News alert: Lord Benefactor was attacked last night by a group of ruffians who claimed that he short-changed them when giving them alms. He ‘ad more in his purse, they claimed, and selfishly wanted to keep it. Benefactor gave a pathetic excuse for his stinginess. I had already given them a lot, he lamely said. He failed to realise that enough is never enough.
The Australian’s editorial (27 October) made the ‘damning indictment’ that almost “60 per cent of all [superannuation] concessions flow to the top 20% of earners.” This reflects the general tone du jure that a dastardly injustice is afoot. Deloitte has released a report which offers a formula to redress the injustice. I will come to that later. First, to the facts by way of an example.
Take one of those rich chancers getting away with things. This one is 50 years of age and earning $245k. He (she if you like) is putting away the capped amount of $35,000 in superannuation taxed at 15%. His super tax saving is $10,500. But wait, his total tax bill, excluding the Medicare levy, is a little over $73k or 30% of his gross income.
Compare him with the put-upon ‘dupe’ in the scene earning $42,000 and contributing the statutory minimum amount of 9.25%, or $3,885, to superannuation at a tax rate of 15%. His super tax saving is only a measly $200. Unfair! Unfair! But wait, his total tax bill is only a measly $4.5k or 11% of his income and that is without accounting for the free stuff he undoubtedly gets if he has a spouse and kids.
We are told with a straight face that the situation is unfair because the higher income earner is getting a bigger superannuation tax concession than is the lower income earner. But put it in a quite different perspective. The higher-income earner is more than paying his way. He’s keeping the whole nation state afloat. The lower income earner is not nearly paying his way. To be fair, he is at least paying some tax but, not to be too unkind, he is a fiscal burden.
It simply makes no sense to look at the so-called superannuation concession in isolation from the total picture.
Consider the Deloitte “fairer” regime. Deloitte has proposed that everyone be given a reduction in tax of 15% on each dollar contributed to superannuation. So if you pay tax at the marginal rate of 45% your superannuation contributions would incur a tax of 30%. This would apply pari passu down the line. Those paying zero tax because their income is below the threshold would get a rebate of 15% of their superannuation contributions.
According to Deloitte, this measure would provide the government with an additional $6 billion in revenue 2016-17. How revenue-tempting is that for any government unable to balance its budget?
In my example above, the higher income earner’s tax would jump to $78.5k, or 32% of his income. The lower-income earner’s tax would stay more or less the same. Roughly speaking, those earning between $37k and $80k would see little difference because their marginal tax rate is 32.5%. Those earning below $37k would gain; those earning above $80k would lose. So as well as being a revenue-increasing measure it is a redistributive one. It will likely appeal therefore to Labor and to The Greens and, at a guess, to those earning less than $37k.
Baseless complaints that higher income earners (‘the rich’) are getting beneficial treatment is designed to provide the basis for taxing them more and raising revenue. That’s fair enough in a sense. Only the rich can afford to pay more to fund spendthrift government. But be honest and upfront about it, not weasel on, like layabouts from Occupy Wall Street, about how the rich are not paying their fair share.
As night follows day, the squeeze on the rich will continue because the welfare state is voracious. It will never be sated. It grows organically, increasing dependency, by antiquating the view that people are responsible for taking care of themselves.
Striving is the key to becoming self-sufficient and contributing. Free stuff undermines striving. Less striving means more demand for free stuff. It is an enervating spiral.
Reducing superannuation tax concessions for the rich is just another way of sticking them for more taxes. This will help pay for the bloated welfare state and, inevitably, help underpin its continuous swelling. An energising spiral would result from reducing taxes on the rich and correspondingly reducing free stuff, starting with those most able to afford it. As an aside, not by starting with those least able to afford it, as the Abbott/Hockey government ineptly and forlornly tried to do.
Unfortunately, the debate gets sidetracked into fretting over whether those paying all of the bills are getting away with something. And so the Greek-like tragedy goes on towards its inevitable conclusion of fiscal collapse.