Super concessions help the rich at the expense of others

Millions of dollars of your taxes are being used to deliver concessions to some of the country’s wealthiest people.

Figures published by the Australian Taxation Office (ATO) in response to a Crikey freedom of information request, show that taxpayers spent $200 million in the 2019–20 financial year on concessions for 100 of the biggest self-managed super funds (SMSFs). Those funds held a total of $9.67 billion as of June 2020 – a modest increase on 2019 despite the downturn caused by the pandemic.

The 32 biggest accounts each had more than $100 million in assets, including one mega-fund with $401 million – though it had slimmed down from $544 million the year before. The next two largest had $371 million and $273 million respectively. There were 27 SMSFs with $100 million-plus in 2019.

The Organisation for Economic Development (OECD) reports that in 2016, the income poverty rate for retirees in Australia was 23 per cent compared to 14 per cent across the member countries.

Superannuation funds pay just 15 per cent tax on earnings during the accumulation phase. If these investments were held outside super, they would attract tax applied at a marginal rate, likely 45 per cent.

Read: Why are older Australians delaying retirement?

Australians drawing from super pension accounts are exempt from tax until they hit a limit of $1.7 million each year. There is no limit on the amount that can be held in a superannuation fund.

Economists have long called for a ceiling on Australia’s generous superannuation tax concessions.

Matt Grudnoff, senior economist at The Australia Institute, is a fierce advocate for tax reform and says the system must and can work more efficiently to reduce inequality.

“What super tax concessions currently do is magnify the inequalities of working life into retirement,” he says.

“Australia taxes wealth lightly compared to other OECD nations. With inequality in Australia only getting worse, we need a debate and better policies about taxing wealth properly and reducing inequality rather than exacerbating it.

“While many are concerned about the size of our taxes, consideration must also be given to the shape of our taxes because … not all tax measures are created equal.”

Read: How much do you really need?

Mr Grudnoff says the super tax concessions mean the government must raise more tax in other ways.

“[They] must be reformed so they better fit the purpose of encouraging Australians to rely more on their savings in retirement and less on the taxpayer. For this to happen, there need to be fewer super tax concessions flowing to those who are unlikely to ever need an Age Pension and more flowing to those who are likely to be on a part pension. At the moment the reverse is true.”

Grattan Institute economy policy program director Brendan Coates told Crikey there was no policy justification for the enormous amounts of money held in the top SMSFs.

“It’s another sign that the superannuation system is becoming a taxpayer-funded inheritance scheme,” he said. “We know that by 2060, one in every $3 of benefit of superannuation will be in the form of a bequest.

“People are putting in hundreds of millions of dollars – there’s no way they’ll spend that in their retirement.”

Read: What older Aussies really care about

Mr Coates said there should be a cap on the amounts individuals can have in their super funds.

“Capping it at two or two-and-a-half million [dollars] would be enough to generate a retirement income of more than $100,000 a year, which is about twice the median full-time earnings,” he said.

Another solution was to tax superannuation earnings like income tax, he said.

The Grattan Institute’s Joey Moloney said the mega-funds proved the system was being used as a tax-planning vehicle and, ultimately, a taxpayer-funded inheritance scheme.

While Treasurer Jim Chalmers is flagging “hard decisions” to repair the budget, there is no indication the government is considering a super fund threshold.

The Coalition government’s Retirement Income Review says the provision of tax concessions for very large superannuation balances “are not required for retirement income purposes as they are unlikely to encourage additional saving” and that it appeared “large balances are held in the superannuation system mainly as a tax minimisation strategy, separate to any retirement income goals”.

The ATO says it keeps a close eye on the top SMSFs to ensure compliance.

Should the wealthiest Australians be able to continue using this taxpayer-funded perk? Should there be a ceiling on how much you can keep in super? Why not share your thoughts in the comments section below?

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