Prime Minister Tony Abbott and his Coalition colleagues (including National Party MPs Hogan in Page, Hartsuyker in Cowper, Gillespie in Lyne, and Joyce in New England) have sent a bill to the Senate which will allow the potentially abolition of the $500 Low Income Superannuation Contribution. This is being characterised as a budget savings measure.
Not surprisingly the Senate Inquiry into the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 indicates that the business community is in favour of the abolition, as can be seen by the evidence given by Dr Burn representing the Australian Industry Group:..... we support the repeal of the minerals resource rent tax, we support the removal of the special accelerated depreciation facilities for motor vehicle write-off by small business, we support the repeal of the geothermal exploration measures, we support the pause to the superannuation contributions guarantee levy, we support the repeal of the low-income super measures and we support the repeal of the income support bonus and schoolkids measures. We do not support the repeal of the loss carryback provisions and we do not support the proposal to reduce the small business asset write-off threshold.
The Senate Inquiry was also told the following.
Mr Lyons (Australian Council of Trade Unions - ACTU): ....In respect of the low-income super contribution, let me put it this way: this bill proposes to restore the position where large numbers of low-income Australians pay more tax on their superannuation than they pay on their take-home pay. That is an absurd proposition for money which is compulsory and preserved and in contrast to the enormous tax concessions given to high-income earners. This bill will raise superannuation taxes on 3.6 million low-paid workers, 2.1 million of whom are women. Just as an example, about 360,000 retail workers alone will see an increase in super taxes. It is unjustifiable and unfair, particularly in circumstances where the government has chosen to not proceed with a very modest saving in respect of super taxes on high-income earners....
We could just add one or two points. The important point here, I think, is that the repeal of the LISC would leave those earning less than $37,000 per year as the only Australian wage and salary earners who do not receive a concessional treatment of their superannuation contributions. Everybody else in the economy except these low income workers would receive some measure of tax break, and as Mr Davidson has pointed out, at the top end there are very significant concessions.
Mr Cowgill (ACTU): If I could just add something to that, I would draw your attention to some analysis by the Treasury of the distribution of superannuation tax concessions. The Treasury analysis shows that in 2009-10 the top decile of income earners received 38.2 per cent of all superannuation tax concessions, which is more than the share of the bottom 70 per cent of income earners combined. To quote the Treasury, they find that the top one per cent of income earners received the most combined support, and by 'a combined support' they mean both the age pension and the superannuation tax concessions. So high-income earners receive greater support for their retirement than low-income earners, even when you take the age pension into account, and we feel that is a grossly inequitable situation....
Dr Denniss (The Australia Institute): Can I just add very briefly to that? To put these percentages into context, if a high-income earner were to put $1,000 into super, they would save $300 in tax. If a low-income earner were to put $1,000 into super, they would pay $150 more in tax....
The system is obscene. It is obscene and it is bizarre for the parliament to tell itself that this $50 billion a year tax concession for superannuation is 'taking pressure off the age pension system', when the demographic group that will rely on the age pension is penalised for participating, and the people who already have too much superannuation to be even eligible for the age pension when they retire are subsidised. It is obscene....
I agree entirely. Let us be clear. In 2016-17 the cost of tax concessions for super will be $50,000 million a year, $50 billion, according to Treasury. As the ACTU pointed out, the vast majority of that $50 billion annual expenditure will accrue to the top 10 per cent of income earners, who are probably not even eligible for the aged pension. So if you are worried about the budget, I would not be taking tax concessions off the low-income earners, who will rely on the aged pension.
Ms Campo (Industry Super Australia):... Of the 3.6 million Australians who will be impacted by this proposed measure, 2 million are our members. We would respectfully ask that this committee take into account their interests. I have a few comments on some of the demographic impacts. As others identified and as we identified in our submission, about two-thirds of those affected are women. We think that the LISC has been the single most important policy setting in the super system which helps to address the inequity in savings gap whereby women are currently retiring with about 40 per cent less than men, which is significant given that their longevity is greater.....
Three of the 3.6 million affected are from second-income earners. The largest single identifiable group is part-time earners in family households. The abolition of the LISC affects around 1.67 million female part-time earners, who constitute around 80 per cent of all part-time female workers nationally—so a very significant impact on women working part time in a family setting....
Ms Wood (Women In Super): Thank you for the opportunity to appear today before the committee. I am the National Chair of Women in Super, which is a national advocacy and networking group for women employed in the superannuation and financial services industries. Women in Super is concerned to ensure that the retirement savings system is fair and equitable and offers the prospect of greater comfort in retirement for all Australians. This is not currently the case for women. Women currently have only half the superannuation savings of men. The average retirement payment for a woman is $112,000 compared to $198,000 for a man. On top of that, women live longer than men, so their reduced savings must stretch over a longer period in retirement. The super savings gap is the result of many factors, including unequal pay, which is currently at 17.5 per cent. It is caused by breaks from the workforce, periods of part-time work, overrepresentation in lower paid industries and barriers to employment beyond age 45. Women in Super support policies that assist low-income earners as women make up the majority of this sector of the workforce.
We see the increase in the superannuation guarantee from nine to 12 per cent and the low-income superannuation contribution as crucial policies to deliver adequacy in retirement and to take the pressure off future taxpayers. These measures are doubly important for women who currently have such a marked superannuation savings gap. The LISC is not simply a mechanism to increase superannuation savings; it is fundamental to the equity of the taxation treatment of compulsory superannuation savings.
Repealing the LISC will impose a tax burden of up to $500 on the lowest paid on our community, and this will impact 50 per cent of the female workforce. Those earning under $37,000, if the LISC is repealed, will be the only Australians who will receive no tax benefit from compulsorily contributing to their superannuation. Those earning higher incomes will receive a tax break of up to 30c in the dollar. It is simply not equitable for our system to treat the low paid and the high paid so differently for making compulsory contributions to their super. The male and female workers who will be impacted by the repeal of the LISC span all age categories, with up to half of those who will be impacted and who will qualify for the LISC being over 41 years of age.
There is community support for the LISC, as Women in Super discovered. We have consulted, and we have received support from community groups, from business leaders and from public think tanks. However, I would say that there has not been a true public debate about repeal of the LISC. The issue has not been in the public arena, and I think reality will only hit for many low-income earners when they receive, on their superannuation statements, rebates relating to the most recent financial year and then understand that those rebates will not be there in the future if the LISC is repealed....
Mr Davidson (Australian Council of Social Service):...With regard to the low-income super contribution: the contribution is a small step towards a fairer super system. The present system penalises those on the lowest incomes, the majority of whom are women, for saving and gives those on high incomes twice the subsidy paid to middle-income earners. So the tax system for super contributions is upside-down. Ideally, the Henry report reforms would be implemented whereby the flat 15 per cent tax on employer contributions is replaced by taxation at marginal rates offset by a rebate. Still, the contribution is a good start. It means the tax break for people earning less than $37,000 a year is increased from minus 15 per cent to zero. That is not fantastic, but it is a good start, and we think it should be retained....
Rather unsurprisingly, in a Senate inquiry dominated by Coalition members, its report tabled on 2 December 2013 weakly recommended:
Recommendation 1
2.114 The committee recommends that the government revisit certain measures in the Bill, in particular incentives in superannuation for low income earners and taxation issues affecting small business, once the Budget returns to strong surplus.
Recommendation 2
2.115 The committee recommends that the government consider revisiting the question of incentives in superannuation for low income earners as part of its tax review.
Recommendation 3
2.116 The committee recommends that the Bill be passed.
There appears to be little hope that a Prime Minister who came from an affluent family, who has a more than comfortable lifestyle and, a generous superannuation pay out on retirement (in excess of $371,000 per annum with additional retirement benefits), is going to revisit his proposed superannuation measures for low income earners.
Low-income workers and women in particular will rue the day that Tony Abbott took hold of the reins of government.
Workers earning over $37,000 annually will have to nervously live in hope that Abbott will honour his undertaking to only defer their scheduled superannuation increase by two years.
