Superannuation is inequitable and unsustainable | | MacroBusiness

I agree with Leith van Onselen that Australia’s aged pension/superannuation regime will be sorely tested over the next 30 years as the number of workers per retiree falls to below 2.5 to 1:

Workers per Retiree

But I don’t agree with his proposed solution:

…The flat 15% tax on superannuation contributions should also be axed in favour of a flat 15% concession. As illustrated above, under the current 15% flat tax arrangement, the amount of super concessions rises as one moves up the income tax scale, resulting in a system whereby higher income earners receive the most super tax benefit, despite being the very people that are the least likely to rely on the aged pension in retirement. A flat 15% concession, by comparison, would improve the equity and sustainability of the system by: 1) providing all taxpayers with the same taxation concession; 2) boosting lower income earners’ super savings and thus reducing reliance on the aged pension; and 3) reducing costs to the budget.

Argument that the flat tax on superannuation contributions is inequitable is based on the presumption that the present system of progressive tax rates is equitable. No doubt high income-earners benefit more from the flat tax than low income-earners, but the proposal ignores the fact that they pay more income tax in the first place. And even after the larger tax savings on their super contributions, the high income-earner will pay a significantly higher average tax rate.

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