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It surely comes with a large warning sign for the Government if the Greens are onside. Allying with the delusional, bypassing principle, and losing votes for what amounts to no more than a hill of beans is a bad deal however it is cut. In the scheme of things, the anticipated savings from the new pension arrangements of $2.4 billion over the budget forward estimates (three years) is small beer and comes with a big price tag.
A foundational principle, on which those of good will and common sense should be able to agree, is that taxation and welfare provisions should not conspire to make a higher income earner worse off than a lower income earner, when both are otherwise similarly positioned. Equally, pension provisions should not make a retiree with more assets poorer than one with less, when both are otherwise similarly positioned. But the unholy and unconscionable alliance between the Government and the Greens will do just that.
To bring it home, for those who might be confused by the support of most commentators for the new pension tapering arrangement, an example is salutary.
One couple has earned throughout their forty years of marriage exactly the same income as another who live across the street in an equally-valued house. However, the first-mentioned couple took less expensive annual holidays, drove cheaper cars, generally watched their expenditure and ended up with $823,000 in financial assets, on which they earn 4%. For their frugal ways they will soon get no pension.
The other couple spent big, relatively speaking, on lavish holidays and fancy cars and ended up with only $375,000, on which they also earn 4%. For their spendthrift ways they will get a full pension and end up materially better off than their frugal neighbours. In fact, they will get around $49,000 per year compared with the $33,000 (plus any Salvation Army hot dinners) on which their frugal neighbours will have to scrimp by.
My advice to the frugal couple would be to start spending extravagantly now. It is a unique opportunity when spending will bring forth increased income. It is Magic Pudding time: the more you eats the more you gets.
And, purely as a by-the-way, I would think that a solid majority of the 327,000 older people who will lose out are Liberal voters. Only complete dimwits — with no sense of principle — could ever have conceived this policy. And, as for its supporters in the media and elsewhere, I will be kind. Maybe they haven’t thought it through.
I’ve been waiting for you to write something about this!! I’m going to fight this superannuation/retirement incomes war as hard as I can and I’ve got some important “stakeholders” on side. What I’m doing is ‘mind-mapping’ the brains trust (intelligent fellow retirees who have excellent ideas) and then I’ll load the bullets for the people who can make a difference; people like Professor Judith Sloane (and others). No use trying to win this single-handedly; got to give others the ideas and let them shoot the bullets for us all!!
After the so-called National Press Club debate last week with the Greens, Prof. Sloane and the fellow from the Grattan Institute (forgettable; name forgotten!) I was appalled to learn the full extent of resentment against self-funded retirees – particularly those with SMSF’s, like myself. Somehow they’re now “rich”. Government quickly realized that the people with 5 to 10 million in SMSFs are few and far between and that it was futile to chase them for cash because there just aren’t enough of them. Better to just lower the bar on what is “rich”. Well, this is unacceptable because I don’t regard a (high) taxpayer on $180,000pa (wife, kids, mortgage) as “rich” and it shows how far we’ve travelled down the class warfare road that this goes unchallenged. It’s the resentment and entitlement which also take the breath right away!!
Now, let’s look at one of the things being proposed; increasing the ‘concessional’ tax rate on $180,000pa earners who are trying to save for their own retirement. Let’s look at a case:
1. Max is an income earner on $180,000pa and he’s paying quite a lot of that in tax. He’s trying to pay $20,000pa into his super fund and on that he pays 15% tax on all earnings. He hopes to have $2M by the time he retires. His home is probably going to be worth about $1M when he retires and he’s busy re-paying that mortgage. The government wants him to pay more than 15% on his superannuation earnings.
2. Wendy is working as a teacher and earning $85,000pa. She bought her home in Willoughby 30 years ago and paid quite a lot for it, but with husband Bob she’s been able to afford to pay off the mortgage. She pays 15% tax on her concessional super and nobody is asking her to pay any more than this. When she retires she hopes to have $750,000 in super and her husband will have about the same. Her home in Willoughby (through no particular planning or sacrifice on her part) will be worth nearly $3M when she retires and she can sell that home and get every cent of the proceeds without a taxation liability.
WHY SHOULD MAX PAY TAX FOR THE MONEY HE’S ACTUALLY SAVING AND WHICH WILL BE LESS THAN WENDY’S, when Wendy will get more than he has saved through the value of her Sydney primary residence.
This is nothing short of state-sanctioned discrimination.
Good stuff Jody. All this crap is rooted in two things. First that governments – of all complexions – are addicted to spending to buy votes and eventually flail around for revenue. The only answer that I can think of is a constitutional amendment, of the kind they discuss in the US, to prevent it happening. Second envy is at work on the left/green side of politics constrained only by the politically infeasible – like bringing the family home into the taxation equation. There is nothing that can be done about this; it is an incurable morbidity. Peter
Peter I’m a bit disappointed that you think non taxation on the family home is political morbidity. Why on earth should absolutely everything a person owns, saves and works for be subjected to taxation? Isn’t income tax enough? Isn’t tax on the savings (interest) required for a deposit enough? Isn’t stamp duty enough? Not to mention the years of interest payments. Nobody earns an income from their family home, all we do is work hard to eventually own one (after paying monstrous taxes). So it appreciates over the years (remembering that this is also a relatively new phenomenon), so what? Can’t a person be free from this evil age of over-taxation in just one instance of their life?
pgang, you have misunderstood my point. The ‘incurable morbidity’ that I referred to was envy; nothing to do with the family home and whether it should brought into account. I think that was clear, but perhaps I didn’t make it as clear as I should have. Peter
So is $375k the point of maximum inflection? It would be good to know so that we can plan our spending now. Most people I know have long given up on super as anything but a political con job anyway.
The age of entitlement is truly uppon us as we are in the last stage of democracy. Where can I find the next soup kitchen? What can Australia do for me? Centerlink here I come.
Peter, one point that you got woefully wrong in your first example was: “the first-mentioned couple took less expensive annual holidays”. What is a holiday? The last holiday I had with my family was in 1982 when the children were pre-school age. We had the next family holiday with the children and grandchildren just two years ago. After 1987 cost me dearly I decided to rely on nobody and managed everything including my super. I do not need a pension, but I paid a price for being where I am now. One of my former colleagues retired 15-years ago, plays golf twice a week and is on a full pension (+ something for some disability)
Now the government somehow thinks I have stolen something from them? They need the money for pollies cracker pensions no doubt.
Remind me again why I recently resigned from the Liberal Party after 30* years.
Peter, I understand that your article is satirical, but I really wonder whether one should follow your advice.
Seriously, should retirees who have built a nice nest egg, start blowing it right this minute?
Or should the frugal couple start spending extravagantly now?
Those are bona fide questions, and I’d appreciate it if I could have the answers to them.
Thank you.
Mohsen