Since election day, conservative media have decided to begin a scare campaign around the government’s proposed changes to the tax concessions on superannuation. Currently, the earnings in superannuation funds are taxed at just 15%. This is a significant tax concession for most people and a very large one for the richest in Australia, who would be paying a 45% rate if super was taxed like income.

This means that the richest in Australia are getting a 30% tax break on their super, so it is little wonder that many of them are using super not to save for their retirement, but to avoid paying tax.

Superannuation tax breaks are being abused

The entire reason for the superannuation tax concessions is to encourage people to save for their retirement so they will not need to go on the age pension. This, in theory, reduces the burden on the government.

But the problem is that when you offer the richest people in Australia a 30% tax break, they will take advantage of it. The richest 10% – most of whom would never be eligible for the age pension receive $22bn in tax breaks by having money in super rather than having it taxed like income.

All up, the cost of these superannuation tax breaks is around $60bn a year. That is just $5bn less than the total cost of the age pension.

Clearly, something needs to be done.

The government is proposing to increase the tax rate on earnings on super balances of over $3m from 15% to 30%. That, as you will note, is still lower than 45%. In effect, the richest Australians will now get a 15% tax break on their super rather than 30%.

They still get a tax break, just not as big, and the smaller tax break ONLY applies to the amount that is attributed to super balances over $3m. So if you have $3.5m, then the tax on 85% of your earnings from super will not change at all!

But is $3m a lot to have in super?

Yep. Currently, only a bit over 80,000 people have that much in their super. That’s around 0.5% of all people with a superannuation account.

80,000 now, but won’t that number grow??

Critics argue that because the government is not indexing the $3m threshold to inflation, in time, many, many more people will soon have more than $3m in their super.

This, however, is just a fear campaign, made abundantly clear by the fact that the critics seem to always be estimating how many people will be affected in 30 years’ time in 2055!

The government does not index income tax thresholds, and yet it routinely increases them to account for inflation and also for political reasons. Heck, just last year the government increased the $120,000 threshold to $135,000 and the $180,000 to $190,000. It is quite easily done.

No one seriously argues that we need to do something about the income tax thresholds because by 2055 most of us will be earning more than $190,000!

And yet, apparently not indexing a $3m threshold, which currently only affects 0.5% of people, is a calamity because… many people will be affected… one day.

Even in 30 years, few people will have more than $3m in super

Unfortunately for these critics, even their own figures show how absurd their fears are.

While it would be nice to think that most people under 30 will retire with more than $3m in their super, the reality is that almost all of them will not.

The Australian Financial Review recently reported the CEO of the Financial Services Council estimating that more than 500,000 current taxpayers, including 204,000 Australians under the age of 30 will be affected by these changes (ie that they will have more than $3m in super)

That certainly seems like a lot – certainly more than the 80,000 currently affected. But is it really a lot?

Let us assume that “current taxpayers” are those currently in the labour force. This is a pretty reasonable and conservative assumption, because people not in the labour force also pay tax. Currently, there are 15.26m people in the labour force. 500,000 of that is just 3.3% per cent.

But what about those under 30? Surely 204,000 is a big chunk of those people?

Nope. Currently, there are 4.5m people under 30 in the labour force – that works out to just 4.8%.

So yes, all this fear and scare campaign is because if we assume no government in the next 30 years changes the $3m threshold, in 2055, the richest 5% of people currently under 30 with the biggest super accounts will have to pay slightly more tax on their super earnings.

What an absurd position to take.

If you can’t support changes to the tax system that affects so few people, then you might as well admit you are against any tax reform at all.

Enough with the fear and lies

It is time to stop the fear campaign. Stop the hyperbole, stop the lies.

These changes will affect very few people now, and even if no government over the next 30 years changes the threshold, only a sliver of young people working today will be affected then.

Supernanuation needs to be reformed, and this is an excellent start.