Working life can be hard. Often, it is also quite insecure. It can be difficult to know whether you have enough to get through to next payday, let alone to think about providing for your retirement.
So the idea of a retirement pension is an attractive one — a guaranteed income from when you stop work until you die, with no questions asked. Enough to live on and provide some level of comfort and supplement anything you have been able to put away while working.
Workers in Australia won the right to an age pension with the passing of the Invalid and Old-aged Pensions Act 1908. Initially, the pension provided a means-tested income for men over 65 and women over 60, from 1910. However, the pension was not universal: First Nations people only began to receive the age pension in full in 1966.
The Gough Whitlam Labor government, in 1973, removed means testing for the pension for those over 75. In 1975, it extended that eligibility to those aged 70-74 also. Everyone, regardless of their means, received the age pension as an entitlement.
But beginning with Malcolm Fraser’s Coalition government in 1978, universal access was gradually wound back.
Superannuation
According to the Macquarie Dictionary, a superannuation fund is “a retirement fund to which an employee (and usually also the employer) contributes during the period of employment, and which provides benefits after retirement”. In essence, it is intended as a private pension, whether as a substitute for the public pension or as a supplement.
Superannuation in Australia developed in parallel with the age pension. While having its beginnings in the mid-1800s, it was largely available only to more privileged workers. From the 1970s, superannuation became more widespread, but remained largely confined to professionals, finance sector and public sector workers.
By 1988, more than half of all employees were covered by superannuation.
Paul Keating’s Labor government introduced the Super Guarantee in 1992. Employers were compelled to withhold 3% of a worker’s gross earnings and deposit them in a superannuation fund. Over the years, the Super Guarantee has risen to 12% (from July 1 this year).
Up to $30,000 paid into a superannuation fund annually attracts a concessional tax rate of only 15%. This concessional tax treatment also applies to superannuation fund earnings.
Compulsory superannuation might appear like a good deal for working people; a guaranteed pension when you retire, which accumulates steadily with every year of work.
However, things are not quite that simple.
According to the Australian Council of Trade Unions (ACTU), compulsory superannuation came into being because: “Unions agreed to forgo a national 3% pay increase [in 1992] which would be put into the new superannuation system for all employees in Australia …”
Arguably, every subsequent rise to the Superannuation Guarantee has also been because workers have given up wage rises, setting aside increasingly larger portions of their wages to pay for their retirement.
The age pension, which was won through struggle in the early 20th century, has now largely been privatised, with the active assistance of the trade union peak bodies.
The government pension expenditure of 2.6% of gross domestic product (GDP) is low by international standards, and expected to fall to 2.1% by 2060.
By contrast, the average spend across Organisation for Economic Cooperation and Development (OECD) countries is expected to rise from 9% to 10.4% of GDP over the same period.
Australian workers have been convinced that they are responsible for providing for their own retirement.
Increasingly, the age pension is seen as a safety net, rather than a democratic entitlement for all.
‘Tax shelters’
The other side of the superannuation system, with its concessional tax treatment on earnings, is wealth accumulation. While this is not the case for a majority of working people, who struggle to save enough to provide for comfortable retirement, it is for some who can build wealth while avoiding paying tax.
According to the ABC’s chief business correspondent Ian Verrender: “The latest figures, obtained last October for the 2022/23 year by the Australian Financial Review, show that the 10 biggest self-managed funds had an average of $422 million each in assets and 42 funds had more than $100 million each.
“Clearly, super funds of this magnitude aren’t about a retirement income. They’re tax shelters.”
The vehicles for wealth accumulation (so-called tax minimisation) are many and varied. The 50% discount on the capital gains tax (applicable to the sale of assets, including houses, owned for more than one year) costs the federal budget $27 billion a year.
Negative gearing (where losses on a rental property can be used to reduce taxable income from other sources) costs more than $6 billion. Franking credits, where shareholders are credited for tax paid by companies for shares they own, cost around $5.6 billion in 2021.
According to Verrender, however, “tax breaks on super contributions alone cost the federal budget $50 billion a year and disproportionately accrue to older and wealthier Australians”.
Labor has promised to raise the tax on those who have more than $3 million in assets in their superannuation accounts, but only from 15% to 30%, and only on earnings of the portion of the account valued at over $3 million.
The wealthy will still receive a huge tax concession on earnings squirreled away in superannuation. Accounts with balances of $2.99 million will still receive the 15% concessional tax on all of their earnings.
Economic reform roundtable
Labor is holding an Economic Reform Roundtable in Parliament House, Canberra, from August 19–21. It has three stated aims: Making the economy more productive; building resilience in the face of global uncertainty; and strengthening the budget and making it more sustainable.
Boffins, bosses and the ACTU will discuss how to make the economy more “productive”, improve the budget bottom line and, of course, ways to protect wealth.
While Labor has ruled out changes to the GST, either raising the rate or broadening the base, at least before the next election, that hasn’t stopped the clamour from the big end of town. Most recently, Teal independent MP Kate Chaney has floated the idea of increasing the rate from 10% to 15% and extending it to food, education and health, among other services. Chaney’s plan, which includes a $3300 annual rebate for every adult, would add around $24 billion a year to federal budget income, possibly less than one third of the income that would be generated by closing tax loopholes for wealth.
Yet, if implemented, it would dramatically shift the tax burden on to working people who have to spend most of their income.
Fellow Teal, Allegra Spender, has called for the Economic Reform Roundtable to consider ways to further bash the NDIS, threatening that continuing growth risked “NDIS losing its social licence”.
Neither have seriously contemplated what would be needed to close the loopholes on the taxation of wealth.
Working people are the main creators of wealth in society. Without our labour and our productivity, whether physical or otherwise, nothing valuable would be produced.
But, according to the bosses, workers’ productivity is too low, too old or too broken. For them, workers need to fix the problems and fend for ourselves.
But it doesn’t have to be like that. The path to make government spending sustainable and a fairer society is to transform the tax system, so as that it focuses on taxing wealth rather than wages or consumption.
Only then will we escape the continual calls to reduce public spending, privatise pensions and end government programs.
[Graham Matthews is a member of Socialist Alliance.]