It didn’t take long — by 9.30 this morning (half an hour earlier in Adelaide) Christopher Pyne had launched the first Coalition attack on Labor’s proposals to adjust superannuation concessions enjoyed by wealthy retirees and high-income earners, portraying them as an attack on self-funded retirees.
Cries of “class warfare” from the Coalition and its media cheerleaders can’t be too far behind. That’s what we heard in 2011 when Labor tried to curtail middle-class welfare via curbs on transfer payments — curbs eventually dwarfed by the Coalition’s own cuts in the 2014 budget.
Strangely, there wasn’t a peep from News Corp outlets when that happened. But expect Rupert’s attack chihauahaus to launch into Labor for this proposal.
The proposal has two parts. Firstly, retirees earning over $75,000 a year — meaning they have a super balance of at least $1.5 million — will pay 15% on earnings over $75,000 — still well below the average tax rate of 19% and the same rate as applies during accumulation.
The second part is to lower the High Income Superannuation Contribution threshold — the point at which high income earners pay 30% tax on their super contributions rather than 15% — from $300,000 to $250,000.
That means people earning over $250,000 will have to pay 30% tax on their super contributions, instead of the 45% tax they would pay if they took that super as income. Together, they would see around $14.3 billion in lost tax revenue returned to the budget over the decade from 2016.
That sounds impressive — except, last year’s budget estimated we’d lose $91 billion in revenue from concessional taxation of superannuation entity earnings and $80 billion on concessional taxation of employer contributions over the next four years alone. Based on Treasury’s estimate of the revenue gain from addressing those concessions, that’s over $150 billion in revenue.
Given Labor has said that will be the end of its changes to super before the election, it qualifies as a good start but no more — and certainly not the savage attack on retirees that the Coalition will try to portray it as.
This is Labor’s second go at super tax reform — Wayne Swan and Bill Shorten ushered in changes that would increase tax on retiree incomes over $100,000 per annum in 2013, but Hockey abandoned them later that year, costing the supposedly cash-strapped Treasurer $3.2 billion over four years.
No one is suggesting we dump super tax concessions entirely, or even most of them. They’re designed to encourage Australians to save for their retirements and reduce the call on transfer payments in decades to come.
But as everyone from Australian Council of Social Service and the Australia Institute to David Murray in his Financial Services Inquiry and the Association of Superannuation Funds of Australia have pointed out, the concessions flow disproportionately to the wealthy, who use concessions to avoid tax.
Such incentives will inevitably favour those on higher incomes who can afford to take advantage of concessional tax treatments, but our system is now seriously out of whack. Someone with $2 million in super doesn’t need any incentive to save more in order to avoid relying on the pension, yet they are the ones who are paying a much lower tax rate than lower income earners.
Fixing super tax concessions is about the closest thing you’ll get to a consensus on tax reform. Even Joe Hockey, at the end of last month, said he’d welcome bipartisanship on fixing super tax breaks.
But, rather in the manner of a toddler whose misbehaviour distracts nearby adults from doing something useful, Tony Abbott promptly intervened and attacked Labor for planning to “increase taxes on superannuation” and ruled out any changes, drawing a well-organised chorus of praise from News Corp tabloids.
Perhaps the Daily Telegraph’s journalists and editors think western Sydney — which few of them live in — is full of people with $2 million in super, rather than working Australians who are subsidising rich retirees in the eastern suburbs.
As it has on multinational tax avoidance and financial planning, the supposedly policy-less Labor has stolen a march on the Coalition, which vaguely knows that the community has left it behind on these issues, but appears at a loss as to what to do about it.
Most voters want high-income earners to pay more tax, like they want multinational tax dodgers to pay more tax and like they want proper action to improve the quality of financial advice.
With what looks increasingly like policy paralysis on the part of the Coalition, the government looks isolated and out of touch. And all the shrieking about class warfare and attacks by News Corp won’t fix its revenue problems.