There's few easier ways to demonstrate the inequality of Australia’s tax system than 'wealth advice' columns in Australia's major papers

There are few easier ways to discover the inequalities present in Australia’s tax system than to peruse the “wealth advice” columns in Australia’s newspapers.

Last week the Australian Financial Review’s wealth column advised wealthy Australians of a way to put more money into superannuation, but which in truth was just another example of how the system is being abused.

The column’s headline seemed benign enough: “The one-time strategy wealthy Australians use to get more into super”. That this “strategy” is only for “wealthy Australians” does raise an eyebrow, but it only takes one sentence of the column to have the warning sirens sounding loudly:

“If you sell a property resulting in surplus cash to invest, there’s no better place than the low/no-tax environment of superannuation.”

A more honest headline would have been “The one-time strategy wealthy Australians use to avoid paying tax”, because the “strategy” is not about saving for retirement at all.

The column notes that if “you’re facing a capital gains tax (CGT) bill” from the sale of a property you could “consider making a personal deductible (concessional) contribution” to your superannuation.

The reason why a person would do this is not to increase their retirement funds, but because it reduces (or avoids) paying capital gains tax.

At this point we should note that if you sell a property, which you have held for more than a year, you already get a 50% deduction on capital gains tax.

This advice is therefore about further reducing the amount of tax you pay on something for which you are already getting a 50% tax break!

That is not how a fair tax system should operate.

Superannuation should not be used as a tax shelter.

The purpose of superannuation is to encourage people to save so that they will be less reliant on the age pension system. There is no public benefit in providing people whose wealth and income is such that they would never qualify for the age pension with superannuation tax breaks.

The superannuation tax breaks now cost nearly $60bn a year, of which over $21bn goes to the richest 10% of Australians. When you include the cost of the capital tax discount for property sales, that number rises to $26.48m:

In effect, the government currently spends $10bn more a year giving tax breaks to Australia’s richest 10% than it does on Jobseeker, or on child care subsidies, or on financial support for those caring for family members with a disability. The richest 10% get more than double the amount in tax breaks for superannuation and capital gains than is spent on public schools or universities.

The government is currently planning to reduce (but not eliminate) the level of tax concessions on earnings in superannuation balances of over $3m. This would affect fewer than 100,000 people – or less than 1% of all Australians with superannuation.

It is a very small attempt to wind back the egregious rorting of a system originally designed to deliver a better retirement, but which is now so abused that media companies brazenly report on how the very wealthiest can use it to avoid paying tax.

Greg Jericho is chief economist at the Australia Institute.