The government’s latest move to slap a tax on Super savings is just another case of a drowning government clutching at straws.
C’mon guys. If you’re going to drown, at least have the courtesy not to drag the rest of the country down with you.
Just put on a stiff upper lip and drown quietly and quickly, there’s a good chap.
Everybody knows that the Gillard government has no shortage of problems right now. But probably the biggest headache they’ve got is how to patch over an estimated $10 billion hole in the budget without anyone noticing.
So cut back on the photo-copying, skip the cream biscuits for morning tea, and gouge $50 billion out of the super system.
There’s a pattern playing out here. If you’re a government, what do you do when you’re short of cash today?
Steal from the future.
And while you’re at it, throw on some tights, put a feather in your hat and tell everybody that you’re Robin Hood, here to relieve the greedy rich of their wealth and return it rightfully to the humble poor.
Let me shout this out loud…
You can’t save the poor by taxing the rich…
That’s exactly what the government’s doing in raiding the super pool, and telling everybody that they’re doing it in the name of equality.
The government’s position now seems to be (though it is a moveable feast), that they are looking to tax super savings of over $1 million and/or increasing the concessional tax rate on super contributions even further for “high income earners” (though no one’s sure what that means exactly).
The concessional tax rate on super contributions had some noble intentions behind it. The main drive was to help people save for their own retirement, and to get them off the public aged pension. It dovetails with the mandatory super scheme.
Australia is facing the same problem that pretty much every developed nation in the world is facing…
…an ageing population.
The challenge is how to ensure that the ageing population doesn’t become a burden for those folk left holding the economy together when the baby-boomers retire.
If their retirements, through the pension, were to be entirely funded by the public purse, it would place huge pressure on the taxation system. The higher marginal tax rates that would be required would knobble the economy.
And the truth of it is that Australia has done fairly well in disarming the inter-generational boogieman. Thank your lucky starts your not in Italy, where the population is ageing incredibly rapidly, and people retire at 36 on a fully indexed pension and their own private seat at a café in the plaza.
But we’ve only been able to do this by putting a large pool of money aside for the future – both collectively and individually. And remember this was done, if you’re like me, not by squireling away some windfall inheritance, but by choosing to save for a rainy day what we could have just spent on ourselves.
And so through this discipline and hard work, we’ve ended up with a huge pool of money, ready to fund the retirement of our beloved mums and dads. But government’s can’t leave large piles of cash lying around for long. I knew it was just a matter of time before someone dipped their fingers in the cookie jar.
And so Treasury has trotted out some numbers (which have left a lot of industry experts scratching their heads, mind you) that say the concessional tax rate on super contributions costs the government $32 to $45 billion a year, and that most of the benefits of the concession accrue to the wealthy.
Cue Wayne Swan, cutting a dashing figure in riding boots and tights.
But correct me if I’m wrong, but I thought this was part of the point. The concessional tax rate was there to encourage people to provide for themselves in retirement. In particular, we needed to encourage the people who were able to look after themselves (call them the wealthy if you must) away from the public pension system.
And if there is a problem with the progressivity of the contribution rate, how does a tax on accumulated savings do anything to fix it?
And I can see where the government’s going with it’s (completely arbitrary) $1 million figure. It sure sounds like a lot of money. It will sell well. But how much is it really.
A nest egg of $1 million, at 5 percent interest, pays about $50,000 a year. It’s not living the high life, but you’d get by.
But what buffers are you working with? When you’re a self-funded retiree, you have to manage all the risks associated with retirement yourself.
For example, $50,000 might be a decent amount to live off this year, but how far will it stretch in 20 or 30 years time? The answer to that depends on the course of inflation over the next 30 years. It’s completely unknowable. How confident can you be that there won’t be an break-out of inflation, especially when you’re depending on every government for the next 30 years not doing anything stupid?
Good luck with that.
And how long are you going to live for? Medical science is advancing all the time. Already if you’re a reasonably healthy 65-year-old today, you have a 20 to 30 percent chance of living to 100.
The prospect of an extra 20 years on the rock gets less exciting if you think you’ll be eating dog food.
Self-funded retirees bear all the risk and all the responsibility. The harder we make it for them, and the more we tax their savings, the more likely they are to throw in the towel and say stuff it, I’ll just blow it all in a lump sum and go on the pension.
Which is already what a lot of people do.
If the government was serious about super, they’d be looking at the $20 billion a year that gets gouged out in management fees.
And if they were serious about budget shortfalls, they’d be looking at the $200 billion worth of unfunded liabilities for public servants and politicians’ super (which are indexed, and exempt from all this tax talk, thank you very much.)
But they’re not.
Any way, I’m watching this one very closely. If they tamper with it, here is what I will do.
Stop investing in the new stupid super structure and move to another form of investing that has most of the benefits of the current system.
Want to know what that is?
You guessed it, property investing.
And you know what? So will my other 500,000 SMSF mates…
Making the 30/45 BILLION DOLLAR “Gillard Government Bail Out Package…” GONE…GONE…GONE!!!
MEMO TO: Julia and Wayne, the rich are smarter, more agile, more determined than you… enjoy the back-bench.
How do you like them apples?