Making Superannuation Fairer

Labor built Australia’s superannuation system. We will always work to ensure that it is fair, sustainable and sets Australians up for a comfortable life in retirement.

Bill Shorten and Labor have led the policy debate on keeping our superannuation settings fit for purpose as our community ages and Australia’s Budget faces new challenges.

For more than a year we have clearly and consistently made the case that a system which sees half of all superannuation benefits flow to the top 20 per cent of earners, and 40 per cent of all benefits flow to the top 10 per cent of earners, is a system in need of reform.

The contrast with the Turnbull Government’s chaotic approach to superannuation couldn’t be clearer.

After relentlessly attacking Labor’s proposed superannuation reforms, the Turnbull Government did an untidy about-face with a rushed and flawed package of super changes in the 2016 Budget.

Malcolm Turnbull’s retrospective changes were widely criticised for undermining confidence in the superannuation system, and were torn to shreds by his own backbench.

Following months of wrangling and in-fighting, the Government then proposed a revised package that saw them dump and delay measures they had been defending as essential only weeks before. Australians looked on in amazement as Malcolm Turnbull and Scott Morrison proudly announced they had finally secured agreement for a revised plan – from George Christensen and their own backbench MPs.

The problems with Malcolm Turnbull’s superannuation package do not end with this shambolic policy process. While their package goes some way towards reining in the cost and tackling the unfairness of our current super rules, it remains too generous for Australians on higher incomes.

Opening up new superannuation tax loopholes worth more than $12 billion over the decade is also not affordable when the Government’s economic mismanagement has already put Australia’s AAA credit rating under threat.        

That is why Labor is proposing a revised package to make these reforms fairer and avoid another irresponsible hit to the budget like Malcolm Turnbull’s $50 billion tax cut for big business.

Labor’s changes are responsible and fair. They are consistent with the superannuation reform principles we have been pursuing for more than a year: targeting concessions to where they are needed most while improving the Budget bottom line.

Our package will improve on the Government’s proposals by $1.4 billion over the forward estimates and $18.9 billion over the medium term, for a total budget improvement of $4.5 billion to 2019-2020 and $32.6 billion to 2026-27. 

Setting the record straight on super

Offering incentives through the tax system is an important way to encourage Australians to save for their retirement. But our current settings are not fair and they aren’t sustainable. 

Higher income earners receive a disproportionately large benefit under the current superannuation rules because the difference between their marginal tax rate and the concessional taxation of superannuation grows as their income increases.

Superannuation tax concessions should be targeted to the cohort of people that need encouragement to save more, not the people who are already on track to have more than enough to provide for a dignified retirement and are not at risk of falling back onto the Age Pension.

But many of those who currently benefit most from super tax concessions are too well-off to ever qualify for a pension in the first place. The Government’s own Financial Systems Inquiry noted this, stating:

“the majority of tax concessions accrue to the top 20 per cent of income earners. These tax concessions are unlikely to reduce future Age Pension expenditure significantly.” 

At the same time, Australians on lower incomes receive fewer benefits from super concessions and too many struggle to save enough for retirement. In their horror 2014 Budget, the Liberals made this situation worse by abolishing the Low Income Superannuation Contribution. This particularly affected Australian women, who make up about two-thirds of those receiving the tax break.

Labor has consistently argued for reforms to tighten up superannuation tax breaks going to the top end. We have also made clear that our priority is helping low and middle income earners – particularly women – save enough for a comfortable retirement. The money that Government spends on superannuation tax concessions is money that cannot be spent elsewhere in our community, so this needs to be well targeted. We should be careful that at the same time as closing down one set of loopholes, we do not open up others.    

A fairer way

Labor proposes a more targeted superannuation package which ensures tax concessions go to those who most need assistance to save for a secure retirement.

Our package includes the following measures:

Lowering the annual non-concessional contributions cap to $75,000

Only 0.7 percent of Australian taxpayers made $100,000 or more in non-concessional contributions in 2012-13. Over 86 per cent of taxpayers made no non-concessional contributions whatsoever that same year.1

Many Australians will make a single, large non-concessional contribution at some stage in their working life – for example with an inheritance or the sale proceeds from a property. The superannuation system allows for this by letting Australians bring forward three years’ worth of contributions into a single year.

But Treasury figures indicate the average contribution for these one-off lump sums is $135,000 – well below the $300,000 that would be allowed under the Government’s plan.

By lowering the annual non-concessional contributions cap to $75,000 Labor will ensure the carry-forward allowance remains generous enough to accommodate the kind of one-off contributions middle- and low-income taxpayers make. But we will also do a proper job of cutting back opportunities for higher income earners to gain tax concessions for large annual contributions – something the Turnbull Government has failed to do.

Further lowering the High Income Superannuation Contribution threshold to $200,000

The Government is proposing that people earning $250,000 and over pay 30 per cent tax on their concessional superannuation contributions, rather than 15 per cent. 

Labor will lower the income threshold further to $200,000. This will mean that someone earning $200,000 gets the same super tax concession as someone earning $80,000 – but no more.

Over 96 per cent of all Australian taxpayers will not be affected by this change to the High Income Superannuation Contribution threshold.2

Opposing the introduction of catch-up concessional contributions and changes to tax deductibility for personal superannuation contributions

With the deficit sitting at almost $40 billion, responsible governments must ensure every new dollar of Commonwealth money is targeted and well spent.

The Government’s proposed new superannuation loopholes will cost the budget $12.3 billion over the decade. This is not affordable in the current climate.  

Each of these measures is more likely to be taken up by those on higher incomes who can afford to make additional superannuation contributions. Meanwhile, the number of middle and low income earners who have the financial capacity to take advantage of these changes is limited.

For example, ASFA estimates that just 230,000 Australians would benefit from the catch-up contributions measure.3

Analysis from the Parliamentary Budget Office shows that only around 2.3 per cent of taxpayers made $25,000 or more worth of concessional contributions in 2012-13, with their average income being $182,000.4 This is because most Australians on lower incomes simply cannot afford to make additional contributions from their take-home pay.

On the other measures in the Turnbull Government’s package, Labor will support those that genuinely help middle and working class families build up stronger retirement savings and make the system fairer. This includes:

  • Introducing a $1.6 million superannuation transfer cap
  • Introducing a Low Income Superannuation Tax Offset
  • Improving the superannuation balances of low income spouses
  • Removing the anti-detriment provision for death benefits from superannuation
  • Strengthening the integrity of retirement income streams.

Labor will continue to work towards a superannuation system that is fair, sustainable and sets Australians up for the future. Our package improves on Malcolm Turnbull’s mess by properly tightening up concessions to the top end while significantly improving the budget bottom line to protect Australia’s hard-won AAA rating.

Fiscal implications

Labor’s revised package has been costed by the Parliamentary Budget Office.

Measure

Total to 2019-20

Total to 2026-27

Lower the annual non-concessional contributions cap to $75,000

20.0

1,070.0

Further lower the High Income Super Contribution threshold to $200,000

688.0

7,310.0

Oppose the introduction of catch-up concessional contributions

100.0

6,000.0

Oppose changes to tax deductibility for personal superannuation contributions

700.0

6,300.0

Interactions

-70.0

-1,820.0

Total impact – Labor amendments

1,438.0

18,860.0

Total Government package

3,064.0

13,730.0

Total Budget improvement

4,502.0

32,590.0

You can download a PDF of this fact sheet here.


[1] Parliamentary Budget Office, commissioned analysis

[2] Parliamentary Budget Office, commissioned analysis

[3] ASFA, 2016, Individuals affected by superannuation budget measures

[4] Parliamentary Budget Office, commissioned analysis