The Centre for Policy Development writes:
Imagine a welfare scheme that gave minimum wage earners nothing, but handed out $11,000 a year to those on the top income tax rate. Surely if any political party ever suggested such a scheme they would be run out of parliament and have their doors kicked down by commercial current affairs programs.
Yet, such a scheme already exists, and almost nobody says anything about it.
Dr Benjamin Spies-Butcher’s and Adam Stebbing’s paper Reforming Australia's hidden welfare state: Tax expenditures as welfare for the rich examines the inequities of the tax breaks and loopholes inherent in Australia’s complex taxation system, with particular reference to one of the most expensive tax breaks – the flat 15% tax on compulsory superannuation. The main points of their research are:
This paper outlines possible reforms to one of the largest tax expenditures, superannuation. By transforming this particular tax expenditure into a rebate program, which would be subject to proper budgetary scrutiny, Australia’s superannuation arrangements could be made more accountable and more equitable. If successful, this model could then be applied to other areas of tax expenditure.
Under the current system of tax expenditures on compulsory superannuation contributions:
Minimum wage earners receive no assistance.
Those in the top income tax bracket receive on average more than $11,000 per annum.
This paper proposes two alternative models for reform. The first is based on a flat rate similar to the First Home Savers Account. The second has a flat rate for those earning up to $80,000 per annum, phasing out after $100,000 – similar in design to the recent tax bonus included in the stimulus package.
These schemes would provide a much more equitable distribution of benefits.
Minimum wage earners would be up to $24,000 better off on retirement under the first model and $32,000 under the second; more than a year’s additional salary.
85 per cent of wage earners would receive higher benefits under the second model.
Savings by low-income earners would be encouraged, reducing reliance on the pension.
Both models are revenue neutral.
It seems that Wayne Swan is already taking action. According to Peter Martin in today’s Age:
With very little publicity, Swan has asked the Henry review to bring forward the section of its report dealing with the taxation of superannuation. It will go to him in time to be considered in the lead-up to this year's budget. Submissions to that part of the Henry review (but not those to other parts) have already closed.
The review is certain to point to the unfairness and ineffectiveness of the super tax concessions we have now. We give high income earners — the most able to save for their retirement — the most assistance in doing so, and low income earners — the least able to save — the least assistance. Swan and Rudd, more concerned about Labor values than Labor tradition, are likely to listen. The party that invented compulsory superannuation might finally make it fair, or at least a good deal fairer.
Tuesday 12 May 2009 could be an interesting time to be in Canberra.