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Issue #1581      February 13, 2013

Is super next for gov’t cuts?

It’s that time of the year again – the lead-up to a federal budget with a government frantically looking for spending cuts. There are the usual leaks to the media to test the water. Superannuation tax concessions are in the firing line, especially the “out-of-sight” taxation of earnings in funds.

When the compulsory superannuation guarantee scheme was introduced by the Keating Labor government in 1992, it had a number of aims.

Its budgetary aim is to gradually replace the age pension by self-provision of retirement incomes through superannuation savings. This would, in line with neo-liberal economic policy, enable the government to retreat from its social responsibility to provide an income for retirees out of central revenue.

The roll-back of age pension costs would fund future tax cuts for the rich and the private sector – mining companies, banks, insurance companies, etc – also a central platform of neo-liberal economics.

A third aim of what constitutes the privatisation of workers’ retirement savings is to provide financial institutions with a vast pool of ever-increasing capital to invest. The power these institutions exert is enormous. The $1.5 trillion in superannuation savings plays a major role in the structure of capital investment in Australia. They can lend to consortia buying up government utilities, manipulate stockmarkets with their purchasing power and look after their other interests.

Regardless of whether they lose billions or make billions for the workers whose savings they gamble with, the fees roll in. Workers take all the risk, as seen by the massive losses during the recent global financial crisis. The average worker’s superannuation savings have still not fully recovered from this crisis.

Successive governments have introduced various concessional taxation schemes to attract personal contributions to superannuation funds, over and above the compulsory employer contributions. These tax concessions include a flat rate of 15 percent on all earnings in a fund; tax-free withdrawal of superannuation savings if over 60 years of age; and the 15 percent tax rate on contributions up to a certain limit (recently reduced to $25,000 pa).

There is a low-income superannuation contribution from the government of $500 to compensate for the fact that people on low incomes are paying 15 percent tax on their superannuation income (in the fund). If the money had not been earned in the fund they would have paid a lower rate or possibly no tax at all.

There is also a superannuation co-contribution from the government for workers on low and middle incomes of up to $1,000 depending on their income and how much they contribute.

The main aim of these payments is to encourage personal contributions and to boost the accumulated savings of those on lower incomes to ensure they are sufficient for self-provision on retirement.

Snouts in the trough

The rich were drawn like bears to a honey pot with the 15 percent tax on earnings. It is less than one third the marginal rate of 46.5 percent (including Medicare levy) they pay on other income.

The whole system is skewed to the rich who in the years to come will pocket more in tax concessions than the government would ever have paid them in a universal age pension. According to the Australian Council of Social Service, almost half of these tax concessions are being accrued by the top 12 percent of taxpayers.

Labor is looking at targeting them in the budget. It is extremely concerned at the rising cost of superannuation tax concessions which Treasury estimates will total $32 billion in 2012-13. This figure is set to rise to $45 billion by 2015-16 – equalling or passing the amount spent on the age pension!

The question the Treasurer is asking is how can that figure be reduced. What can be cut with minimum fall-out in an election year?

Over recent years a number of measures have already been taken such as capping the amount of annual contributions and limiting the amount of contributions taxed at the concessional rate. The government last year raised the 15 percent tax on contributions to 30 percent for people on over $300,000 a year.

These changes have angered the superannuation funds, the wealthy and the financial institutions. They want maximum concessions and certainty about rules.

One of the early leaks was a proposal to tax withdrawals from superannuation funds. The outcry from the industry was so strong the government quickly pulled its head in for the time being.

Now rumours are floating that the 15 percent tax on fund earnings will be increased for those with larger sums in their fund or that the 30 percent tax on personal contributions will be extended to people on more than $180,000 per annum in line with the Henry tax review’s recommendations.

Whichever way the government opts in this budget, there is one certainty, it won’t stop there. Once money has been deposited in a superannuation fund, it is basically locked in until age 60 – an age limit that is likely to be raised. There will be ongoing erosion of tax concessions, more changes and uncertainty regarding future rules and no guarantees of income upon retirement.

The system also perpetrates the inequalities of the wages system. The higher your income during your working life, the larger your savings on retirement. Women, in particular, are disadvantaged. They are on average subjected to lower wages, are more likely to have worked part-time and taken breaks in their working lives to raise families or as carers.

The discrepancy in payouts is enormous. The average superannuation payout for women at present is 60 percent of that for men.

It is suggested that a worker needs to accumulate between $800,000 and $1,000,000 for retirement to be able to sustain a basic standard of living. How does a hotel cleaner, shop assistant or community worker on $35,000 to $45,000 per annum or less if part-time or casual achieve such savings!

In addition, there are no guarantees what will be in the fund at the time of retirement. It all depends on the gyrations of casino markets in a boom-bust cyclical capitalist economy.

The present superannuation system provides few guarantees for workers. In their pursuit of a neo-liberal economic agenda, Labor and Coalition governments have been winding back social security and reducing the taxation of corporate profits and high incomes.

The inequalities will continue to increase until such time as there is a return to a more progressive taxation system, which really taxes those on higher incomes at a higher rate.

Public health services, public education, retirement incomes, unemployment benefits, sickness and disability benefits should be funded centrally through the taxation system and be universally available. Means and assets testing might appear fair on the surface, but in reality they create further inequalities, layers of bureaucracy and pain for those involved. It lets the big end of town off paying their share of taxes.

The present superannuation system puts workers’ savings at risk. The paid benefits schemes, which provided retirees with a guaranteed level of income for the rest of their life, have been almost phased out. Workers pay taxes all their lives and are entitled to retire in dignity with an adequate income.

The Communist Party of Australia is calling for the abolition of means and assets testing on age pensions and for the establishment of a National Superannuation Fund which workers could join on a voluntary basis. This Fund would offer a paid benefits scheme to members (regular fortnightly payment) and invest its savings in socially beneficial projects such as public transport, public housing and alternative renewable energy development and production.   

Next article – TJ Hickey: What do nine years mean?

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