Welfare for high income earners is not so super

Tax concession for superannuation are a massive drain on the budget, and new data shows that the majority go to high income earners.

The idea of giving tax concessions to people who put money into their super accounts was that people would be encouraged to save more for retirement, which would mean they wouldn’t need a government-funded age pension. This was supposed to save the government money.

The problem is that the cost of these concessions now cost almost as much as the age pension. Super tax concessions are expected to cost $61.7 billion in 2025-26, just slightly less than the expected $66.2 billion cost of the age pension. The cure is turning out to be worse than the disease.

The other big problem is more than half the benefit of the super tax concession is going to people who were unlikely to ever claim an age pension anyway.

To get the age pension you need to pass an income and asset test. Basically, if you earn too much, or your assets (excluding the family home) are worth too much you are only eligible for a reduced, part pension. Or, if you’re among the wealthiest 20% of retirees, none at all.

But the top 20% of all income earners – who are unlikely to be eligible for an age pension at retirement age –  get more than half of all super tax concessions (54%). In 2025-26, this group alone will cost the government an estimated $33 billion in forgone revenue.

We are spending tens of billions of dollars fattening the super balances for people who are unlikely to ever claim an age pension. How will that save the government money?

Even worse, Treasury did a study that looked at all government support given to people for retirement over the course of a lifetime, including the age pension and super tax concessions.

It found that people in the bottom 10% of income earners get about $350,000 over their lifetime, almost all of it in the form of the age pension. In contrast, people in the top 10% of income earners can expect to get about $650,000 over their lifetime, mainly from super tax concessions.

Let’s just stop a moment and consider the full horror of this. The government is giving twice as much retirement support to those who need it the least. Think about that the next time the government says it needs to make budget cuts, or it can’t afford to implement a much-needed reform.

So, how did it get this bad?

In short, super has become a great tax avoidance scheme for the wealthy. They spend considerable time and effort trying to get as much money as they can into super, not to fund their retirement, but to pay less tax and pass more money onto their kids.

The Albanese government has made attempts to reign in the very worst of this. It proposed reducing the tax concessions given to people with super balances above $3 million. Forget the top 10%, this would have impacted just 0.5% of people who have a super account.

Unfortunately, there was a furious backlash from the rich people who would have been most impacted by this, and the government watered down its reforms.

But can we as a nation really afford to keep handing out billions in welfare to the very rich while one million children live in poverty?

Super tax concessions are long overdue for significant reform. If you’re rich enough to be able to afford a comfortable retirement, congratulations, you can relax and enjoy yourself. But that should also mean that you don’t need extra government help to support your lifestyle.