The Australia Institute (TAI) has made a bold call for changes to the superannuation tax concessions in Australia, including the elimination of tax benefits for those with large super balances. The organization's analysis indicates that these tax concessions will cost the federal budget $52.5 billion in 2022-23, which is just slightly lower than the $55.5 billion spent annually on the age pension. In comparison, the National Disability Insurance Scheme is estimated to cost $35.5 billion and the federal government will provide $26.6 billion in funding for hospitals.
Richard Denniss, the Executive Director of the Australia Institute, said that the super tax concessions are now one of the top three expenditure programs in the Budget 2022-2023, costing more than the NDIS and equal to the cost of the entire aged pension. This data shows that the concept of "self-funded" retirees is misleading, as there are now two classes of state-funded retirees in Australia, both costing the taxpayer a similar amount. According to Denniss, the current system provides a tax avoidance facility for multimillionaires, but is not taking any pressure off the budget to ensure a dignified retirement for all Australians.
Due to Australia's progressive personal income tax system, the 15% flat tax on superannuation contributions and earnings favors high-income earners. The Australian Treasury has found that the lifetime taxpayer support provided through the retirement system is heavily skewed towards higher-income earners, as the size of one's superannuation nest egg is also a function of how much they earn and how long they work.
The Australian Treasury estimates that the top 1% of income earners will receive more than $700,000 in taxpayer support over their working lives, which is roughly 14-times the $50,000 of concessions received by the bottom 10% of income earners. The passing of fund balances onto their heirs will increase intragenerational inequity, according to the Treasury's Retirement Income Review.
The compulsory superannuation system in Australia effectively takes the disparities in working-life incomes and magnifies them in retirement, perpetuating inequality. The superannuation lobby is now so large and powerful that it would bring down any government that tried to disband it, and the Labor Party, the policy's architect and biggest defender, would never consider making the required changes.
In conclusion, Australia's compulsory superannuation system is a giant tax dodge and a machine for inequality that costs the federal budget a fortune by channeling enormous tax benefits to the wealthy. To address these issues, the billions saved by unwinding the compulsory superannuation system should be used to provide a more generous universal aged pension, Australia's true retirement pillar.
