The government has a budgetary problem. Rich old people are in its sights. The rich need to pay their fair share, say those perennially piqued that some are richer than others. The political class is conspiring. Rich old people, beware! You have few allies, only death offers a way out.
First to superannuation, where the common charge is that rich people gain much more from concessionary contributions than do poor people. Guilty as charged, Your Honour, the rich should say, we are wretches for thinking our earnings are ours. Paying 15% on income contributed to superannuation, rather than paying 47% (the top income-tax rate plus the Medicare levy) is clearly more beneficial to us than to those who pay less tax. But wait, it gets worse.
As part of the last federal budget, the government imposed a temporary budget-repair levy of 2% on that part of a person’s taxable income which exceeds $180,000. These rich people will now make even more out of this unconscionable superannuation concession. Imagine how much they would make if the top tax rate went back to the 75% it was in 1951-52. Outrageous!
Presumably the irony isn’t lost. We live in a topsy-turvy world. In this world, the income people earn really belongs to the government, primarily representing those who spend income that others earn. So, if you are taxed less than you otherwise would be, you are, in fact, receiving a gift from the government — representing those aforementioned needful (we need your money) people. And, before you think I’m uncaring, I am abstracting from those who are looking for work, are in no position to work, or who are prevented from working because of a disability.
But, in any event, and this a key point, this is now all much ado about nothing. After much meddling, the concessional cap on contributions is now only a modest $30,000 per year ($35,000 for those aged 50 and over) and those earning over $300,000 pay 30%, rather than 15% on their concessional contributions.
If there is much more meddling to make things “fairer” by reducing concessions to those earning relatively high incomes, fewer people will be able to put themselves in the position of being self-funded in their retirement. More, therefore, will rely on the pension. Alternatively, some people will switch from superannuation to other investments like negatively-geared property to make a tax-beneficial quid.
Moreover, to make things “fairer” by lifting superannuation benefits for those on low to middling incomes is unaffordable. So, there is nothing much there left to plunder. But the government knows this. It is, in fact, a mere smokescreen for the real prize.
The real prize is tax-free earnings of those with superannuation in a pension phase. Now this is a different kettle of fish. There’s gold for the taking in them ‘thar’ self-funded pensioners’ pots.
In earlier days, people were able to salt away considerable sums. Contribution limits did not exist, and then were generous. And Peter Costello, presumably in a moment of contrite self-reflection for breaking an election promise and introducing the confiscatory superannuation surcharge, made earnings tax-free once superannuation enters a pension phase.
The result: aging persons with multi-millions of dollars in the pot paying no tax on their earnings. This is too tempting to resist for a penurious government; particularly when the opposition, the Greens and social-welfare lobby can always be counted on to support soaking the rich.
It is a lay-down misere that the government will reinstitute taxes at some level and in some way on superannuation pension funds. I read some commentator who said that any changes should be grandfathered, showing that he missed the point. There will be no reservoir of large balances to be plundered years hence because the rules now prevent this from occurring. It has to be in the here and now if significant amounts of revenue are to be raised. Mind you, grandfathering is a good principle.
People were cognisant of the taxation regime when they stuffed large amounts into superannuation. They might well have chosen a different course with a different regime. Should a different regime now be imposed on them? It smacks of retrospective taxation. That’s a bad principle. That will not bother revenue-seeking politicians too much. They have the needful onside.
Second to the part pension, and the proposal to more steeply taper the rate at which the pension is reduced for each $1000 dollars of assets held over a prescribed threshold. Those receiving the part pension (the partially rich, if you like) will have their incomes seriously cut. For example (using figures set out in The Australian), a couple with $600,000 in assets outside the family home now receive a part-pension of $413 per week. If the current proposal gets up, this will fall to $178 per week.
Let’s suppose our pensioner couple are fairly risk-averse and earn just 3% on their assets. Their weekly income, including the part-pension, will fall from $759 per week to $524 – from bare living to hard tack. Of course, they could purchase an annuity and effectively live on both their capital and interest, or they could sell their home. But, in one way or another, they will need to rearrange their affairs substantially or get charitable food parcels. Is this fair?
What’s fair got to do with it, I suppose? Serious mismanagement of the nation’s affairs has left the government desperate for revenue. Insufficient money was put away for rainy days in the times of Howard and Costello, and Rudd, Gillard and Swan spent the farm. It would be less galling if the government was not promising more child-minding dollars at the same time as it is contemplating screwing those old people who, unlike previous governments, have managed to put a few dollars away.
Oh, and by the way, there is talk in the financial pages of getting rid of dividend imputation. Know who benefits most from that? Those rich old buggers with their bloated superannuation investments in high-dividend-paying shares, that’s who. Death, where is thy sting?