Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 100

Superlinks - not a gift to the rich

Congratulations on the 100th edition of Cuffelinks and thank you for asking me to make some observations on the state of the superannuation system.

We have a system that has grown rapidly to a scale considerably larger than the entire market capitalisation of our stock market so it is little wonder that it is never long out of the news or the thoughts of our politicians. Despite our pleadings this is unlikely to change. Rather, we must be vigilant and energetic to ensure we avoid disastrous policy swings and encourage moderate and rational reforms.

Currently some commentators are highly focused on the tax breaks available for super in relation to both its compulsory and voluntary forms and see attacking these as a simple solution to the structural public deficit implied by current spending and taxation projections.

Place super concessions in context

There is undoubtedly a case for some reform, but context is important.

Firstly, the current tax incentives are in fact far less than those applicable up to 1983, well before the system became universal.

Secondly, the various estimates made by Treasury over the years of the amount of tax revenue foregone are somewhat debatable. They assume that, in the absence of these concessions, the system would still have sufficient political support to continue into the future, but with contributions taxed at personal tax rates. In reality, the long term outcome of removal of concessions cannot be known and is not measured by Treasury.

Thirdly, those that lobby for winding back superannuation or its preferred tax treatment often do so on the quite erroneous assumption that governments would direct the savings towards support for welfare recipients and lower-income households. There is little evidence to suggest that this Government would rank the case of the welfare sector ahead of the strident demands of corporate Australia for reduced company tax and a lower marginal tax rate on high income earners.

Superannuation for the average worker and particularly for working women had to be fought for. That much does not change.

It is also true that some estimates of the extent to which tax concessions on super accrue to the rich are misleading because they do not take account of the extent to which this is caused by the fact that a very high proportion of contributions, and especially of voluntary contributions, are made by those who are relatively well off.

Worst public policy was a ‘parting gift to the rich’

Having said all of that however, it is undoubtedly the case that former Treasurer Peter Costello’s parting gift to the rich, massively raising the amount they could contribute to super while simultaneously abolishing any earnings tax on funds held in a superannuation pension environment, must rank as one of the worst pieces of public policy in living memory.

Far better to skew the tax concessions the other way, that is to the low paid who will struggle to build an adequate retirement nest egg and who will make the greatest claim on future public spending on the age pension and associated health care needs.

Funding infrastructure needs

A second area of significant current public focus is the question of funding for infrastructure. While it may have appeared, following a number of public statements by NSW Premier Mike Baird, that there was finally an awareness among politicians for the need to show leadership in creating new infrastructure, even if this meant recycling existing state-owned assets, the recent Queensland election landslide has again cast doubt upon the possibilities of a consensus model.

It is not yet clear whether the Queensland result was triggered by the particular circumstances, such as substantial public sector job losses or perhaps an allergic reaction to excessive Abbotism. What is clear is that we require a new way to reconcile the need for private sector funding for our substantial future infrastructure needs with the justifiable public aversion to a sell-off of assets to (potentially foreign) financial intermediaries and others primarily interested in short term profit and possibly lacking the long term interest in the public benefit to be derived by these assets.

On a number of occasions in recent years I have attempted to advance a model that might be characterised as the ‘mutualisation of infrastructure’ by more directly linking our world class superannuation system to our need for nation building economic, social and environmental infrastructure. The model is most recently set out in my March 2015 paper, Mutualisation of Infrastructure.

Our super system has evolved to the point where it has the potential to lead this country’s newest and strongest source of comparative advantage, abating our dependence on commodity exports. For example, IFM Investors already has many more offshore clients than Australian clients and manages money not only for leading pension funds, but for some of the world’s largest insurance companies.

Fair system can also be engine of growth

Our system needs reform at the margin to ensure it has credibility from a fairness point of view. But with appropriate nurturing our system can also be an engine of advancement for our nation, solving our needs for infrastructure development, while taking the pressure off the public purse and simultaneously creating a clean and prosperous new sector of world comparative advantage.

 

Garry Weaven is Chair of IFM Investors, ME Bank and ‘thenewdaily.com’. As ACTU Assistant Secretary in the 1980’s, he played a seminal role in the development of the industry super fund movement.

 

  •   12 March 2015
  • 6
  •      
  •   
6 Comments
David
March 12, 2015

re
"...it is undoubtedly the case that former Treasurer Peter Costello’s parting gift to the rich, massively raising the amount they could contribute to super while simultaneously abolishing any earnings tax on funds held in a superannuation pension environment, must rank as one of the worst pieces of public policy in living memory."

Not to mention the stupidity of it. Why are Costello and Howard lauded? Current govt woes re deficts would be almost non-existent if this bit of boom-wasting, vote-buying stupidity had not occurred.

Thanks

David, certainly not rich, but on a tax-free life in pension mode.

MattD
March 12, 2015

Graham Hand recently provided a very different assessment of how Treasury understands their Tax Expenditure Statement with regard to tax-concessions related to superannuation.

http://cuffelinks.com.au/treasury-says-dont-use-32-billion-number/

Graham Hand
March 12, 2015

Hi MattD, I don't believe my assessment is that different. In my article, I was quoting Treasury saying the $32 billion number should not be used or relied on. Garry says "... some estimates of the extent to which tax concessions on super accrue to the rich are misleading".

MattD
March 13, 2015

Garry says "They (I take this to mean Treasury) assume that, in the absence of these concessions, the system would still have sufficient political support to continue into the future, but with contributions taxed at personal tax rates". In your piece Treasury makes it clear they don't make these assumptions. They are given the task of determining the value of the tax concessions, they don't make assumptions about how individuals or governments might react in response to changes. Nor do they make any policy recommendations based on their findings. Nit-picking I know, and not that significant to the article in its entirety. Thanks for the feedback.

Max
March 12, 2015

Super is not a panacea for funding endless infrastructure investment. It is often more risky than its reputation and more illiquid than is appropriate for funds under the current choice of fund model.

David
March 14, 2015

Gary. While I applaud your ambition about Australia potentially exporting a skillset in managing infrastructure, the fee revenue from IFM hasn't reached the $100bn Australia earns in commodity exports yet - or has it? As an industry fund member I look forward to the Fruits of that in my next statement. I hope your fees for foreigners are exorbitant.

 

Leave a Comment:

RELATED ARTICLES

Do you plan to be a ‘have’ or a ‘have not’?

A super consensus needed before the demographic tsunami

The rubbery numbers behind super tax concessions

banner

Most viewed in recent weeks

The growing debt burden of retiring Australians

More Australians are retiring with larger mortgages and less super. This paper explores how unlocking housing wealth can help ease the nation’s growing retirement cashflow crunch.

Warren Buffett's final lesson

I’ve long seen Buffett as a flawed genius: a great investor though a man with shortcomings. With his final letter to Berkshire shareholders, I reflect on how my views of Buffett have changed and the legacy he leaves.

LICs vs ETFs – which perform best?

With investor sentiment shifting and ETFs surging ahead, we pit Australia’s biggest LICs against their ETF rivals to see which delivers better returns over the short and long term. The results are revealing.

13 ways to save money on your tax - legally

Thoughtful tax planning is a cornerstone of successful investing. This highlights 13 legal ways that you can reduce tax, preserve capital, and enhance long-term wealth across super, property, and shares.

Why it’s time to ditch the retirement journey

Retirement isn’t a clean financial arc. Income shocks, health costs and family pressures hit at random, exposing the limits of age-based planning and the myth of a predictable “retirement journey".

The housing market is heading into choppy waters

With rates on hold and housing demand strong, lenders are pushing boundaries. As risky products return, borrowers should be cautious and not let clever marketing cloud their judgment.

Latest Updates

Interviews

AFIC on the speculative ASX boom, opportunities, and LIC discounts

In an interview with Firstlinks, CEO Mark Freeman discusses how speculative ASX stocks have crushed blue chips this year, companies he likes now, and why he’s confident AFIC’s NTA discount will close.

Investment strategies

Solving the Australian equities conundrum

The ASX's performance this year has again highlighted a persistent riddle facing investors – how to approach an index reliant on a few sectors and handful of stocks. Here are some ideas on how to build a durable portfolio.

Retirement

Regulators warn super funds to lift retirement focus

Despite three years under the retirement income covenant, regulators warn a growing gap between leading and lagging super funds, driven by poor member insights and patchy outcomes measurement.

Shares

Australian equities: a tale of two markets

The ASX seems a market split in two: between the haves and have nots; or those with growth and momentum and those without. In this environment, opportunity favours those willing to look beyond the obvious.

Investment strategies

Dotcom on steroids Part II

OpenAI’s business model isn't sustainable in the long run. If markets catch on, the company could face higher borrowing costs, or worse, and that would have major spillover effects.

Investment strategies

AI’s debt binge draws European telco parallels

‘Hyperscalers’ including Google, Meta and Microsoft are fuelling an unprecedented surge in equity and debt issuance to bankroll massive AI-driven capital expenditure. History shows this isn't without risk.

Investment strategies

Leveraged single stock ETFs don't work as advertised

Leveraged ETFs seek to deliver some multiple of an underlying index or reference asset’s return over a day. Yet, they aren’t even delivering the target return on an average day as they’re meant to do.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.