While there are plenty of economists and commentators questioning the cost of providing superannuation tax concessions, too few seem to have actually considered what would happen if those concessions were removed.
It can hardly have escaped the attention of superannuation fund executives and trustees that the tax concessional status of superannuation has made the industry a target for economists and others pursuing agendas associated with rapidly reducing the size of the Budget deficit.
The arguments being mounted by these various economists and commentators is that the tax being foregone by the Government on superannuation amounts to nearly $40 billion a year and they quote Treasury figures to sustain this argument.
It is worth noting that these arguments were proferred by the economists and commentators both before and after the handing down of the Federal Budget and that as public outrage mounted over cuts to particular welfare programs it was argued that superannuation was escaping unscathed.
In political terms, it seems entirely likely that the Australian superannuation industry should accept that its sheer size will make it an ongoing target for critics pursuing particular agendas, including some very senior public servants within the Federal Treasury.
However accepting the prosecution of a particular agenda is not the same as accepting the validity of that agenda – something which was recently made clear by former senior adviser to former Prime Minister and Treasurer, Paul Keating, Dr Don Russell.
Addressing a recent Super Review Post-Retirement and Ageing Forum, Russell strongly counter-punched the notion that providing tax concessions to superannuation could be directly translated into foregone revenue on the part of the Government.
Rather, Russell argues that in the absence of tax concessionality, there is a strong likelihood that Australia’s superannuation guarantee regime would cease to exist and it follows that in some circumstances the Budget savings extracted become illusory.
Russell quite rightly points out that the superannuation guarantee grew out of the belief that the public purse could not fund the aspirations of the baby boomers and that self provision (in the form of superannuation) would lift national saving, break an entitlement attitude to retirement income, provide a better framework to handle higher health costs and develop a deeper and more efficient capital market.
What the tax concessionality critics seem to miss in their arguments is that the Australian superannuation regime has, in fact, achieved most of its original objectives and that its few failings, such as relieving pressure on the age pension, have arguably been owed to poor policy communication by successive Governments.
As Russell rightly points out, Australians have participated in the superannuation guarantee, effectively tying up 9.25 per cent of their salary until they are 60 because of the tax attractiveness of the proposition.
“The community won’t agree to lock up 9-12 per cent of their income each year for 30-40 years and have the Government determine how they get it back without tax preference,” he said. “People have deferred current consumption for a better retirement.”
It seems probable that those who continue to question the validity of providing tax concessions to superannuation contributions have not considered the long-run consequences of removing those benefits.
Cynical superannuation fund executives and trustees might also care to reflect that at least some of those senior public servants within Treasury who have so readily sought to question the validity of providing superannuation tax concessions are, themselves, members of the generous (but now closed) defined benefits public sector superannuation scheme.
