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I see that Treasury has again put out their estimates of what the Superannuation system is costing the government in lost revenue. Apparently it is still around $32billion and the underlying implication is that something should be done about it (especially for a government trying to save money). My only hope is that the government doesn't actually use these figures to make any decisions.
This is the same rot Treasury trot out every year in relation to Super and it is then systematically pulled apart by economists and professional bodies. The tax concessions may cost the government $16b, but compared to what? If the money was retained by the companies and taxed at corporate rates? If the money was paid as wages and taxed at marginal rates? If the super system costs the government $16b its costing employers $75b (the total cost of the payments being made less the corporate tax that would be payable on that extra profit. - yes I know there are non-SGC contributions but there has to be some assumptions - doesn't there Treasury). Why does it cost employers - because Super is additional to wages.
Now if it is accepted that Super is additional to wages, and wages generally get spent, the apparent tax foregone on earnings from Super is actually not a
cost at all because its savings money that wouldn't otherwise be there. The income they get from taxation of Super earnings is simply a cost offset, so this actually reduces the net cost of a concessional Super system (so now it is much less than the $16b). If we assume the $1.6trillion in super earns 4% taxable earnings this equates to $9.6billion. Gosh, the cost is diminishing pretty sharply.
Then you look at where this money goes and the economic benefit of having such a massive amount invested. This money is helping build businesses (which make money and pay tax), build infrastructure (which improves efficiency, which increases profits and increases the tax take) etc.
Then we look at the reduced welfare that is paid as a result of Super as an asset in retirement. This is hard to calculate, particularly if looking forward to
when the Super system itself is mature, as well as the uncertainty of demographics, legislative changes etc. however it could be done - again with a number of assumptions. But again this reduces the cost of our concessional system.
Finally, lets look at the countries around the world where everyone is reliant on the government for their age pensions. How's that working out for them? There has to be a positive for the certainty that governments can derive from knowing that they will become the financial backup, rather than the primary provider of retirement incomes. There is also a benefit in people becoming more educated about money, engaged with saving and becoming more self reliant (at least to a greater extent).
Every year Treasury lament the exorbitant cost of Super. But they seem to take a very myopic view in deriving their figures.