According to the Grattan Institute, if the Government can’t see its super changes legislated then there is no hope of it being able to successfully fix the budget deficit.
In its paper released today, the Grattan Institute is clear that it’s the changes to superannuation announced in Budget 2016/17 that will prove the defining issue of this Government’s term, “not because our major political parties are at loggerheads, but because they largely agree”.
With Labor supporting the changes, subject to clarification that the $500,000 lifetime cap on non-concessional contributions isn’t retrospective, Grattan Institute CEO John Daly is urging the Government to push ahead, “There’s a grand total of one thing that the ALP disagrees with the government on that costs the Budget money. There’s a whole list of things it agrees on that saves money,” he says.
“If you can’t do a deal with all of that going for you, it’s hard to see how they will get anything worthwhile done. If we cannot get reform in this situation, then there is little hope for either budget repair or wider economic reform.
The Government has already signalled amendments to its proposed changes to appease those within the Coalition who believe the hard fought nature of the election campaign was due to public objection to the changes. The Grattan Institute, however, notes that there is little evidence to support this, “Polling suggests that support for the changes is highest amongst older people on high incomes, perhaps because they understand that the current system is unsustainable,” the report says.
The report continues, “For more than a decade, superannuation tax breaks have been absurdly generous to older people on high incomes.” It also says this is the reason that households over the age of 65 are paying less tax in real terms than they were 20 years ago as a result of such tax breaks, while those between the ages of 25 and 64 are paying more tax.
“Even after the reforms, super tax breaks will overwhelmingly flow to high-income earners who do not need them,” the report also states.
And while the superannuation industry claims that nine per cent of superannuation account holders will be affected by the changes, Grattan refutes such calculations. It claims that the nine per cent is due to double counting and says this figure is more around 4.2 per cent, close to the Government’s estimate of four per cent.
Read the working paper, A better super system: Assessing the 2016 tax reforms
The theory behind the proposed superannuation changes is noble one indeed: to redress the balance between the wealthy and the not-so-wealthy in retirement. But until such times as Australia’s retirement income system receives a full and effective overhaul, then it’s really just paying lip service.
As we’ve stated time and time again, the superannuation system as introduced in 1992 by the Keating government was based on the principle that working Australians would have at least 40 years of superannuation savings to sustain them throughout retirement. A determining factor of the success of superannuation as a retirement income savings means was that the superannuation guarantee would rise to 15 per cent.
Fast forward some 24 years and we have a system that has been tinkered with so many times that people are losing their faith in ever being able to save enough for their own retirement. The closest we are to having a superannuation guarantee of 15 per cent is the current legislation that will see it rise to 12 per cent by 2025 – a fat lot of good that will do anyone hoping to retire in the next 10 years.
The failure of successive governments to fully understand the important of superannuation as a retirement income savings tool rather than a tax revenue vehicle has resulted in an increasing reliance on the Age Pension for those entering retirement. And as a result of this reliance, we’re now being told that our welfare system is unsustainable. It all seems a little chicken and egg to me.
In May we were told with conviction that our superannuation would be changed for the better. Yet, just four or five months on, we’re seeing increasing reluctance from within the Coalition to support these ‘necessary’ changes, largely due, one suspects to the act that it is the high-income earning Coalition supporters that will be affected by such changes. Despite having the support of the voting public and the Labor Party that is needed to see such changes legislated, the Government has responded by indicating that a few tweaks will be made to make the changes ‘fairer’.
But surely fair is to give every working Australian the equal opportunity to save for their retirement?
What do you think? Should the Government have the courage of its convictions to see the changes legislated? Is there any aspect of the proposed changes you would like to see readdressed? Do you think there’s any chance that our retirement income systems will ever be fair for all?