Super tax concessions don't cost $45 billion a year and won't cost more than the pension
- Written by: Andrew Podger, Honorary Professor of Public Policy, Australian National University
You may have read this week[1] that Australia’s super tax breaks are excessively generous (“well beyond any plausible purpose”) and that their costs unsustainable.
The claim came from a Grattan Institute report, Super savings[2]. But is it realistic?
The figures quoted – A$45 billion a year or 2% of GDP “and set to exceed the cost of the age pension” – are derived from Treasury’s Tax Expenditures Statement[3] and the government’s 2021 Retirement Income Review[4].
The benchmark for these estimates involves the income tax rate that is applied to ordinary income[5]. Yet very few countries actually[6] tax retirement savings in anything like that way.
$45 billion per year, but compared to what?
Grattan itself doesn’t suggest employers’ super contributions and super fund earnings should be taxed like ordinary income.
If all its recommendations for scaling back “tax breaks” were accepted, the breaks it claims to be concerned about would still exceed $30 billion a year and still be on track to cost more than the age pension.
A better benchmark would be the arrangement in most member countries of the Organisation for Economic Cooperation and Development[7] in which savings are taxed at standard marginal rates on entering or leaving the system and untaxed while growing in the system, known technically as a TEE or EET regime[8].
In most cases, tax is applied only on leaving the system, an “EET” regime.
