The tax treatment of superannuation is coming under heavy fire, but is the criticism well placed when we are forcing people to invest funds into a compulsory super regime?
In the latest effort to design the false narrative that the federal government is suffering a "revenue problem", some analysts and commentators assert that Australia must aggressively clamp down on concessional taxes for superannuation.
The way in which superannuation is treated by tax authorities is becoming exceedingly complex, certainly from the perspective of the average Australian who, unless in exceptional circumstances, cannot access their super until retirement age.
But in general terms, taxes on superannuation are imposed, first, on pre-tax income contributed to a fund, second, on income generated from assets held in the fund, and, third, on income withdrawn from the fund.
Many Western countries tend to exempt the contributions and fund's investment income from taxation, but impose tax on the payouts received by the retiree and, often, at a tax rate equivalent to a full-time worker's marginal income tax rate.
What Australia does is fairly distinctive, in that we tax super fund contributions at a rate of 15 per cent (instead of an employee's marginal income tax rate), the earnings of super funds are taxed at 15 per cent, and people aged 60 or more are exempt from tax on payouts from the previously taxed contributions and accumulations.
Leaving aside issues such as contribution ceilings and income thresholds for tax concessions, and the tax treatment of early retirees, Australia maintains what is known as a TTE super tax arrangement, in which contributions and earnings are taxed but payouts exempt, whilst other countries apply an EET regime.
Those favouring easier revenue access for government are, first and foremost, complaining about revenue foregone because of superannuation's tax concessional treatment, using estimates from the Commonwealth Treasury's Tax Expenditures Statement as their lightning rod.
The latest Treasury statement shows the total revenue foregone from super tax concessions total $32 billion this financial year, with the major items being tax concessions upon contributions ($16 billion) and upon fund earnings ($13 billion).
It is suggested that the Commonwealth government can readily claw back super tax concessions, which are comparable to the amount of expenditures allocated to the age pension, to help plug the current budget deficit gap.
Another point of criticism directed at Australia's superannuation tax concessions are that they disproportionately favour wealthier individuals, compared with those on lower incomes and those who take more extensive spells from the workforce.
The Financial System Inquiry report, released late last year, indicated the majority of concessions accrue to the top 20 per cent of income earners.
Reflecting the increasing sensitivities toward the distribution of income and wealth in Australia evident in the public policy debate, the tax concessional treatment of superannuation is seen in some quarters, with evidently a large dose of rhetorical flourish, as a "rort" for one-percenter types.
But these criticisms of the regime, or at least the policy principles underpinning superannuation tax concessions, should not go unchallenged.
The $32 billion revenue foregone estimate associated with superannuation tax concessions appear to be at the high end of the scale, conditioned by assumptions conveying the impression of a monstrous revenue "black hole" which, in fact, may not be so severe.
When Treasury considered the removal of tax concessions would generate a behavioural response, via reduced superannuation contributions whereby voluntary contributions are directed elsewhere, that assumption reduced contributions and earnings tax concessions estimates to $27 billion.
The Treasury typically uses an income tax benchmark to estimate the cost of superannuation tax concessions, assuming contributions are taxed like any other form of income, earnings are taxed like any other form of investment, and benefits are untaxed.
But when applying an alternative tax benchmark in its Tax Expenditures Statement for the last financial year, which assumed taxed contributions at marginal rates but left earnings and benefits untaxed, Treasury estimated a very substantially lower value for the tax concessions.
It is certainly the case that higher income earners with greater income and wealth holdings are able to invest greater amounts in tax-advantaged superannuation vehicles, but given our "entangled political economy" of fiscal and regulatory interventions by government, often running at cross purposes, it is becoming difficult to credibly look at any one policy area in isolation.
Some may claim the flat tax concessional tax structure applied to superannuation might relatively advantage the wealthy, but overall Australia has a very highly progressive tax system and, despite intense political pressures to loosen targeting, a fairly robust means-testing regime for accessing social services.
The top 1 per cent of income earners, for instance, pay nearly 20 per cent of all income tax revenue, thus it should not be all that surprising that governments seem more willing to bribe those who already contribute much to the tax system with more of their own money through the super tax concessional back door.
With much of the critical focus on government policies focused more keenly on their equity implications at this time, it appears that many railing for a heavier tax load upon superannuants have overlooked the policy rationale for not taxing superannuation at the high marginal tax rates typically paid by salaried workers.
Since the Keating government, the Commonwealth has forced people to forgo higher salaries for the sake of contributing to super funds that cannot be accessed until later in life.
Given the inconveniences of this financial policy paternalism, not to mention endless superannuation policy tinkering, tax biases against long-run savings patterns, and the existence of welfare programs, there are disincentives for individuals to save even more for retirement, which would seem to justify at least some sort of concessional treatment for super.
The rates of tax applicable to super contributions and earnings serve as a role model for the lower, flatter general income tax regime that Australia should aspire to, but, in the final analysis, the concessions would not garner such political discord if we abandoned compulsory superannuation altogether.
To do so would likely increase take-home pay for workers, ease financial repression experienced by lower income earners, reduce skewness in asset holdings such as housing, help deflate a boated financial sector, and treat Australians as adults who can confidently come to their own trade-offs between consumption and savings.
Ending compulsory superannuation would be a much more durable reform than a shameless revenue grab aimed at tax-captive superannuants.
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