ACOSS Opinion: If we don’t fix superannuation taxes the Australian fair go is dead

We hear a lot lately about people who are struggling financially. Around 3,600 Salvation Army clients recently surveyed were surviving on an average income of under $600 a week, two thirds of which went on rent and groceries. These were people on income support like Jobseeker and disability pensions or a low part-time wage. Half were unable to pay utility bills on time and half had sold or pawned something to meet urgent expenses. In a wealthy country, it’s just not fair that so many scrape by from week to week on a meagre income, and that so many are homeless.

We also hear a lot lately about the unfairness of imposing a modest 15% tax on the 80,000 people with over $3 million in superannuation. This is a more obscure debate about fairness – whether capital gains should be taxed before an asset is sold and whether to index the level at which the new tax kicks in.

The honest truth is that if we can’t agree to impose a modest 15% tax on people with super balances of over $3 million, then we accept that the Australian fair go is dead. 

Our current tax settings are super-charging inequality. Research by ACOSS and UNSW found the wealthiest 10% of households possess 44% of all wealth in Australia, averaging $5.2 million per household. Meanwhile 3.3 million people, including almost a million children, are living in poverty, at risk of homelessness and struggling to heat their homes and put food on the table. 

The investment income of super funds – interest, dividends and capital gains - is taxed at a flat rate of 15 per cent. That’s a huge tax saving of 32 cents in the dollar for those on the top tax rate - while a woman employed part-time as a shop assistant or cleaner gets no tax benefit at all. 

The icing on this richly layered superannuation cake is that once people reach 60 years and decide to retire, the investment income of their super account is not taxed at all. A tax rate of zero! Very few investments aside from people’s homes are completely tax free. While retired people with millions of dollars in superannuation pay no tax on income from that investment, someone on the average wage pays 32 cents on the next dollar they earn. That’s the inequity we must fix. 

The current system allows wealthy people who will never need to rely on the age pension to shelter their money by pouring it into super where its growth is hardly taxed - and then pass on much of it to their adult children tax free. Tax breaks for super were never designed for this purpose. Along with ACOSS, the ACTU and National Foundation for Australia Women support a higher tax rate on the income of large super accounts.

The other problem is the enormous cost to the federal budget. The extraordinarily generous tax treatment of super fund investment income costs the government $21 billion a year – more than the entire cost of the Pharmaceutical Benefits Scheme. Almost half the benefit of this tax break (40%) goes to the 1.5 million individuals in the highest 10% of taxpayers by income, and only 40% goes to women.

As pressure builds to meet the costs of care for an ageing population, to lift Jobseeker payments above the woefully low $56 a day, to ensure people have homes they can afford and to deal with climate change and its impacts, governments will need more revenue. If it can’t come from people with the over $3 million in super, where will it come from?

The government’s legislation to impose an extra 15 per cent tax on investment income of super accounts with $3 million or more is a very modest measure reducing overly generous tax breaks for those who do not need them. The measure falls well short of ACOSS’ calls for a 15 per cent tax on the investment income of all post-retirement super accounts (which in itself is still a generous tax treatment).

The main arguments against the government’s legislation are that it taxes a capital gain (increase in the value of an asset like property or shares) before those assets are sold - and that the $3 million threshold is not indexed to increase over time. These are flimsy arguments in defence of tax privileges enjoyed by wealthy individuals.

Taxing capital gains before an asset is sold is not revolutionary. Governments already tax increases in the value of property before it’s sold through state land taxes and council rates. 

When it comes to indexation, we don’t index the tax thresholds on the wages of cleaners, nurses and firefighters, so why should we give people with more than $3 million in super special privilege?

As for the argument that some young people entering the paid workforce today might have to pay the extra tax in 40 years’ time? Sorry, we’re more concerned about where people on $56 a day will get their next meal.

If we won’t even tax super balances of more than $3 million then we can no longer claim to believe in a fair go.

- This opinion piece was written by Cassandra Goldie AO , ACOSS CEO