Sep 3, 2014

End of the mining tax guarantees more tax for the poor

The government's delay in lifting compulsory super contributions means low and middle income earners will pay more tax.

Bernard Keane — Politics editor

Bernard Keane

Politics editor

For months the government has been under fire for trying to address the "fiscal emergency" solely by spending cuts aimed at low- and middle-income earners, while tens of billions in tax breaks flowing disproportionately to high-income earners via the superannuation system have been untouched. Now, finally, the government has moved to reduce the cost of super tax breaks flowing to ... oops, well, low- and middle-income earners. Some of us predicted that when the Coalition decided to "support" Labor's increase in superannuation from 9% to 12% in November 2011, the actual result might be more like John Howard and Peter Costello's "support" for Paul Keating's planned increase in superannuation to 15% in 1996 -- it would simply be abandoned on fiscal grounds once the Coalition had got elected. So it has proved, with Finance Minister Mathias Cormann yesterday announcing that as part of the deal to pass the abolition of the mining tax the increase in compulsory superannuation from 9% to 12% would be further delayed beyond the already-delayed timetable the Coalition promised before the election. The cost of the deal with Clive Palmer to abolish the mining tax -- which includes preserving for a couple of years the schoolkids' bonus, the low-income support bonus and the low-income super contribution -- will leave the budget $6.5 billion shy of the government's original expectations. The delay is intended to recoup that cost over the medium term. The announcement would have been sweet for Cormann, because as Phil Coorey reported at the time, he was one of the shadow ministers, along with Andrew Robb, who were rolled on the 2011 decision, after Cormann had publicly announced the increase would be dumped as part of the abolition of the mining tax. The limit of 12% will now not be reached until 2025. Don't bet on it ever getting there if the Coalition remains in government. The delay saves the government money because redirecting remuneration into super costs the government tax revenue: super contributions are taxed at a lower rate than income. Treasurer Joe Hockey has sought to portray the delay as a win for workers, who'll have more money in hand over the period to 2025 (because pay rises that would otherwise have gone into super will be paid as normal income).
"Hockey is right to portray the delay as giving workers more cash in hand. What he won't tell them is that it means they'll also pay more tax in order to fund tax cuts for the government's mining industry mates."
Attitudes toward compulsory super have undergone something of a change in public debate in recent years. The vast gouging and self-interest that characterises the retail superannuation industry has been brought to public awareness, not withstanding the best efforts of the industry regulator and the government. The delay announced yesterday occasioned rare unanimity in the super sector, with all parts of the industry lamenting what will amount to a significant reduction in super contributions -- estimated to be between $40 billion and $60 billion, The Australian Financial Review's expert Sally Patten reported today. But that's now coupled with an awareness that that represents a big loss for particularly the retail sector, run by the banking cartel and AMP, which creams off fees that are among the highest in the world and operates conflicted remuneration models that serve the interests of fund owners and financial planners, rather than consumers. Hockey's implication that workers are better off having that money in hand rather than paying it into super funds suddenly seems more sensible, given the Coalition has once again allowed gouging, secret commissions and conflicted remuneration by gutting FOFA. The Coalition's view of super remains deeply conflicted and confused. What was, in the Keating years, a kind of old establishment sense of affront that ordinary workers would be allowed the privilege of superannuation has morphed into a toxic mixture: one part mild libertarian resentment of compulsion, one part vague understanding that our pool of super funds, soon to be $2 trillion, is an important positive for the Australian economy, and two parts fierce resentment of the industry super sector (portrayed by the Coalition as run by "venal" and "corrupt" union officials but in fact overseen by representatives of both employer groups and unions) and the way it consistently and strongly outperforms the private sector funds. Add to that mix the Coalition's eagerness to look after the financial planning industry and the big banks, for which the gutting of FOFA was a key goal in the Coalition's return to government. But Hockey and Cormann's successors in the 2020s, whether Labor, Liberal or whoever, won't look back on the decision to further delay 12% fondly, given it will put further pressure on their budgets via higher pension payments. Worse, it further reinforces the growing unfairness of the super tax system. The low-income super contribution has been retained for a lousy two additional years, while the delay in the shift to 12%, which mainly affects low- and middle-income earners, means the overall super tax system is further skewed toward high-income earners who can afford to pump more of their income into lower-taxed super contributions, then enjoy more lower-tax accumulation of super earnings, followed by greater low-tax draw-down in retirement. Hockey is right to portray the delay as giving workers more cash in hand. What he won't tell them is that it means they'll also pay more tax in order to fund tax cuts for the government's mining industry mates. And all the while, high-income earners continue to coin it via the super system -- thereby deepening the so-called "fiscal emergency."

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14 thoughts on “End of the mining tax guarantees more tax for the poor

  1. Mick Handcock

    This is absolutely disgusting future wrecking behaviour dressed up as fiscal conservative discipline. A disgracerul display favoring the mining sector over the larger majority these dolts are supposed to be governing for. The jury is no longer out, the results are in, any lower to middle income bracket voter who voted LNP or PUP or anyone who supported this debacle is as thick as Cormann, Hockey and Abbott who are demonstrably thicker than your average politician.

  2. zut alors

    Another nail in the coffin of Hockey’s professional CV.

  3. Mali Edon

    Delaying the increase in compulsory superannuation will mean more money in the hand of the employer. Whether the employer will be obliged by labour shortages to give more to the employee is highly debatable.

    When does this government govern for all Australians?

  4. GF50

    Nailed it Bernard! How dare you be so rational, no team Australia membership for you! You are supposed to suspend logic. Not barracking hard enough, screaming slogans for the “team”. That’s where a good education in critical analysis leaves you! Off the team.

  5. Honest Johnny

    Its not only workers who will pay more tax, small business will as well, with the repeal of the associated measures. These measures were set up during the GFC to encourage ongoing investment and employment in small business (kind of like ‘Direct Action’). Conditions have hardly improved to the extent that they should be removed in order to help mining companies. Anyone or any entity who is not wealthy or a mining company lost out yesterday.

  6. Yclept

    Spot on Mali (#3, it will just leave more in the pockets of employers as the 457s will keep up an over supply of workers which keeps wages down. Racing to the bottom as fast as we can!

  7. leon knight

    But who read the recent Saturday Paper report into the great electricity grid rip-off instigated by that treasurer many Australians consider to be our best in recent memory (albeit well behind “don’t know”:
    Or the Guardian article on where this relentless growth of big business is likely to take us:
    Some sobering reading that screams out “get rid of these right wing morons and resume proper progressive government”

  8. graybul

    The ultimate Abbott Government objective . . Serfdom!!

  9. Dogs breakfast

    Forgetting all the other reasons why this is bad policy, the loss of the superannuation offset for lower income workers is a terrible outcome, and exactly the wrong direction that the government needs to go.

    While the high income earners get huge tax breaks on their super contributions, for those under $18,200, their tax free income is taxed at 15% on the way in to super. Tax free income replaced by taxable income. What a bargain!

    So the policy to nullify this ludicrous situation is abandoned, but the gaping problem of tax minimisation through superannuation is left untouched, (and as far as I can tell, is never spoken of, like the bastard child that it is)

    Superannuation can only be fairly taxed when everyone gets the same concession, regardless of income, it can be done.

    Now we are back to the difference being a 30% tax discount for the very top earners, and a 15% surcharge for the very lowest wage earners.

    Class warfare? Us??

  10. MJPC

    How long till we start hearing the bleating from the big end of mining that, despite their new found wealth, they need industrial reform as Australian miners are too well paid.
    Uncle Joe is a dolt!

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