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Apr 3, 2013

Keane: super is upper-class welfare and a swindle

It's predictable that media outlets aimed at the wealthy would defend the current superannuation tax rorts, which see the poor boost the retirement savings of the very rich. So why is Simon Crean defending it?

Australia’s superannuation system has substantial benefits: it will ensure many Australians have more comfortable and dignified retirements than they otherwise would have; it will relieve pressure on future budgets as Australia’s population ages; and it provides a truly massive pool of national savings that has already demonstrated its economic value in the financial crisis.

It’s also a rort, a giant swindle in which all taxpayers contribute generously to high-income earners and most generously to the richest. In 2012, Treasury forecast that this year, the top 5% of income earners would take 20% of tax concessions for superannuation contributions. The top 1% would garner 5.3%.

And as the Australia Institute points out, this wild skewing of the superannuation system in favour of high-income earners serves no policy purpose. The top 10% of income earners, who this year are expected to enjoy nearly one-third of all superannuation tax concessions, are unlikely to ever be eligible for the age pension. We taxpayers are simply pumping up their retirement incomes without any offsetting advantages for future budgets.

But the system is not so good for the poor. The bottom 10% of income earners, in which women are overrepresented, will get no tax benefit whatsoever from superannuation this year. Indeed, the bottom half of all income earners will get just 18% of tax concessions from our superannuation system. They are the bulk of future pension recipients, where there is the greatest potential benefit for future budgets from a strong retirement savings system.

The superannuation system isn’t just middle-class welfare. It’s upper-class welfare.

The government tried to mildly address this skewing last year by introducing a “low income superannuation contribution offset”, which the Coalition wants to eliminate, and halving the tax concession for people on incomes over $300,000, so they’ll pay 30% tax instead of 15% — still a generous handout from taxpayers.

The idea that further “tinkering” would reduce the incentive for people to put money into super misses the point that most of us only contribute what we’re compelled to. Those who contribute more do so because of the generous tax breaks; the de-incentivisation argument will only make sense if we reach the point where contributions to super are treated like normal income — and we’re a very, very long way from that.

And this system doesn’t involve a lazy few billion like, for example, the private health insurance rebate, or giving Family Tax Benefits to middle-income earners.

The Australia Institute provides some nice context for just how expensive our superannuation system is compared with other large expenditure items:

Which brings us to the question of why various people are campaigning against the government’s efforts.

The Financial Review has gone feral, running story after story criticising any changes that might reduce the benefit to high-income earners (Laura Tingle providing a solitary voice of reason). That’s understandable. The Fin’s readership is composed mainly of middle and high-income earners, so The Fin is merely going in to bat for its own people.

And The Australian’s stable of right-wingers have been hopping into Labor over the issue, to the extent of having Henry Ergas  –yes, Henry “an inability to express an objective expert opinion upon which reliance can be placed” Ergas — describe the possible super changes in a video as “frightening”.

But in both cases such an approach is understandable; The AFR and The Oz are merely trying to stay relevant to their readerships. And in both cases, their readerships, being older, maler and richer than the other 99% of the population, are vastly more interested in superannuation than most Australians, who are relentlessly, unstoppably, remorselessly disengaged from it.

For Labor figures opposing any changes, you have to wonder at the sheer depth of bitterness that is driving them, and in particular Simon Crean, a man who is not taking his self-destruction well at all. There’s a long history of Labor figures using unusual approaches to policy as weapons in leadership battles. None other than proud economical rationalist Paul Keating himself, in exile after his first leadership challenge, attacked Brian Howe over Medicare co-payments and Bob Hawke over reforms to federalism — although the latter was more clearly within Labor’s centralist tradition.

But let’s be clear about what Crean, former Australian Council of Trade Unions leader and self-appointed wearer of the mantle of the Hawke-Keating era, wants to do: preserve and protect a system in which those of us on ordinary incomes generously contribute to the retirement incomes of the top 10% of Australians, for no public policy benefit of any kind.

Crean’s stout, whatever-it-takes defence of the rich and very rich is remarkable to behold, even for a bloke as plainly enraged at his party’s leadership as he is.

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70 thoughts on “Keane: super is upper-class welfare and a swindle

  1. Achmed

    The right wing media will focus on the proposed yet unknown changes proposed by Labor. They will ignore Abbott’s proposal to attack those least able to afford a reduction in super by removing the $500 co-contribution.

  2. wayne robinson

    Ah, Henry Ergas! I was wondering what had happened to him. His column in the ‘Australian’ was the reason I’d canceled my home delivery subscription to ‘the Australian’. Twice. The second time for good. Good articles in a newspaper don’t guarantee continuing readership. But bad irrational articles almost always guarantee that they’ll lose readers. Usually for good.

  3. Dogs breakfast

    Of course it’s a rort. It wasn’t that long ago that some of Oz’s most respectable economic commentators, I could be wrong but I’m thinking Nicholas Gruen et al, had calculated that it would be cheaper to just pay people who are currently earning in the top 10% a life pension of some $78k per annum.

    All this media speculation about changes that have not been created, announced, or even mooted. Where were they when Peter Costello made what one commentator (perhaps Chris Richardson?) called ‘probably the worst budget decision made in the last quarter century’, when he legislated huge tax free benefits for super pensions just at the time that the baby-boomers were about to hit the retirement train.

    The MSM, as a group, are economically inept. Clawing back the mistakes that Costello made in generous superannuation changes (when he was rolling in money he did nothing to create) will take a generation.

    Again, the baby boomers will be the prime beneficiaries, and the loudest whingers. Plus ca change.

    And Tony Abbott remains motionless, with a policy that rips off the lowest earners in the community.

    Thanks MSM.

  4. GF50

    Thanks Bernard agree in every aspect of your clear concise and factual article. Should be compulsory reading for all to enable rational community debate, against the “white noise” fear, lies and propaganda coverage of the vested interests.

  5. grubbidok

    Labor has raised the tax free-threshold from $6k to $18k and introduced a low-income tax offset for superannuation, as well as being lower taxing government than Howard ever was, and yet is still accused of being tax heavy.

    Abbott wants to take away tax concessions for low-income, keep the changes Labor want to make to high income and impose a number of taxes as well (e.g. company tax for maternity leave) and is seen as reducing taxes.

    Just imagine if this country had a MSM that actually knew their a**e from their elbow and actually did their jobs. Thank you Bernard for showing how it’s done.

  6. Achmed

    Lets blame the baby boomers….I’m the the baby boomer parents/grandparents would feel real good about the lack of gratitude.
    As a baby boomer I can only say I gave/give my Gen Y and Gen X kids/grandkids access to travel/education etc way beyond what my parents could have given me

  7. Bernie Scott

    I would have thought the top marginal tax rate for people on higher incomes already provided government funds sufficient for it to not interfere further with tax on superannuation entitlements already contributed.

    Another grab would be double dipping wouldn’t it? And takes away the option for the contributor to decide what to do at the time of their making their investment decision, not 10-20 years after.

    Or are we just in a “despise-the-wealthy” mode this week? It is not a “rort” if it available to everyone. Love a class war, do we? Have a real think about it – would you like to have your savings ripped off years after you had made your decision about how to provide for the future?

    Yes? then you must be a rent seeker, bound by reliance on state welfare. I have foregone other indulgences to provide for my future, and a very modest one it is too due to my circumstances. Any break I can get to do so is important to me. Yes I am a boomer (sorry Mr Breakfast), and no, I am not wealthy, but I did take advantage of Howard’s concessions to enable me to boost my retirement savings.

    What does the Figure 2 graph look like in 2020 and 2025 Bernard, when the boomers have exited the system?

    And Bernard, if you are relying on your compulsory contributions “like most of us”, then you might want to reconsider your retirement financial strategy. It is for that reason I took advantage of Howards concessions.

    I make no apology for opposing a grab on ANYONES savings, even if they aren’t mine (well, apart from Saddam Hussein and his ilk)

  8. mikehilliard

    Abbott & Co will let the change go through, crap on labor about it backed by their media luv buddies and pocket the windfall if/when in power. Combet was right, the countries biggest B S artist. Come on Labor – stick it to them!

  9. Daniel Maurice

    Bernard, do you get that the reason that such a small proportion of the bottom 10% of taxpayers get a small proportion of the superannuation taxation concessions because they pay so little tax in the first place — if you don’t pay much tax then of course you can’t get much benefit from ANY tax concession.

    Actually when you factor in the (tax-free) government payments and benefits that go to the poorest 10% of the population they pay a tiny amount of their total income (salary + government payments) in tax. Consequently they are not “subsidising” anyone with their tax — they collect far more from the tax system than they contribute.

    Equally the reason that the top 5% or 15% of taxpayers get most of the benefits of concessional super is because they pay a greatly disproportionate amount of the total tax take compared to the bottom 10%. It’s the natural and unavoidable consequence of a progressive tax system.

    Want to make the problem go away? Easy! Just make sure everyone pays the same rate of tax on every dollar they earn or receive in government hand-outs.

    Finally let’s drop this nonsense claim from the ATO that the government revenue forgone in super tax concessions to the top 5% or 10% runs into the tens of billions. These figures are based on the self-evidently false assumption that if the tax on super was increased this group of tax-payers would just happily behave as before and keep putting the same level of money into super. Obviously that wouldn’t happen. They will simply switch to other tax-minimisation strategies like negative gearing, buying bigger family homes (free of capital gains), fully franked shares, investment bonds etc which are also likely to have unintended harmful impacts on the economy.

    Yes, there is some forgone tax revenue from super concessions but the amount “recoverable” is nowhere near as big as the headline ATO numbers suggest. By the way is this the same ATO get its estimates for the mining tax, the budget surplus / deficit etc hopelessly and consistently wrong?

  10. michael in melbourne

    The real problem is that Labor is not leading the debate on this.

    As B Keane points out, the rationale for making an adjustment that addresses the inequity in the system is compelling.

    However, no-one on the labor side has made a fact based argument that sets out the current position, quantifies the inequity and proposes a policy solution (or if they have, I’ve not heard it or read it).

    Instead, the most I have heard is a weird debate about fabulously wealthy, struggling coal miners on $150k pa and the poor marginalised folk in the western suburbs of Sydney struggling on earnings of $250k pa.

    By failing to lead the debate and mount a cogent argument for change, Labor open themselves to the kicking they receive from vested interests, media and their own disgruntled backbenchers.

    As much as I hate to say it, this failure to learn from past mistakes, the inability to lead the case for change, is evidence that they are not worthy of holding government.

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