his former bank’s branches. Far more.

While executives with multimillion-dollar pay packets often receive tens of thousands of dollars a year from other taxpayers, low-income earners such as cleaners, childcare workers and part-time teachers literally receive nothing. In fact, it’s possible for a low-income earner to work their whole life and receive no boost from fellow taxpayers to their personal super account.

Welcome to the topsy-turvy land of superannuation, in which taxpayers give the most assistance to those who need it least, and no assistance to those who need it most. John Oliver once said: “If you want to do something evil then put it in something boring.” If those responsible for managing our life savings weren’t so brilliant at making superannuation seem so boring, there would be riots in the street.

The great superannuation debate: raise it, freeze it or do away with it altogether Read more

Much is made of the enormous size of Australia’s $2.9tn pool of superannuation savings, but we talk much less about the fact that the only reason it grew so big was that we literally force the vast majority of employees to spend 9.5% of their income buying superannuation every week. Let’s be clear: if we forced all Australians to get a massage every week or buy a new Australian car every year, we would have an enormous massage and car industry as well.

For more than 10 years, I’ve been trying to explain just how unfair, unaffordable and inefficient the Australian superannuation system has become, but you don’t just have to take my word for it any more. The commonwealth Treasury recently concluded that “modelling suggests that over a lifetime, more public support may be provided to those in higher income brackets”.

Those folk at Treasury are so good at being humble that I’m starting to yawn myself.

But let me describe Treasury’s data differently. In Australia, taxpayers contribute 10 times as much money to the superannuation accounts of the people in the richest 1% than they contribute to the people in the poorest 10% of workers.

Put another way, the graph below also shows that, over the course of their lives, those Australians lucky enough to be in the top 1% of income earners will receive over $700,000 in taxpayer contributions to their personal superannuation account, while those in the bottom 10% will receive less than $50,000.

Now, of course tax concessions for superannuation aren’t the only form of public assistance for retirees; there’s the age pension as well. But while the age pension is capped at $24,268 a year for singles, there is no cap on the lifetime value of taxpayer support for superannuation. There are people with tens of millions of dollars in their superannuation funds who receive millions of dollars worth of tax concessions each year. The lifetime cost of taxpayer support for wealthy retirees’ concessions is enormous and growing rapidly. But when it comes to explaining the budget deficit, it’s more likely that those on meagre unemployment benefits will get the blame.

We will never know exactly how much money taxpayers will eventually give to Hartzer or Gina Rinehart to help fund their retirement. But what we do know from Treasury is that it costs twice as much to give tax concessions to the top 10% of income earners as it would cost to simply pay them the age pension and scrap tax concessions for super.

Imagine if we had to have a public debate about who got $43bn each year to help fund their retirement

As an economist and as a citizen I like the idea of compulsory superannuation. I think most people struggle to plan for their future and requiring them to put some money away when they are young to spend when they are old is as good an idea as forcing kids to go to school when they are young so they can read when they are old. While lots of kids don’t want to go to school, there aren’t many retirees who regret being forced to go.

But just because I like compulsory superannuation, doesn’t mean I like the way we hand out $43bn a year in tax concessions for super. It’s obscene and it only survives because the superannuation industry is so skilful at confusing people, boring people, or both.

It doesn’t have to be boring. Imagine if we had to have a public debate about who got $43bn each year to help fund their retirement. That sounds a bit more interesting than reading about superannuation, doesn’t it? One option would be to divide it up between all 19 million adult Australians and deposit the same amount in each of their retirement savings accounts. Another option would be to “means test” the payments so that people who earned high incomes, or already had a large superannuation balance, got less and those with low incomes and no assets got more deposited into their accounts each year.

Or, we could stick with the current approach and give tens of thousands of dollars a year to the best-paid CEOs and executives (most of whom are men) and give literally nothing to the lowest income Australians (the majority of whom are women).

Believe it or not, the government has recently announced an inquiry to answer precisely this $43bn question. But both the government and the finance industry are hoping, with good reason, that you will be too busy, confused or bored to get involved.

Assuming you are interested in who gets the $43bn every year, the first thing you need to understand is that while ordinary income is taxed progressively, from zero percent on income up to $18,200, to 47% on incomes over $180,000, contributions to superannuation are typically taxed at a flat 15%. That’s a nice big tax break for someone earning $200,000 a year, and no tax break at all for someone earning $15,000 a year.

It gets worse – but stick with me, because those making millions out of this rort are betting you will get bored rather than get angry.



Once your money is invested in a superannuation account it (hopefully) earns interest and dividends each year. This income is also taxed at a flat 15% instead of your marginal tax rate. If, like many wealthy Australians, you had $10m in your super fund and it earned $800,000 in dividends and interest last year, that $800,000 would be taxed at a flat 15% instead of the top marginal tax rate of 47%. Cool huh!

But now imagine if you were a part-time cleaner earning $15,000 who had accumulated $100,000 in super over the past 30 years. If your super fund earned $8,000 in interest and dividends it would be taxed at the same 15% rate as someone with $10m – even though someone earning $15,000 per year is below the income tax threshold and has a marginal tax rate of zero.

Put simply, when it comes to our super funds, we tax the earnings of those with millions at far less than their marginal tax rate and we tax the earnings of those with small balances at far more than their marginal tax rate. Tax concessions for superannuation literally amplify inequality in Australia.

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If you have made it this far, I have a confession: that was even boring to write. But that’s the superannuation industry’s best defence mechanism. It bores people into accepting the status quo by making the system seem impossibly difficult to understand, let alone describe.

But let me make it simple again. There is no link between supporting a system of compulsory superannuation and supporting the current system of tax concessions that gives billions of dollars per year to those with millions and nothing to those with low incomes and low balances. We can fix it if we want to.

It would be easy to cap the generosity of tax concessions to those with the most and boost support for those with the least. We do it with the age pension and we could do it with super, if we wanted to.

The government is currently holding an inquiry into the superannuation system. Both the government and the superannuation industry are betting you will be too busy or too bored to make a fuss about the fact we allocate $43bn in tax concessions mostly to wealthy retirees each year. You can make a submission here – they are betting you won’t, but I hope they are wrong.

• Richard Denniss is chief economist at the Australia Institute