I’ve written a new piece for Guardian Australia. I argue that if we’re really concerned about “middle-class welfare”, we should look closely at some of the tax concessions and exemptions that favour high-income people. Please read it!
In fairness, Matt, I think when most people [who care] criticise “middle class welfare”, that’s the kind of thing they mean.
I wish! It is usually targeted at family payments that go to women. Thanks for the article raising stuff that seemed to be very minority. Fighting for these changes means taking on the many unionist who are now in super management as well as the finance industry and that is very hard. See what happened when the government tried to make significant changes earlier this year. They made a very minor redistribution and just now allowed more to go in lump sums!!! .
If my super fund obtains a long term average of 5% per annum, and the average super fund ‘management and administration’ take is 1% of my capital, in effect my overall fees and tax are 35% of my nominal income (15% + 20%).
If my savings were outside super, with no concession at all, if I were to get 5%, my losses would be 34% (32.5% + 1.5%).
It would seem that the main beneficiaries of the superannuation concessions are those who administer and manage superannuation funds. Certainly not the great unwashed such as myself. Even at the higher rates of tax, it is not such a bonanza for the saver as for the banksters.
The reason for pointing this out is that it is not just the average joe, or doctor, who is going to oppose reform, it is the financial services industry that rakes off approximately 20% of your super income every year. (in fact, it is worse since they even get 1% of your capital when there is a total loss in the market – at least the tax department gets nothing if you have no income).
Perhaps the answer might be to restrict the concession to those really basic low cost super schemes?
The sneaky way of advertising fees as a percentage of capital, rather than as a percentage of income obscures where the money is really going.
I think if you start from the position that any tax deductions enjoyed disproportionately by high-income earners is in-principle equivalent to a benefit payment, then of course you end up with this conclusion. But then why not have higher marginal tax rates on higher earners? Why not look at the cuts in the top marginal income tax rate under Hawke and say that created a massive upper-income welfare rort? It doesn’t get you very far. The real issue is (as you touch on with your red car example) what distortions/inefficiencies are caused by the super tax deductions. Hence a lot of economists argue for removing exemptions/deductions and lowering marginal tax rates. In general I agree with this as a principle. But not when it comes to taxing saving: there is a strong economic case for not taxing returns on personal savings at all – from ordinary savings, super, asset disposals (ie CGT), everything. All it does is deter saving and encourage spending. If you want to make higher-income earners pay more, you should argue for higher marginal tax rates.
Why shopuld people be om high incomes be able to use super to avoid tax. Why should those who can afford to save a substantial part of their income pay less tax than those who can’t? Then 3% rise is estimated to cost general revenue at least $4B. Most of those avoiding substantial tax liabilities would not draw the pension, unless they have a very smart and amoral advisor, This is just a rort run by powerful high income earners for their own benefit,look at the distribution of tax concessions. Even if tax expenditures don’t translate exactly to welfare payments, the cut to general revenue is unfair.
The relevant comparison is not between those on high incomes and those on low but between high income earners who save versus those that spend. Why should they be treated any differently? The 15% contributions tax does represent a concession, but it is a modest one given that:
1. It only applies up to $25k worth of contributions pa
2. Earnings within super continue to be taxed at 10-15%
3. Super savings could reduce one’s entitlement to the pension
I could stomach full income tax on contributions if there were no tax on returns on all savings and if the pension were not means-tested.
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