The superannuation snatchers
The Australian, 6 October 2015
Readers of The Age were greeted with an improbable splash on Friday. Malcolm Turnbull, they were told, was declaring war on the wealthy.
The new Prime Minister had “reached in-principle agreement with unions, employers and welfare organisations to reduce a raft of tax breaks, including negative gearing and superannuation concessions, that primarily beneﬁt the rich”.
It was an example of what comedian Steven Colbert calls “truthiness”, a story lacking factual support that the writer desperately wants to be true.
In April, a story under the same byline claimed “the prospect of a breakthrough on the contentious tax treatment of superannuation earnings has moved a step closer”. His evidence? Labor’s Chris Bowen had “offered support for a crackdown on the super incomes of the super rich”. Oddly, Tony Abbott didn’t come to the party on that one. The writer lives in hope that Malcolm Turnbull will.
The notion that Liberal Party parliamentarians entirely lost their senses last month and elected a Fabian socialist as their leader is gaining ground in some sections of the press gallery. The premise behind The Age’s story was absurd. If Turnbull really wants to soak the rich, why would he have to ask the unions for permission?
The National Reform Summit delegates who briefed the Prime Minister last week agreed that the retirement income system was not what we were promised. Workers have been forced to save a chunk of their wages for more than 20 years, yet seven out of 10 will rely on welfare, in part or in full, to see them through retirement.
We could squeeze the rich until the pips squeak but it would do nothing to help the poor. Raising taxes for high earners will not help a single retiree cross the threshold from handouts to self-sufficiency. Superannuation taxation is, at best, of peripheral concern.
Yet superannuation, like disability insurance and education funding, has become a subject about which it is impossible to have a temperate conversation. Ironically, the debate has become hostage to the public policy absolutism that the National Reform Summit was designed to avoid.
The fear that the unscrupulous rich are rorting their super has developed into full-blown moral panic. The imagined inequities of the system are discussed ad nauseam at polite dinner parties, overtaking public subsidies for private education as the wrong that must be righted. An imagined evil lurks within the superannuation system and the sophisticates are profoundly disturbed. They are overwhelmed by the impulse to put things right.
As sociologist Howard S. Becker wrote in 1964, the moral crusader “feels that nothing can be right in the world until rules are made to correct it… He operates with an absolute ethic; what he sees is truly and totally evil with no qualification. Any means is justified to do away with it.”
Crusaders distort the language of debate. They talk of the tax rate on long-held savings as a “concession” when in fact it is nothing of the kind. No other OECD country taxes such savings as ordinary income; were they to do so, the effective tax rate would be extraordinarily high, as Henry Ergas has explained in detail in these pages.
The size of the supposed problem is overstated; the assumed benefits from the proposed solution are over-estimated; the level of support for change is exaggerated.
“Two-thirds of older Australians want the government to curb overly generous superannuation tax concessions for the wealthy,” The Age’s Mark Kenny claimed in April. What was his evidence for this startling claim? A survey by Your Life Choicesmagazine “using the online polling tool SurveyMonkey”. Hardly authoritative.
The Labor Party, devoid of any serious economic policy intent, joins crusades such as this to justify its contention that it is the party of compassion. It aims for hearts rather than minds by siding with the self-professed angels in morally charged debates, such as carbon pricing, refugees and amendments to the marriage act.
Jonah Goldberg writes in The Tyranny of Cliches: “Progressive’’ has become a euphemism for “all good things.” To oppose a progressive argument shows that “you just don’t get it” or, worse, that “you are part of the problem”.
Experienced leaders learn to negotiate popular progressive causes, aware of the skewed priorities, subprime policy and unintended consequences that usually follow. Moral crusaders invariably advocate increased regulation, rather than less. They seldom call for governments to be less intrusive or for less money to be taken in taxes.
For a Labor Party that still refuses to acknowledge the debt burden it created, attacks on wealthy superannuation savers provide a tempting diversion from discussing fiscal repair.
On May 11, opposition Treasury spokesman Chris Bowen told the ABC Insiders that the government “had thrown up the white flag on the deficit”. Labor, on the other hand, had laid out its package for taxing earnings on super. “They are fully costed,” said Bowen, “which will make a substantial contribution to the budget over the next decade.”
ABC TV’s Chris Uhlmann was rude enough to correct him: “A small contribution.”
“Well, a contribution which is important,” insisted Bowen. “More than $20 billion over the next decade.”
Sadly, $2bn a year across a decade won’t come close to paying the interest on the national debt, even if one accepts those figures, which even Bowen doesn’t. Three weeks earlier, Bowen had announced 10-year savings of $14.3 billion in a package he said was “responsible, fair and final”.
Bowen argues that 38 per cent of the imagined “concessions” are claimed by the wealthiest 10 per cent of the population. Yet that is not entirely unreasonable, since that same cohort pays 45 per cent of income tax collected.
Labor should take stock before its trashes its economic credentials completely. Closing imagined loopholes is just a sly excuse for tax hikes. And as Labor leader Bill Shorten made a point of telling the August summit, “increasing tax is not tax reform”.