Andrew Leigh

I write in today's Canberra Times about the Abbott Government's planned changes to Labor's Low-Income Superannuation Scheme.

OPINION - A superannuation blow for low-income earners

The Canberra Times

Thursday 31 October 2013

Canberra resident Carol is 48 years old. She works as a cleaner, toiling on Sundays to earn some overtime. She earns less than $37,000 a year.

It would be blow to her if Labor’s Low Income Super Contribution Scheme was axed by Tony Abbott as planned.

“They’re just grabbing from everywhere, to make themselves look better, but it’s only a short term fix, like a band-aid,” she says.   “A lot of the cleaners aren’t on great wages, and they aren’t full-time.”



In his victory speech on election night, Mr Abbott reminded us that good government is one that governs for all Australians including what he called ‘forgotten families’. “We will not leave anyone behind”.

So it’s very disappointing that his government still wants to scrap a measure that sees low-income Australians pay less tax. Axing the Low Income Superannuation Contribution will hit 3.6 million low-income workers, of which nearly two-thirds are women.

Superannuation policy must be more equitable. One of the policies to achieve this – championed by Bill Shorten – is the Low-Income Superannuation Contribution. The policy introduced last year and recommended by the Henry Tax review cuts contributions tax to zero for workers earning up to $37,000 and puts the money into their super instead.

It allows workers to better save for their retirement, providing security and dignity later on in life while also taking pressure off the aged pension. Low Income Superannuation Contribution is worth up to $500 per annum, but with compound investment returns, the effect on retirement payouts is worth far more.

Worse, under the planned changes these workers will be hit retrospectively on contributions they’ve already made.  It’s bad enough to jack up taxes on the people who can least afford it – but it’s downright cruel to make it retrospective.

Boosting superannuation for low-income workers isn’t just a good way of reducing wealth inequality; it’s also one of the most important reforms for reducing gender inequity. Although women’s wages are four-fifths of those of men, women’s superannuation payouts average one-third of men’s - a gap that particularly hurts single women.

The impact of scrapping the Low Income Superannuation Contribution will be disproportionately felt more in certain occupations; cleaning and construction, retail and hospitality, child care and aged care.

Australia’s superannuation system is both unfair and unsustainable.  It subsidises those who need it least, yet penalises low income workers building a nest egg for retirement.

Treasury has estimated that 36.1 per cent of the $14.2 billion tax concessions for superannuation contributions went to the top 10 per cent of income earners . Yet the bottom 10 per cent were actually penalised, rather than subsidised, by around $130 million in the same year.

Most Australians would agree that it’s unfair for people on low or modest incomes to have to give up more to increase their superannuation savings.  Why should people on low incomes disproportionately subsidise people on higher incomes?  In fact, it also makes little economic sense to give a bigger subsidy to high income earners who need it least because they’re going to save anyway.

Put simply, the low income earner would have to give up almost 90 per cent more after tax than a high income earner to boost their super saving by the same amount. How is that fair to forgotten families?

Indeed, while the Coalition rails against Labor for ‘class warfare’, the biggest class warrior in Australia today is Mr Abbott. He is cutting income support payments (effectively a reduction in the unemployment benefit), axing the Schoolkids Bonus (a targeted measure to help families), and talking about outsourcing DisabilityCare. Meanwhile, he wants to give a $4 billion tax cut to mining billionaires, pay millionaire families $75,000 to have a child, and give the private health insurance rebate back to those on seven-figure incomes.

Under Mr Abbott, the more you have, the more government will do for you. But the less you have, the more you’ll have to fend for yourself. Not only is this a major move away from the ‘fair go’ principle of the Labor Government, but it’s also far removed from the philosophy of past Liberal Governments. Can anyone imagine that Robert Menzies would have thought it was decent and just to reduce payments to the unemployed so he could give a tax cut to a billionaire?

Another Canberra constituent, Penelope, is a student who dips in and out of work in the hospitality and security industries. Retirement is a long way off but the prospect of losing the Low Income Superannuation Contribution is on her mind.

“I need superannuation for when I grow up so that I don’t put pressure on my kids, in regards to medical and living expenses… Cutting the policy will not be good in the long-term, because if they’re not taking care of workers now, they’re going to have to pay for it later through pensions.”