By Emily Millane
Our retirement income system is now skewed so heavily towards the wealthy in our society that we’re not just at risk of going nowhere, we risk going backwards, writes Emily Millane.
It’s always slightly unnerving when the airline you’re flying with says it needs to take some time to redistribute the weight on the aircraft before you take off. Visions of a plane dragging one wing along the runway with sparks flying everywhere tend to ensue.
The fact is, the distribution of an aircraft’s weight needs to be calibrated in such a way that the thing can get off the ground, and back onto it, safely. And so it is with our tax and transfer system.
Distribute it right and you’re off; get the distribution wrong and society is on a fast track to nowhere. Per Capita’s recent report, The Entitlement of Age, argues that, together, increasing longevity and rising inequality are making Australia’s retirement income system unsustainable. The structure of the system, combined with the distribution of benefits, is skewed so heavily towards the wealthy in our society that we’re not just at risk of going nowhere, we risk going backwards.
Notwithstanding differences as a result of race, education and socio-economic status, on average Australians have very high life expectancies. Indigenous Australians are the notable exception to this average
Per Capita’s findings show that we are living longer than previously estimated, largely as a result of declining mortality rates. We need to plan for longer lives, and we need incomes to pay for them.
The current system will not deliver retirement security, even if Australians work until they are 70. Some Australians will move into older age well funded but women, the low-paid and those in insecure work will not.
Per Capita’s research, using four different scenarios, shows that a woman retiring in 2049 who has children and works a mix of full-time and part-time hours will have only 60 per cent of the superannuation balance of a man the same age as her, a deficit of $358,000.
The way in which superannuation is taxed compounds the income insecurity faced by vulnerable groups. The concessional rate of tax on superannuation income relative to ordinary income, known as “superannuation tax concessions”, favours those with higher incomes.
If the Government is successful in removing the Low Income Superannuation Contribution, people on low incomes will pay more on their superannuation contributions than they do on ordinary income.
More than 50 per cent of the superannuation tax concessions go to the wealthiest 20 per cent Australians. At the same time, Per Capita’s annual tax survey showed that 42 per cent of people on incomes of $200,000 and above consider that the best way to pay for longer lives is through further superannuation tax concessions.
As detailed by the ACTU recently, the IMF has found that Australia foregoes more through tax expenditures than all other advanced economies it analysed. The largest areas of expenditure are housing and superannuation tax concessions.
What does all of this tell us? It tells us that people on the highest incomes have come to see the beneficial tax treatment of their superannuation as an entitlement. It tells us that any effort to change the shape of tax on superannuation to make it fairer will require political courage. It also tells us that change is necessary.
The Government’s proposed alterations to the age pension, particularly in respect of indexation, will mean that it does not provide a safety net from poverty. It is those same groups that are disadvantaged by the superannuation system that will face further financial precariousness as a result of these changes – the women, the low-paid and those engaged in insecure work.
Australia’s spending on the age pension is going up; no one is arguing with that. However, as the Treasurer found out with his comments in respect of the fuel excise, it’s the proportion of income that matters. Australia spends about 3.5 per cent of its GDP on the age pension compared with an average spend by other wealthy counties of 7.8 per cent of GDP.
So what of it? What does it matter that some people will have overseas holidays and theatre shows to look forward to in later life, while others will sit at home watching daytime TV? Or that some people will see medical specialists while others will put off seeing the GP?
It matters because these questions go to the issue of human dignity. Australians are entitled to incomes sufficient for a dignified life.
More broadly, these questions go to the issue of what sort of society we understand Australia to be. Whether we are all on this journey together, or whether it is OK that there is an increasing distance between people in economy, and the class of people who haven’t seen the back of a plane in years.