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.
We have also been firm in stating that any changes should not be retrospective.
After relentlessly attacking Labor’s proposed superannuation reforms, the Turnbull Government back flipped and put forward its own package of super changes in the 2016 Budget. Rushed and ill-considered, Malcolm Turnbull and Scott Morrison have struggled to secure support for the Government’s retrospective tax changes within their own party room, let alone the wider community.
That is why Labor is proposing to amend the Turnbull Government’s package to address the issue of retrospectivity and make these reforms fairer.
Labor’s changes are responsible and fair. They are consistent with our principles – avoiding retrospective laws, targeting concessions to where they are needed most and improving the Budget bottom line by more than the Government’s package.
At a time when the Government has put the nation’s AAA credit rating under threat, ensuring a more targeted and sustainable superannuation system is critical to setting the Budget on a path back to balance.
These changes could quickly pass the Parliament if Malcolm Turnbull is serious about delivering superannuation reform that is fair, affordable and not retrospective.
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 at the cohort of people that need encouragement to save more, not at the people that are already on track to have more than enough to provide for a dignified retirement and who are not at risk of falling back onto the Age Pension.
The Turnbull Government has stated that it sees the purpose of superannuation as being to provide income in retirement to substitute or supplement 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. But we have been clear that any changes should be prospective, not retrospective, to protect confidence in the super system as a whole.
After all, if Australians can’t make decisions today and be confident about how they’ll turn out in the future, fewer will be willing to save through superannuation in the years to come.
Labor has also made clear that our priority is helping low and middle income earners – particularly women – save enough for a comfortable retirement. The money that the 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.
The Turnbull Government’s ideas on super show just how out of touch they are with the household finances of middle and working class families.
They have been squabbling over whether contribution caps of $750,000 or $1 million are high enough, when the vast majority of Australians don’t come close to having this level of super savings.
Australian Superannuation Funds of Australia (ASFA) points out that the average superannuation balance for all Australians is currently $76,424, while for people at retirement age it is $214,121. Only about 210,000 Australians – less than 2 per cent of taxpayers – have super balances above $1 million.
The Government also wants to make the rules around voluntary super contributions more generous, but few Australians can afford to make voluntary contributions at all. We should be working to close down loopholes that let high income earners exploit the concessionality of superannuation, not opening up new ones.
Labor believes it is a fundamental principle of policymaking that changes should not be made retrospectively.
We have consistently flagged concern that the Turnbull Government’s decision to impose a $500,000 lifetime cap on non-concessional contributions and back-date this to 2007 represents a retrospective change to the superannuation rules.
This change would not only affect those Australians who breach the cap, confidence in the entire savings system would be undermined if it went ahead.
That is why Labor proposes a $500,000 lifetime cap on non-concessional contributions, to apply prospectively from Budget Night 2016.
This achieves the objective of tightening super tax concessions, while ensuring all Australians can continue to have confidence in the integrity of our retirement incomes system.
The Parliamentary Budget Office advises that a prospective $500,000 lifetime cap will deliver $50 million in revenue over the forward estimates, compared with $550 million for the Government’s retrospective change.
Better targeting concessions
Labor proposes to fund the changes to the $500,000 lifetime cap by amending the measure lowering the High Income Superannuation Contribution threshold (known as the Division 293 threshold).
The Government is proposing that people earning $250,000 and over on their superannuation balance pay 30 per cent tax on contributions, rather than 15 per cent.
We propose to lower the income threshold further to $200,000. This will more effectively target the most generous super tax concession to low and middle income earners. It will mean that someone earning $200,000 gets the same super tax concession as someone earning $80,000 – but no more.
Most importantly, this change would be prospective.
There are approximately 290,000 Australians who earn over $200,000.
Parliamentary Budget Office costings indicate this change will return $738 million in additional revenue over the forward estimates.
With the deficit sitting at over $37 billion, responsible governments must ensure every new dollar of Commonwealth money is targeted and well spent.
Together, Labor’s amendments will deliver a net improvement of $238 million to the budget bottom line over the forward estimates and $4.4 billion over the decade.
On the other measures in the Turnbull Government’s package, Labor will support measures that genuinely help middle and working class families build up stronger retirement savings, such as the as the Low Income Superannuation Taxation Offset.
However with the Government having tripled the deficit since coming to office, Australia cannot afford all of the spending measures in their proposed package.
That is why Labor will oppose new spending on the following measures:
- Allow catch-up concessional superannuation contributions
- Harmonise contribution rules for those aged 65 to 74
- Allow tax deductions for personal superannuation contributions
These three measures will cost the budget $1.5 billion over the forward estimates and $14.7 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 likely to be limited.
ASFA estimates that just 230,000 Australians would benefit from the catch-up contributions measure, while only 40,000 would see better retirement outcomes from relaxing the contribution rules for those aged 65 to 74.
Labor’s proposals address the issue of retrospectivity, more effectively target superannuation tax concessions at low and middle income earners and deliver further Budget repair.
Our package is fair, affordable and can be delivered in the Parliament – Malcolm Turnbull simply cannot say the same about his own superannuation package.
It is now up to the Government to adopt these fair and sensible changes to their rushed reform package. They will have Labor’s support to pass them.