By Leith van Onselen

Prime Minister Malcolm Turnbull’s transformation into Tony Abbott is complete, with the Government now reportedly abandoning making superannuation concessions more progressive. From The AFR:

Treasury and other super industry groups had done considerable work on taxing super at either 15 per cent or 20 per cent below people’s marginal tax rates. The idea was that this would ensure higher income earners paid more while making the system fairer to lower and middle income earners. But this is now regarded as too complicated and high risk for the likely return, politically or financially…

Making superannuation contribution concessions progressive is arguably the biggest tax reform no-brainer going around. Under the current 15% flat tax on contributions, we have the ludicrous situation whereby lower income earners – precisely those that are most likely to become reliant on the Aged Pension – receive minimal tax relief, whereas higher income earners receive the lion’s share of benefits (see below table).

The inequities of the current system were laid bare by Mercer and the Australian Institute of Superannuation Trustees, which published research estimating the total amount of government support in retirement a person receives over their lifetime across 10 categories of income, taking account of both the Aged Pension and superannuation tax concessions.

According to this analysis, the top 10% and top 1% of income earners receive more government retirement support than the other 90%:

So, the above facts tell us that the current super concession system is out-of-whack with far too much support going to those who least need it and would never be reliant on the Aged Pension anyway (i.e. high income earners), and not nearly enough concessions going to those that do (i.e. low income earners).

For this reason, The Greens, Deloitte and MB have each called for superannuation concessions to be made progressive by replacing the 15% flat-tax with a flat 15% deduction from one’s marginal tax rate. This way, all taxpayers would receive the same rate of concession and those at the lower end of the spectrum and most likely to fall on the Aged Pension could build-up a bigger retirement nest egg.

Reform of this nature would also raise significant tax revenue, with Deloitte forecasting up to $6 billion a year of Budget savings.

So here we have a reform that would represent a massive improvement on the current system by: 1) yielding significant Budget savings; 2) improving superannuation accumulation among lower income households (potentially reducing their reliance on the Aged Pension); and 3) reducing super’s status as a tax haven for the wealthy.

Backing away from such a no-brainer reform makes absolutely no sense. Not only would it save the Budget significant money, but it would be politically popular, has most economists’ backing, and has the Greens’ backing, making passage through parliament easy.

The Coalition is now Hell bent on re-election via the openly unfair protection of vested interests.

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