The Times Australia
The Times World News

.
Times Media

.

Super co-contribution has cost $10 billion to help the wrong Australians – so let's scrap it

  • Written by Cain Polidano, Senior Research Fellow, The University of Melbourne
Super co-contribution has cost $10 billion to help the wrong Australians – so let's scrap it

Concerned that many people won’t have enough retirement savings even with compulsory superannuation, since 2003 the Australian government has had a scheme to encourage low and middle-income earners to voluntarily put more into superannuation.

The Superannuation Co-Contribution Scheme[1] currently provides 50 cents for every dollar voluntarily contributed, up to A$1,000, by anyone earning less than $42,000. (There are tapered co-contributions for those with incomes up to $57,000.)

To date the scheme has cost more than $10 billion – or $12.7 billion in today’s dollars. Last financial year it paid out about $127 million[2]. Over the next three years it is expected to cost $365 million[3].

So what is it achieving? Not much, it turns out.

Our analysis[4] of taxation data since 2000 suggests the scheme has made little difference to lifting voluntary super contributions by low and middle-income earners.

Most significantly, our findings indicate the scheme does little more than provide a bonus to those who would have put money into super anyway.

Given the need to rein in public debt, the new Albanese government should consider discontinuing the co-contribution scheme as “low-hanging fruit” – an easy budget cutback that will harm few people.

Read more: How to camouflage $150 billion in spending: call it 'tax expenditure'[5]

How we analysed the scheme

The co-contribution scheme was introduced 2003-04 by the Howard government as part of its “Better Superannuation System[6]” reforms meant to encourage higher contributions.

Initially the co-contribution was dollar-for-dollar. In 2004-05 it was increased to $1.50 for every dollar. In 2009-10 the Rudd government reduced it to $1 and in 2012-13 the Gillard government cut it to 50 cents.

Then prime minister John Howard spruiks superannuation policy reform in November 2001. Vera Devai/AAP

To evaluate the scheme[7], we used a data set from the Australian Taxation Office known as the Australian Longitudinal Information Files[8] (ALife). This contains a 10% anonymised sample of Australian superannuation and tax records that currently goes back to 1991.

We analysed records from 2000 onwards, looking at the super contributions of anyone who earned less than $80,000 for at least one year between 1999-2000 and 2016-17. This totalled 1.3 million individuals. Of these, 730,000 were eligible for a co-contribution in at least one year.

Before the scheme began, about 14.5% of those subsequently eligible for the co-contribution made voluntary contributions to superannuation.

Our analysis shows only marginal effects on the rate of voluntary contributions – even when the co-contribution rate was double or three times higher than it is now.

At a co-contribution rate of 50 cents on the dollar, the scheme has increased contributions by 1 percentage point.

At the previous rate of $1, the increase in super contributions was 1.5 percentage points. Even at the past rate of $1.50, it was just 3.5 percentage points.

In reading these estimates it’s important to note they aren’t simply percentage changes to the 14.5% contribution rate prior to the scheme. They are generated by an econometric model that has allowed us to measure changes in super contributions when people gain or lose eligibility for the co-contribution scheme, then compare those to changes in contributions of people whose eligibility did not change.

Who has benefited most?

The biggest increases in contributions were by high-income earners who happened to qualify in a particular year due to a temporary drop in income, as well by partnered women.

Those normally in the top 25% of income earners were four times more likely to take advantage of the scheme than those normally in the bottom 25%.

Women with partners were more than twice as likely to contribute as single women or men with partners, and four times more likely than single men. The likely explanation for this is that the scheme has been used by women with higher-earning partners.

The following chart shows these average effects across the life of the scheme.

Impacts on sub-group voluntary after-tax contribution rates

Impacts of the Superannuation Co-contribution Scheme on sub-group voluntary after-tax contribution rates, average across match rates.
Melbourne Institute, CC BY[9][10] Strikingly, our analysis indicates those taking advantage of the scheme would have made slightly higher voluntary super contributions without any co-contribution. The difference is slight – on average of $20 to $50 a year, depending on the co-contribution rate – but the whole point of the scheme is to encourage higher contributions, not provide a subsidy for people to contribute at the same (or a marginally lower) rate. Read more: Yes, women retire with less than men, but boosting compulsory super won't help[11] Failing to make a difference here and overseas These disappointing results from the scheme are in line with findings of similar schemes in the United States and Germany. There are two possible reasons. The first is that people may be unaware of the scheme. But we find no evidence for this. For example, our analysis indicates those who use tax agents – who are likely to be aware of the scheme and pass on such knowledge to their clients – are no more likely to use the scheme than those who do their own tax return. The second reason is the more obvious one. Most people on lower incomes don’t have spare cash to put into super. This is why increases have been minor even with a matching payments rate three times higher than now. If you don’t have the spare cash, it doesn’t make much difference a what rate the co-contribution is set. Our findings cast serious doubt on the point of the superannuation co-contribution scheme. Despite its relative simplicity and generosity, it has done little to lift the retirement savings of low and middle-income Australians as intended. The real beneficiaries of the scheme have been the small minority of eligible people who were already contributing. For them, this has been a windfall that has allowed them to reduce their personal contributions while still achieving their desired contribution levels. Read more: Retirement incomes review finds problems more super won't solve[12] References^ Superannuation Co-Contribution Scheme (www.ato.gov.au)^ $127 million (treasury.gov.au)^ $365 million (treasury.gov.au)^ analysis (melbourneinstitute.unimelb.edu.au)^ How to camouflage $150 billion in spending: call it 'tax expenditure' (theconversation.com)^ Better Superannuation System (parlinfo.aph.gov.au)^ evaluate the scheme (melbourneinstitute.unimelb.edu.au)^ Australian Longitudinal Information Files (taxpolicy.crawford.anu.edu.au)^ Melbourne Institute (melbourneinstitute.unimelb.edu.au)^ CC BY (creativecommons.org)^ Yes, women retire with less than men, but boosting compulsory super won't help (theconversation.com)^ Retirement incomes review finds problems more super won't solve (theconversation.com)

Read more https://theconversation.com/super-co-contribution-has-cost-10-billion-to-help-the-wrong-australians-so-lets-scrap-it-180680

The Times Features

Amazon Australia and DoorDash announce two-year DashPass offer only for Prime members

New and existing Prime members in Australia can enjoy a two-year membership to DashPass for free, and gain access to AU$0 delivery fees on eligible DoorDash orders New offer co...

6 things to do if your child’s weight is beyond the ideal range – and 1 thing to avoid

One of the more significant challenges we face as parents is making sure our kids are growing at a healthy rate. To manage this, we take them for regular check-ups with our GP...

Joykids Australia Presents the Joykids Family Rave: A Weekend Adventure Like No Other

Get ready to kick off the first day of summer and the festive season with an unforgettable family adventure! Joykids Australia is excited to announce the Joykids Family Rave—an...

New study suggests weight loss drugs like Ozempic could help with knee pain. Here’s why there may be a link

The drug semaglutide, commonly known by the brand names Ozempic or Wegovy, was originally developed[1] to help people with type 2 diabetes manage their blood sugar levels. How...

Maintaining Your Pool After a Marble Interior Upgrade

After upgrading your pool with a marble interior, it’s crucial to understand that maintenance is key to preserving its elegance and longevity. You’ll want to regularly skim for d...

Labor using explanatory document to hide true powers of Misinformation Bill

The opinions and commentary of individuals could be deemed misinformation under Labor’s proposed legislation changes, according to James McComish of Victorian Bar. Appearing in...

Times Magazine

SEN and MyRacehorse give punters the chance to win a share in exciting Freedman trained Colt

SPORTS Entertainment Network (SEN) has partnered with MyRacehorse to offer its audience the chance to experience the thrills and excitement of racehorse ownership, all by simply using the Same Racer app.With the Spring Racing Carnival around the co...

Asia’s Finest: The Prophets of Football from the East

The culture of Asiatic countries isn’t that prone to football, or at least to the practice or affiliation to clubs in general. They prize, probably due to the irrelevance of the Asiatic teams in the wide world of football, a bigger appreciation f...

Find the Most Adorable Jellycat Toys in Singapore

Overview of Jellycat Brand Jellycat is an internationally renowned British brand of luxury soft toys and accessories that has been offering quality, comfort, and style since 1999. With its high-quality designs and attention to detail, Jellycat has...

The Key to Digital Transformation: Upgrading Your Business Systems for the Future

Digital transformation offers your business a competitive edge in today’s fast-paced market. Upgrading your systems unlocks new efficiencies, improves customer experiences, and opens doors to innovative business models. This process is not just abo...

NIDA welcomes all to Open Day

NIDA WELCOMES ALL TO OPEN DAY – SATURDAY 18 JUNE 2022 This weekend NIDA Open Day will welcome visitors who are curious or passionate about the arts and entertainment industries to explore NIDA’s many world-renown educational offerings. From des...

Full function: how to get the most out of your conveyor belt

There’s no denying it: you need to look after your conveyor belt to ensure its proper function! Proper maintenance will ensure its longevity, as well as save you money on future repairs. With this in mind, here are five imperative tips for getti...