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?
TeddyB says
Have to strongly disagree with you there. The way super is currently set-up, all the major tax concessions are heavily in favour of the super rich (like yourself).
No problem with the top earners, the super wealthy elite, however, superannuation needs to be evened out to make it fairer for ALL Australians, particularly those who have a lot less income and a lot less super savings. It’s correcting the imbalance and it’s entirely right & proper.
I have a SMSF and I support the govt’s proposal.
Finally, that MEMO to Julia & Wayne is smug and shows absolutely no class on your behalf
Jack Haynes says
Awesome, Jon, very clear and to the point.
I think a lot people agree.
Everyone I know does.
Daniella says
Well said TeddyB and appeals to the masses brainwashed by the mainstream media. Disappointing.
Jack Mark says
Teddy B, I have the sneaky suspicion that you don’t actually exist. However, let us assume that I am wrong and therefore assure you that you are entitled to your opinion, just as, for the sake of the common good, you are entitled to donate your entire SMSF, if you so wish, to M/s Gillard and friends.
I myself have merely a few simple questions. Where will a hungry and dysfunctional government stop at ?
Will it eventually be taking a ten percent (or higher) interest in non cash assets (like real estate and share holdings) as well ?
If not why not ? What guarantees has one got ?
Will it even eventually go as far as taking a substantial interest in one’s personal residence (so we will finish up paying rent to the government) ?
Interesting times ahead.
JM.
Joe says
haha love it! although.. where there is money to be made, there will be the government hot on your heals, ready to start a new tax!!
richard. says
talking about [fairer] ask either the lion or antelope on any given ,day.ones either dead or satisfied , alive or hungry. Sorry, i object to working hard and long, going without, or accepting less now hoping for a reasonably comfortable retirement later to be told because of my good fortune that i also have to help other people have a good retirement. Dosent my taxes already help others have a life of plenty and they dont have to work for it. And they are virtually retired in their twenties.Isnt super like savings[supposedly] its what you put in now that determines what you recieve later!!!!!
JoshS says
It’s a a joke the way successful people get treated by some governments. My Super has barely cracked 5 figures but I hope down the line when it is much bigger I will be acknowledged for my hard work, and wanting to get ahead, not penalized.
Dave says
It’s ok for you oldies who had it easier in the 60’s and 70’s and even the 80’s.
I am 39 years old and worked hard all my damn life. I am not afraid of hard work but I am on a low wage of 38k a year..not the B.S national wage average that they claim.. I wish I was on the national average wage..then I would have money to buy..but I just did not have the chance to buy in the mid 90’s or the income. My dad had it so much easier than me and my wife. check out this http://nfbpsh.blogspot.com.au/2011/01/home-ownership-getting-tougher.html
I pay $20,000 a year rent for a small 3 bedroom house in eastern suburbs Melbourne.
Congrats to the people who are lucky enough to pay tax on 1 million dollars. If I had the same chances as my dad and mother when they were young in the 60’s and 70’s then fine.. I agree with you john. But it is hard at the bottom..and getting harder. Sorry if I think that if you have 2 mill in the bank or own your own 800k home.. that you should pay a little more tax.
Melody says
This is a very biased article written by someone that obviously has more than 2 million in Superannuation and not in favor of paying their fair share of tax. Why should Australia give tax concessions (and help the rich get richer) to people that earn way more than everyone else. If you want to see an opposing opinion (that is very clear and concise) to this one watch the add by Getup on the subject; http://www.getup.org.au/campaigns/superannuation/super-for-some
Dave says
Thanks for that link Melody. 🙂
richard. says
What tax concessions????. yes i earn over 70.000 pa but i still pay $0.47 in the Dollar. others i work with who earn way more still pay $0.47. please enlighten me as to where the concessions are
D says
Richard, The government gives tax concessions on voluntary super contributions. I would happily put more into super but food and rent and health and… well just surviving comes first for the lower class.
Acorn says
It’s a redundant argument. Libs will get in and overturn it. They look after the wealthy. Bad politics too, again from labor. Class welfare shows they’ve run out of ideas
TeddyB says
Hi Jack Mark,
I certainly do exist – strange comment from you there.
Let me say again …. superannuation needs to be fairer for ALL Australians.
We didn’t get reforms affecting the wealthiest 10%, 5% nor even 1%
The govt’s announcement will affect 0.4% of Australians. This means 16,000 of Australia’s top earners will no longer have their retirements subsidised by poorer Australians. If that’s not good enough for you then you must only care for yourself and not the state of all Australians wealth.
As for me, I believe in sharing wealth and I don’t just talk the talk I actually do it.
I’m sure you think I’m crazy but I believe it’s a responsibility.
Sincerely
TeddyB
Melody says
TeddyB Good on you. It is amazing that such a large amount of Australians think that this is unfair and unfortunately shows the majority do not understand what has actually been done. I wish they would widen this tax to the top 5% at least, but at least this is a start.