Australian Financial Review: Leave Super Alone

According to the most recent rhetoric from the Gillard government and its advisers, the superannuation system is a tax rort for the wealthy – indeed senior Minister Craig Emerson says the “fabulously wealthy”.

Treasury Secretary Martin Parkinson has complained that the superannuation system – particularly measures to encourage voluntary savings – “come at a …very significant cost”, with Treasury estimating the concessions are worth more than $30 billion a year.

In January, the AFR reported well-sourced speculation that Labor would tax withdrawals from “very high” superannuation balances, with the threshold for “very high” likely to be $1 million or less.

Last week Prime Minister Julia Gillard refused to rule out increasing superannuation taxes in the May budget.

There are multiple reasons to be amazed by the political and policy ineptitude of Labor’s looming attack on the superannuation system.

To start with, the superannuation system, introduced by the Hawke-Keating Labor government, was specifically designed to be a mass participation system.

Even those on modest incomes can build up substantial balances over a working life of 30, 40 or more years – so a measure that targets superannuation accounts above a particular balance will hit many of the low and middle income earners the system was designed to benefit.

For Labor politicians to turn around and demonise as “wealthy” people who have dutifully saved money within this system is quite bizarre.

For two decades government has sent a message to the community: you need to take responsibility for your own retirement income through building up a superannuation balance.

People have been encouraged to build up the biggest balances they could, not just through compulsory contributions but also through putting in extra contributions if they were able to.

But now it seems the Gillard government is contemplating a direct attack on people who responded to the messages they have been sent consistently by government.

The justifications being offered do not stand up to analysis. To suggest people with a balance of $1 million are “wealthy” simply misunderstands the reality that this balance must fund a retirement that could easily last 30 or more years. Assuming a 5 per cent return, such a balance equates to an annual income of $50,000 – significantly below today’s full-time average earnings.

Even by the Rudd-Gillard government’s high standards of inconsistency, the new attack on superannuation is sharply at odds with what senior government figures were saying only quite recently.

In August 2011, Prime Minister Gillard said, “Hacking into the retirement savings of generations to come would be an act of social and economic vandalism that we cannot allow.”

That sounds like a good description of what her government is now contemplating doing.

As many have pointed out, the Rudd-Gillard government’s repeated short-term changes to the superannuation rules are damaging confidence in a system that requires people to put money away for 30 or more years.

Former union leader Bill Kelty recently commented that, “These are decisions for a generation and when you start tampering with it then you don’t tamper with it for a day, you tamper with it for a generation.”

The superannuation system takes its current form for good reasons.

It specifically includes generous tax concessions to encourage people to build up lifetime savings. As the recent Henry Tax Review noted, this is necessary because “income taxation creates a bias against savings, particularly long-term savings”.

Those concessions deliver a strong payback by reducing pressure on the budget from the aged pension. In 2012-13 almost 10 per cent of the entire federal government budget, $37 billion, will go to income support for seniors – so the more people who build up a big superannuation balance and do not need to rely on the aged pension the better for the budget.

Two years ago, Ms Gillard was highlighting this rationale for superannuation, noting in her 2011 speech that superannuation would save $10 billion a year in pension outlays by 2030.

But that was then and this is now – and with her government in a desperate short-term search for revenue, it looks likely that the May 2013 budget will do significant policy damage to the superannuation system.

Paul Fletcher is a Liberal MP. He serves on the Corporations and Financial Services Committee.