Labor’s world of super hurt yields … not that much

After all the angst over superannuation, Labor has produced some minor changes targeted at the very wealthy that will marginally address the inequity of current tax arrangements but do little to curb the runaway cost of superannuation to the budget.

The changes – announced by Treasurer Wayne Swan and Financial Services Minister Bill Shorten after extended criticism from the national newspapers and the former Rudd camp on the backbench – will save the government around $900 million over the next four years.

The changes will, the government says, save about $10 billion over the next decade (on top of last year’s tightening of tax concessions on super contributions of very high income earners).

Over that same period, overall super tax concessions are likely to cost the budget around $350-400 billion. The key changes are:

  • Superannuation earnings over $100,000 a year will be taxed at 15%, rather than being tax free – a change affecting those with over $2 million in superannuation assets, or about 16,000 people, according to government estimates. That will yield $350 million over the forward estimates.
  • Changes to the deeming rules under the pension income test that currently differentiate superannuation-based and other sources of income, saving $158 million over the forward estimates.
  • Changes to the higher concessional contributions cap rules for those nearing retirement, which will save $365 million over the forward estimates.
  • An extension of the “lost super” rules introduced in MYEFO last year that will save a further $123 million over the forward estimates.
  • The application of the >$100,000 earnings reform to defined benefit funds, making sure politicians and older generations of public servants who remain in defined benefit funds will also be taxed for earnings above $100,000.
  • The changes will slightly rebalance the inequity of current super arrangements that see the very highest earners benefitting the most from superannuation tax concessions, although the new arrangements will, overall, continue to mean taxpayers will contribute generously to the retirement of the very well-off.

    And superannuation tax concessions will continue to be, easily, the biggest single expenditure item in the federal budget, even after the government has shifted $10 billion back into consolidated revenue over a decade.

    Moreover, these reforms are entirely aspirational and may well never happen: it’s unlikely there is enough time to legislate the reforms before the election, meaning an Abbott government, if elected, would determine whether they ultimately go ahead (unpassed bills lapse with the calling of an election, necessitating reintroduction).

    For such a minor, though sensible, reform, the government has again had to endure a period of perceived crisis. This has partly been confected by the national newspapers running a campaign to protect their high-income readers from super changes, and exploited by aggrieved Rudd supporters like Simon Crean who are eager to attack the government at every opportunity.

    But yet again, the government has failed to do the simple stuff – explain what the problem was to voters first, before talking about solutions.

    The Coalition, naturally, readily exploited this failing, although its use of rhetoric about “class war” was only borrowed from Labor’s own internal critics.

    If Labor is singularly inept at the politicking that is part and parcel of basic reform, there remain more serious problems on the Coalition side.

    In responding to the announcement, Tony Abbott declared “it shows that this is a government which is prepared to tax the people to fund its own spending”. Quite how Abbott thinks governments fund their spending apart from taxing people isn’t clear.

    He then claimed there were “shades of Cyprus” about it. Perhaps Abbott seriously thinks slightly reducing the over-generous tax concessions on earnings from retirement savings is equivalent to an arbitrary extra-national raid on actual savings to fund a bank bailout. Hopefully he understands that it is not.

    That this man is likely to be prime minister on September 15 is deeply worrying from an economic perspective. For the good of all of us, we can only hope Joe Hockey makes sure Abbott is never allowed near actual economic decision-making.

    This article first appeared on Crikey.

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