Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 100

Superlinks - not a gift to the rich

Congratulations on the 100th edition of Cuffelinks and thank you for asking me to make some observations on the state of the superannuation system.

We have a system that has grown rapidly to a scale considerably larger than the entire market capitalisation of our stock market so it is little wonder that it is never long out of the news or the thoughts of our politicians. Despite our pleadings this is unlikely to change. Rather, we must be vigilant and energetic to ensure we avoid disastrous policy swings and encourage moderate and rational reforms.

Currently some commentators are highly focused on the tax breaks available for super in relation to both its compulsory and voluntary forms and see attacking these as a simple solution to the structural public deficit implied by current spending and taxation projections.

Place super concessions in context

There is undoubtedly a case for some reform, but context is important.

Firstly, the current tax incentives are in fact far less than those applicable up to 1983, well before the system became universal.

Secondly, the various estimates made by Treasury over the years of the amount of tax revenue foregone are somewhat debatable. They assume that, in the absence of these concessions, the system would still have sufficient political support to continue into the future, but with contributions taxed at personal tax rates. In reality, the long term outcome of removal of concessions cannot be known and is not measured by Treasury.

Thirdly, those that lobby for winding back superannuation or its preferred tax treatment often do so on the quite erroneous assumption that governments would direct the savings towards support for welfare recipients and lower-income households. There is little evidence to suggest that this Government would rank the case of the welfare sector ahead of the strident demands of corporate Australia for reduced company tax and a lower marginal tax rate on high income earners.

Superannuation for the average worker and particularly for working women had to be fought for. That much does not change.

It is also true that some estimates of the extent to which tax concessions on super accrue to the rich are misleading because they do not take account of the extent to which this is caused by the fact that a very high proportion of contributions, and especially of voluntary contributions, are made by those who are relatively well off.

Worst public policy was a ‘parting gift to the rich’

Having said all of that however, it is undoubtedly the case that former Treasurer Peter Costello’s parting gift to the rich, massively raising the amount they could contribute to super while simultaneously abolishing any earnings tax on funds held in a superannuation pension environment, must rank as one of the worst pieces of public policy in living memory.

Far better to skew the tax concessions the other way, that is to the low paid who will struggle to build an adequate retirement nest egg and who will make the greatest claim on future public spending on the age pension and associated health care needs.

Funding infrastructure needs

A second area of significant current public focus is the question of funding for infrastructure. While it may have appeared, following a number of public statements by NSW Premier Mike Baird, that there was finally an awareness among politicians for the need to show leadership in creating new infrastructure, even if this meant recycling existing state-owned assets, the recent Queensland election landslide has again cast doubt upon the possibilities of a consensus model.

It is not yet clear whether the Queensland result was triggered by the particular circumstances, such as substantial public sector job losses or perhaps an allergic reaction to excessive Abbotism. What is clear is that we require a new way to reconcile the need for private sector funding for our substantial future infrastructure needs with the justifiable public aversion to a sell-off of assets to (potentially foreign) financial intermediaries and others primarily interested in short term profit and possibly lacking the long term interest in the public benefit to be derived by these assets.

On a number of occasions in recent years I have attempted to advance a model that might be characterised as the ‘mutualisation of infrastructure’ by more directly linking our world class superannuation system to our need for nation building economic, social and environmental infrastructure. The model is most recently set out in my March 2015 paper, Mutualisation of Infrastructure.

Our super system has evolved to the point where it has the potential to lead this country’s newest and strongest source of comparative advantage, abating our dependence on commodity exports. For example, IFM Investors already has many more offshore clients than Australian clients and manages money not only for leading pension funds, but for some of the world’s largest insurance companies.

Fair system can also be engine of growth

Our system needs reform at the margin to ensure it has credibility from a fairness point of view. But with appropriate nurturing our system can also be an engine of advancement for our nation, solving our needs for infrastructure development, while taking the pressure off the public purse and simultaneously creating a clean and prosperous new sector of world comparative advantage.

 

Garry Weaven is Chair of IFM Investors, ME Bank and ‘thenewdaily.com’. As ACTU Assistant Secretary in the 1980’s, he played a seminal role in the development of the industry super fund movement.

6 Comments
David
March 14, 2015

Gary. While I applaud your ambition about Australia potentially exporting a skillset in managing infrastructure, the fee revenue from IFM hasn't reached the $100bn Australia earns in commodity exports yet - or has it? As an industry fund member I look forward to the Fruits of that in my next statement. I hope your fees for foreigners are exorbitant.

Max
March 12, 2015

Super is not a panacea for funding endless infrastructure investment. It is often more risky than its reputation and more illiquid than is appropriate for funds under the current choice of fund model.

Graham Hand
March 12, 2015

Hi MattD, I don't believe my assessment is that different. In my article, I was quoting Treasury saying the $32 billion number should not be used or relied on. Garry says "... some estimates of the extent to which tax concessions on super accrue to the rich are misleading".

MattD
March 13, 2015

Garry says "They (I take this to mean Treasury) assume that, in the absence of these concessions, the system would still have sufficient political support to continue into the future, but with contributions taxed at personal tax rates". In your piece Treasury makes it clear they don't make these assumptions. They are given the task of determining the value of the tax concessions, they don't make assumptions about how individuals or governments might react in response to changes. Nor do they make any policy recommendations based on their findings. Nit-picking I know, and not that significant to the article in its entirety. Thanks for the feedback.

MattD
March 12, 2015

Graham Hand recently provided a very different assessment of how Treasury understands their Tax Expenditure Statement with regard to tax-concessions related to superannuation.

http://cuffelinks.com.au/treasury-says-dont-use-32-billion-number/

David
March 12, 2015

re
"...it is undoubtedly the case that former Treasurer Peter Costello’s parting gift to the rich, massively raising the amount they could contribute to super while simultaneously abolishing any earnings tax on funds held in a superannuation pension environment, must rank as one of the worst pieces of public policy in living memory."

Not to mention the stupidity of it. Why are Costello and Howard lauded? Current govt woes re deficts would be almost non-existent if this bit of boom-wasting, vote-buying stupidity had not occurred.

Thanks

David, certainly not rich, but on a tax-free life in pension mode.

 

Leave a Comment:

     

RELATED ARTICLES

A super consensus needed before the demographic tsunami

Do you plan to be a ‘have’ or a ‘have not’?

The elusive 12%: is superannuation at a turning point?

banner

Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

Three all-time best tables for every adviser and investor

It's a remarkable statistic. In any year since 1875, if you had invested in the Australian stock index, turned away and come back eight years later, your average return would be 120% with no negative periods.

The looming excess of housing and why prices will fall

Never stand between Australian households and an uncapped government programme with $3 billion in ‘free money’ to build or renovate their homes. But excess supply is coming with an absence of net migration.

Five stocks that have worked well in our portfolios

Picking macro trends is difficult. What may seem logical and compelling one minute may completely change a few months later. There are better rewards from focussing on identifying the best companies at good prices.

Let's make this clear again ... franking credits are fair

Critics of franking credits are missing the main point. The taxable income of shareholders/taxpayers must also include the company tax previously paid to the ATO before the dividend was distributed. It is fair.

Welcome to Firstlinks Edition 424 with weekend update

Wet streets cause rain. The Gell-Mann Amnesia Effect is a name created by writer Michael Crichton after he realised that everything he read or heard in the media was wrong when he had direct personal knowledge or expertise on the subject. He surmised that everything else is probably wrong as well, and financial markets are no exception.

  • 9 September 2021

Latest Updates

Investment strategies

Joe Hockey on the big investment influences on Australia

Former Treasurer Joe Hockey became Australia's Ambassador to the US and he now runs an office in Washington, giving him a unique perspective on geopolitical issues. They have never been so important for investors.

Investment strategies

The tipping point for investing in decarbonisation

Throughout time, transformative technology has changed the course of human history, but it is easy to be lulled into believing new technology will also transform investment returns. Where's the tipping point?

Exchange traded products

The options to gain equity exposure with less risk

Equity investing pays off over long terms but comes with risks in the short term that many people cannot tolerate, especially retirees preserving capital. There are ways to invest in stocks with little downside.

Exchange traded products

8 ways LIC bonus options can benefit investors

Bonus options issued by Listed Investment Companies (LICs) deliver many advantages but there is a potential dilutionary impact if options are exercised well below the share price. This must be factored in.

Retirement

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

Investment strategies

Three demographic themes shaping investments for the future

Focussing on companies that will benefit from slow moving, long duration and highly predictable demographic trends can help investors predict future opportunities. Three main themes stand out.

Fixed interest

It's not high return/risk equities versus low return/risk bonds

High-yield bonds carry more risk than investment grade but they offer higher income returns. An allocation to high-yield bonds in a portfolio - alongside equities and other bonds – is worth considering.

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.