There are two alternative proposals to increase the tax on superannuation contributions.
- The first proposal would raise the tax on superannuation contributions paid by the 128 000 highest-income Australians by 15 percentage points.
- The second would increase the tax on super contributions paid by the 3.6 million lowest-paid workers by 15 percentage points.
Which of these proposals would you describe as ‘class war’?
For our national broadsheet, the answer, it seems, is clear: raising tax on the highest income earners is class war. Raising tax by the same amount on a much larger number of low paid workers, it appears, is not.
Here’s how The Australian reacted when the ALP Government proposed to introduce the first measure, an increase in the tax on super contributions for people with annual incomes over $300 000:
Here’s how The Australian has reported the draft bill released today that will introduce the second measure, an increase in the tax on super contributions for people with annual incomes below $37 000:
The repeal of the low-income super contribution, which effectively reduces the super tax paid by low-income people from 15% to 0%, is reported as a relatively unimportant by-product of the abolition of the MRRT.
Setting aside the way these two proposals are reported, it’s worth taking a look at the substance of the issue and the merits of the two proposals.
Superannuation contributions used to be taxed at a flat 15% rate, regardless of your income. This meant that very low-paid workers paid 15% on a dollar that went into super while paying no income tax on a dollar that went into their bank account. This is a negative concession for retirement savings. Under this system, slightly-less low-paid workers would pay 19% as their marginal rate on regular income or 15% on super contributions – a small 4 percentage point contribution. High income earners pay 45% on regular income or the 15% flat rate on super – a juicy 30 percentage point concession.
The former government proposed two changes at either end of the income spectrum that made this system a little fairer. One would refund the tax paid by low-income people, those 3.6 million people who earn less than $37 000 per year. They legislated this change. The other proposal would increase the tax on super contributions for the 128 000 people who earn more than $300 000. Their super concessions would be taxed at 30%, not 15% – this is still a concession, it’s just a smaller one. Super contributions would remain subject to the flat 15% tax for incomes between $37k and $300k.
This is what the Labor policy looked like:
The Coalition is going to repeal the low-income super contribution, effectively increasing tax on super for everyone who earns less than $37 000, and it’s not going to proceed with the higher tax rate for people on over $300 000. This is what the Coalition’s structure will look like:
The more you earn, the greater the concession you receive on your super contributions. If you’re a low-paid worker, you either pay more tax on your regular income than on your retirement savings, or you get a desultory 4 percentage point concession.
The skewed nature of these concessions means that high-income earners get more public support for their retirement incomes than low-income earners. At the very top of the distribution, the tax concessions on super outweigh the benefit that low-income workers can expect to receive from the age pension. Here’s Treasury’s estimate of the level of total government support received by men at different income levels for their retirement:
In the Treasury’s words, “the top 1 per cent of income earners receive the most combined support.”
This inequity will be increased and entrenched by the new Government’s tax increase on the retirement savings of low-income people. That sounds like class war to me.