‘Unfair’ superannuation tax concessions could soon cost taxpayers more

Feb 27, 2020
New research has shone a light on the unfairness of superannuation tax concessions. Source: Getty

Superannuation tax concessions are large, unfair and getting worse. Those were the findings from a recent report compiled by the Australia Institute.

“Superannuation tax concessions were initially designed to help Australia become less reliant on the Age Pension, but with the rapid increase in the concessions they will soon become even more costly,” Matt Grundoff, a senior economist at the Australia Institute said in the report. “These tax concessions are big, getting bigger and plainly unfair.”

Compulsory superannuation and the concessional nature of the Australian taxation system were introduced in part to alleviate budget pressure, but Grundoff said that the findings represent a “spectacular failure of policy” as superannuation tax concessions designed to reduce the budget cost of the Age Pension have grown rapidly and could soon cost taxpayers more than the Aged Pension itself.

“The cure has become worse than the disease,” he said.

“Such high rates of poverty in retirement is in part because so much of the taxpayer funding for retirement incomes goes to high-income households in the form of superannuation tax concessions. The rapid growth in these tax concessions will only make this worse.”

The report from the Australia Institute comes after findings by Treasury’s Tax Benchmark and Variations Statement 2019 which was released this month revealed that superannuation tax concessions are expected to total $41.3 billion in the 2019-20 period, growing over the next three years to an estimated $52.5 billion in the period 2022-23. By comparison, Commonwealth funding for assistance to the elderly — made up almost entirely by the Age Pension — will total $48.5 billion in the 2019-20 period, rising to an estimated $54.9 billion in 2022-23.

“If the difference in growth rates continues then it will not be long before superannuation tax concessions cost more than the Aged Pension,” Grundoff said. “Compulsory superannuation and the concessional way Australia taxes it was introduced in part to take the pressure off the budget. This represents a failure of policy because superannuation tax concessions which were designed to reduce the budget cost of the Age Pension have themselves grown rapidly and are likely to soon cost the budget more than the Age Pension.”

The report from the Australia Institute also shines a light on the inequality in the system, highlighting that while the Age Pension is means-tested and is designed to mainly help those in low-income households, superannuation tax concessions mainly benefit high-income households, with 60 per cent of super tax concessions going to the top 20 per cent of households.

Gender inequality is also a major issue. Despite women making up almost 50 per cent of the Australian workforce, they only receive 30 per cent of superannuation tax concessions.

“While women get substantially less superannuation tax concessions, with their lower superannuation balance they’re far more likely to retire in poverty,” Grundoff said.

Important information: The information provided on this website is of a general nature and for information purposes only. It does not take into account your objectives, financial situation or needs. It is not financial product advice and must not be relied upon as such. Before making any financial decision you should determine whether the information is appropriate in terms of your particular circumstances and seek advice from an independent licensed financial services professional.

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