Super shock: more compulsory super would make Middle Australia poorer, not richer

Open and shut. Most Australians would be worse off over their lifetimes if compulsory super contributions were lifted.
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Brendan Coates, Grattan Institute and Owain Emslie, Grattan Institute

Compulsory superannuation was sold to Australians on the basis that it would make us better off.

But as the government prepares for an independent inquiry into retirement incomes, new Grattan Institute research finds that increasing compulsory contributions from 9.5% of wages to 12%, as has been legislated, would leave many Australian workers poorer over their entire lifetimes.

They would sacrifice a significantly increased share of their lifetime wage in exchange for little or no increase in their retirement income.

The typical worker would lose about A$30,000 over her or his lifetime.

More compulsory super means lower wages

Superannuation delivers higher incomes in retirement at the expense of lower incomes while working.

Yet the superannuation lobby usually presents only one side of the pact, urging an increase in compulsory super to get the higher retirement incomes while ignoring the income that workers have to forgo to get them.

Compulsory super contributions are paid by employers. But they appear to come out of funds the employers would otherwise have spent on wages.

This means increases in compulsory super come at the expense of wage increases – something that was acknowledged when compulsory super was set up (indeed, it was part of the reason it was set up) and has been acknowledged by advocates of higher contributions, including the former opposition leader Bill Shorten).

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Read more:
Productivity Commission finds super a bad deal. And yes, it comes out of wages

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Grattan Institute calculations suggest that lifting compulsory super to 12% by 2025 will take up to A$20 billion a year from workers’ pockets. For most, the trade-off isn’t worth it.

The reality is that most Australians can already look forward to a better living standard in retirement than they had while working – even if they interrupt their careers to care for children. Workers with interrupted employment histories lose super in retirement, but get larger part-pensions.

The poorest Australians get a clear pay rise when they retire: the age pension is worth more than their after-tax income while working.

Other Grattan Institute research finds retirees are more comfortable financially than any other group of Australians and are much less likely to suffer financial stress than working-age Australians.

It needn’t lead to better retirement

So what about Middle Australia?

Despite the “magic” of compound returns, just about all of the extra income from a higher super balance at retirement would be offset by lower pension payments, due to the pension assets test.

It is always possible the pension rules will change, but it isn’t usually regarded as wise to assess proposals on the basis of changes that haven’t happened and aren’t being suggested.

Pension payments themselves would also be lower under a 12% superannuation regime. They are benchmarked to wages, which would be lower if employers have to put more into super.

The graph below shows that the big winners from higher compulsory super would be the wealthiest 20% of Australian earners, who would benefit from extra super tax breaks and would be unlikely to receive the age pension anyway.

Higher compulsory super redistributes income from the middle to the top. Middle earners would be no better off.

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Over a lifetime, it could be a net loss

As higher compulsory super would leave Middle Australians no better off in retirement, but poorer while working, it follows that it would make them poorer over their entire lives.

How much poorer? We calculate that, after adjusting for inflation, the typical (median) 30-year-old Australian worker earning A$58,000 today would lose about 2.5% of wages each year and get less than a 1% boost to retirement income.

As a result, that person’s lifetime income would be almost 1% lower – about A$30,000 lower.

A post published on the Grattan Blog today gives more detail on the method we used to calculate the impact of higher compulsory super on lifetime incomes.

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And it would cost the budget

Higher compulsory super might be justified if it saved the budget money on the pension – because those savings could be used to compensate middle-income earners via lower taxes or more services.

But in fact, higher super would cost the budget.

Our modelling shows that lifting compulsory super to 12% of wages would cost taxpayers an extra A$2 billion to A$2.5 billion per year in super tax breaks, overwhelmingly directed at high-income earners.

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Read more:
Myth busted. Boosting super would cost the budget more than it saved on age pensions

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Those extra super tax breaks would dwarf any budget savings on the age pension until about 2060 – by which time there would be 80 years of budget costs from compulsory super to pay back before the whole exercise saved the government money.

Here’s the bottom line, worth keeping in mind in the lead-up to the independent inquiry: it’s hard to think of a policy less in the interests of working Australians than more compulsory super.

Brendan Coates, Program Director, Household Finances, Grattan Institute and Owain Emslie, Associate, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Most of the benefits from the budget tax cuts will help the rich get richer

Chris Samuel/Flickr, CC BY-SA

Robert Tanton, University of Canberra and Jinjing Li, University of Canberra

In the federal budget, Treasurer Scott Morrison promised tax cuts to all working Australians in the form of an offset and changes to tax income thresholds. But our analysis of Treasury data shows that while the government advertised these as payments to low and middle income Australians, most of the benefits would flow through to high income earners in future years.

If all of the stages of the tax plan passed parliament, there would be a sharp increase in benefits for people earning above A$180,000, due to the reduction of their marginal tax rate from 45% to 32.5%.

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Taxes in most countries are progressive. This means that the more you earn, the higher your marginal rate (the additional amount you pay for each dollar earned).

There are good reasons for this – progressive tax systems mean those on a lower income pay a lower average tax rate, while those on higher incomes pay a higher average tax rate. This reduces income inequality – as you earn more, for each dollar you earn, you will pay more in tax than someone on a lower income.

With the 2018-19 budget, the proposal is for a “simpler” tax system from 2024-25. This means a reduced number of tax brackets, and a lower rate of 32.5% to those earning between A$87,001 and A$200,000.

Treasurer Scott Morrison said following the budget:

Well, you’ve still got a progressive tax system. That hasn’t changed. In fact, the percentage of people at the end of this plan, who are on the top marginal tax rate is actually slightly higher than what it is today.

However this new tax system from 2024-25 is less progressive than the current system. It means higher income inequality – the rich get more of the tax cuts than the poor.

As part of the new proposal, low and middle income earners get a tax offset in 2018-19, with high income earners getting very little. This part of the plan is progressive – more money goes to lower income earners.

However, by 2024-25, the tax cuts means high income earners gain A$7,225 per year, while those earning A$50,000 to A$90,000 gain A$540 per year, and those earning A$30,000 gain A$200 per year.

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Of course, another factor of tax cuts is that they only benefit those who are employed. Tax cuts don’t benefit people like the unemployed, pensioners, students (usually young people) and those on disability support pensions.

The conversation Australians need to have is how we should be spending the revenue boost we are seeing over the next few years. We can either spend this windfall gain on benefits to high income earners, in the hope that this will flow through spending to everyone else; or maybe we should encourage young people into housing through an increase to the first home owners grant, or increased funding for our schools, universities and health system.

We’ve developed a budget calculator so you can see how your family is affected by the 2018 budget.

Robert Tanton, Professor, University of Canberra and Jinjing Li, Associate Professor, NATSEM, University of Canberra

This article was originally published on The Conversation. Read the original article.

Muslims Murder Pakistani Christian with Axe Blows

Rival merchants threatened to kill potato seller if refused to convert to Islam.

MIAN CHANNU, Pakistan, March 22 (CDN) — Six Muslims in Khanewal district, southern Punjab Province, killed a Christian with multiple axe blows for refusing to convert to Islam this month, according to family and police sources.

The six men had threatened to kill 36-year-old Rasheed Masih unless he converted to Islam when they grew resentful of his potato business succeeding beyond their own, according to Masih’s younger brother Munir Asi and a local clergyman. The rival merchants allegedly killed him after luring him to their farmhouse on March 9, leaving him on a roadside near Kothi Nand Singh village in the wee hours of the next day.

The Rev. Iqbal Masih of the Mian Channu Parish of the Church of Pakistan said Rasheed Masih was a devoted Christian, and that both he and his brother Asi had refused the Muslims’ pressure to convert to Islam.

“As the Christian family strengthened in business and earned more, the Muslim men began to harbor business resentment, as Muslims are not used to seeing Christians more respected and richer than them,” the pastor said. “That business rivalry gradually changed into a faith rivalry.”

Mian Channu police have registered a case against the six men and an investigation is underway, but the suspects are still at large, police officers told Compass. Police said the suspects were Ghulam Rasool, Muhammad Asif, Muhammad Amjad, one identified only as Kashif and two other unidentified Muslims; they were charged with torture and murder.

Masih’s family lives in Babo John Colony, Mian Channu of Khanewal district. Masih’s brother Asi is a representative of the Council of Mian Channu.

“Our continuous denial to recant our faith and convert gradually turned into enmity,” Asi told Compass. The FIR further states, “Both the Muslim men [Rasool and Asif] were not only inviting them to Islam but hurling threats of dire consequences and death on them for the last six months in case they refused to convert.”

Police said Rasool – a radical Muslim who along with Asif had threatened to kill the brothers if they did not convert, according to Asi – called Rasheed Masih to his farmhouse ostensibly to purchase potatoes on March 9, and that Rasheed went to it by motorbike at about 5:30 p.m. Waiting for Masih there, police said, were Rasool and Asif with an axe, Amjad and Kashif with iron rods and the two unknown Muslims with clubs.

They began striking him as soon as he arrived, police said.

An autopsy under the supervision of Dr. Muhammad Khalid of Tehsil Headquarters Hospital Mian Channu revealed 24 wounds all over the body of Masih, according to a copy of the report obtained by Compass.

“In my opinion, cause of death in this case is due to the shock caused by all the above-mentioned injuries collectively and torture,” Khalid states in the report. “All the injuries are ante-mortem and sufficient to cause death in an ordinary course of nature.”

According to the FIR, when Asi and two Christian friends went to the farmhouse when Masih failed to return after a few hours, they were stunned to hear Masih shrieking as they witnessed him being beaten and struck with an axe.

“As Ghulam Rasool and his accomplices saw me at the farmhouse,” Asi told police, according to the FIR, “the Muslim men put my fatally injured brother on a motorcycle and then threw him off the road near village Kothi Nand Singh.”

Asi and his Christian friends found Masih by the roadside after he had succumbed to his injuries. The Muslims had absconded with Masih’s motorcycle and 350,000 rupees (US$4,088), as well as his cell phone, according to the FIR.

As Asi and his Christian friends were on their way to the hospital with the body of Masih, a city police station patrol met them and transferred the body to the Tehsil Headquarters Hospital Mian Channu.  

At press time the Muslim suspects were at large even though police have filed a case strong enough to apprehend and prosecute them, Asi said. He appealed for assistance from Christian rights groups and politicians, as his family is still receiving death threats in a bid to intimidate them into withdrawing the case, he said, and they feel powerless in comparison with the influence and wealth of the Muslim suspects.

Report from Compass Direct News