Let’s take an atypical, particularly well-remunerated, rich and employed person who is no better than he ought to be. This person earns such an enormous salary that he is forced to put away the maximum allowed concessionally-taxed superannuation contribution of $25,000 per year for 40 years. What a bastard, you might enviously mutter under your breath, as Treasury economists do.
As an aside, a concession for this purpose is defined by the aforesaid economists as the government taking only 15% of earnings, instead of a much greater proportion, which is its solemn due.
Remember in your deepest heart how much others deserve what you’ve earned. Yes, you might have sweated to get that education and training, and worked each day for forty years dragging yourself out of bed at 6 am and getting home at 7 pm. But you know full well that you didn’t earn that money. Admit it! It was all the community’s and the government’s doing. You should be grateful that you’re left with anything at all.
Suppose our atypical rich person managed to earn a real after-tax return of 3% on his superannuation investments over the whole of 40 years (which would be extremely gratifying). He would end up with $1.65 million in today’s money. This is a goodly sum, enough to do our rich person out of a state pension and the benefits thereto attached, but it is hardly enough to keep him or her in extravagant clover during retirement.
The fact is that the present government has so emasculated superannuation that there will be no pots of gold to tax in the future. Aside from some ex-politicians, like Nicola Roxon, who got on the gravy train before Mark Latham queered the pitch and heavied John Howard into putting politicians on the same self-reliant meagre allowance as the rest of us; very few people, now in their middle years, will be able to salt away enough to give them anything but a modest level of income in their retirement.
So what was the fuss about? What excited the confiscatory instincts of Treasury’s socialist economists and Wayne Swan? There were two things in no particular order.
One is that the compulsory levy (due to rise incrementally to 12%, from 9%) means that high-income earners will increasingly be compelled to put the maximum $25,000, or close to, into super. They make an extremely tempting target. They can’t wriggle their way out of paying it. They are rich. They are few in numbers of votes. They predominantly vote conservative.
They represent the most desirable prey for any Labor government and their left-leaning public servant advisers. The tax rate on super contributions of ‘the rich’ was hiked in the last budget to 30 per cent for those earning more than $300,000. Expect further tightening of the so-called concessional treatment for the rich. Howard and Costello’s 1996 superannuation surcharge ‘betrayal’ (read our lips no new taxes we’ll call it a surcharge) might provide just the guide for a Springsteen-inspired Labor Treasurer.
The other thing was the allure of sizeable (retirement and pre-retirement) superannuation nest eggs, sheltered from the tax man, and built during a period when superannuation contribution caps were much more generous. Here is where morality clashed with the avarice of spendthrift government. No prizes for guessing the winner.
People made voluntary additional contribution to superannuation, paid whatever was the tax at the time, for the promised benefit of a pension freed from tax. To impose taxes now on such pensions would effectively be retrospective taxation. It would be immoral. Of course that didn’t faze Swan and Gillard. They have looked immorality in the face (e.g., the carbon tax about-face) and lived to tell the tale. Fortunately, the risk of losing even more electoral popularity had them backing off.
But make no mistake, morality didn’t come into play and it won’t. They’re bloodthirsty spending addicts robbed of their surplus and desperate for another infusion of revenue before the sun finally and figuratively comes up (looking a bit like Tony Abbott, vampire slayer, maybe). In the interim, look out you rich and would-be-rich superannuants, and the not so rich. You are their prey du jour.
Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics