Another attack on Superannuation from a 'thinktank'

I was drawn this morning by ABC News 24 to the ABC website on an article on super. It was quite the puff piece with a dramatic headline:

http://www.abc.net.au/news/2014-04-...d-as-the-hindenburg-of-federal-budget/5402552

The report is here:

http://www.scribd.com/doc/219375618/Report-Sustaining-Us-All-in-Retirement-The-Australia-Institute

It is a grab-bag policy with all the topics you'd expect from the hard left. The main point of the article is that the concessional tax rate for superannuation "costs" the government money because it is a lower tax rate than normal income tax. So not taking money "costs" money? That line is repeated through the report. The report effectively argues for retirement planning to return to the 1970s before superannuation - and solving everything including aged poverty by rise of about $6000 to the pension. It doesn't argue for the abolition of super but makes it clear they want to make it harder to grow your wealth in that instrument. They even make the case of your super contributions being income on your personal tax return - so paying tax out of your salary for money that will be locked up for decades until retirement. Which is so unjust.

The report points out the $1.5 Trillion invested in super then contradicts itself. It claims people are too stupid to plan for their own retirement and should be denied the opportunity to do so, as they make a claim older Australians use all their nest-egg lump sum payments to pay off debt - and they define this debt as the residual on their PPOR mortgage. On page 16 I found that they forget the $1.5 Trillion to even say all the super we have is effectively cancelled by household debt/mortgages.

The report argues flat taxes are actually regressive, and demands post-retirement super be taxed.

If anyone wants to read the report it is difficult to get through but the class envy and redistribution of wealth aim is clear. It is unlikely the Libs will take any notice but you never know which Green or young Labor future powerbroker will not read this and take it on as their plans for all of us.

Being forewarned is forearmed. Hands off our super!

 

Like the Gillard/Swan/Greens posse they are just a bunch of amateurs arguing over the controls of an aeroplane that none of them know how to fly.

 

Who funds these think tanks anyway?

 

Anglo - not sure why you have a problem with the term "costs the budget money" in the context in which it is used. If, say, the tax rate on on personal income was reduced to zero then it would be fair to say that decision will "cost" the budget money. Which is pretty much the same point as he is arguing. The super tax concessions decision has "cost" the budget money as without the decision, all else being equal, it would receive more revenue if they were not in place.

I actually do agree the superannuation concessions are bad as they currently stand as they are just another distortion in our tax legislation and I am firmly of the belief that if taxation exists, it should be as non-distortionary as possible (yes I know some "sin taxes" are meant to be distorting - that is a separate topic though). I also think similar distortions occur with corporate tax rate at 30% while personal income tax is on a sliding scale from zero up to 46.5%.

The amount of effort expended in this country to shift income around into different tax regimes must be stupendous. So very many smart people not actually creating worthwhile things, just engaging in a vast shell game.

I don't agree with conclusions he comes to however. Universal pension? GAH!! Anybody who thinks they can or should rely on government in their retirement wants their head read.

Flat tax = regressive?? The endless churn of our tax and welfare state is far more regressive in my view. I shudder to think how many hours I now work for the taxman with nary a bean in return.

 

When I started to read your post I disagreed with take that all else being equal, it would receive more revenue if they were not in place. If you understand the concept of the Laffer curve you appreciate that the higher the tax rate the lower the tax take. The reason the super pie is so huge is precisely because the tax rate encourages people to save.

The reason Hong Kong over the last 50 years turned into an economic power house is because low income people pay no tax and the movers and shakers can't be bothered avoiding the tax is there is so much money to be made.

If they took away the super concessions the movers and shakers wouldn't pay anymore tax they would just play the vast shell game you alluded to.

I agree with your view on a flat tax plus I'd also getting rid of 60% of the (not so) civil service

A flat 15% tax with no deductions period would get rid of 90% of the accountants and other bean counters. That would free up a lot of brain power that could be used to create more wealth and hence more tax revenue.

Of course neither the faries at the bottom of the garden, the hard labor criminals or the pseudo conservatives want this because it would mean governments would be required to live within our countries means. The politics of wedging the electorate would be lost.

Kind Regards
non recourse

 

NR - you noted but I think did not understand the term "all else being equal". If concessions were reduced and all else being equal, ie all the income in super taxed concessionally was now taxed marginally, then budget revenue would increase. Obviously, in reality, once one variable changes then everything is not equal and endless variables evolve ad infinitum. These sorts of scenarios have limited usefulness though - they can really only be used to highlight concepts etc. They have no place in real world modelling.

I wasn't proposing the tax take would be higher per se (it would be but not to the extent proposed in this original article - there would of course be leakage), simply that the usage of the term "cost the budget" is contextually correct. ie. in a hypothetical situation as proposed.

You may or may not guess I am actually a proponent of less tax is better than more tax (therefore by definition less government is better than more) and additionally simple tax is better than complicated tax. I also fully believe that if tax rates were reduced the actual "loss" would be less than it would appear on a simple (all else being equal) calculation as less people would make efforts to avoid it due to the fact it is not as punitive and the gain from avoidance would not balance out the risk of penalties if caught - which is what I think you have also stated although perhaps less eloquently.

I would also assume the Laffer curve (i've not read anything about it that I can remember so this is just an educated guess) does not actually state "the higher the tax rate the lower the tax take" but more correctly that "the marginal revenue gain from every marginal tax increase would reduce till at some point it was regressive" or some variant thereof - ie the there is a tipping point at which it makes no sense to increase the tax rate (in fact it would result in a net loss) - this is intuitively correct. I learnt that concept very early on in life with a computerised lemonade stall game on a very early home computer. Ah those were the days. MS-DOS programming.

I still think it is correct to say that if super concessions were not in place then the tax take would be higher (by how much I've no idea). Tax avoidance would also be higher therefore the calculations that Richard Denniss has done are simplistic and most likely incorrect. I've not seen them so I cannot say that with certainty of course.

I know some movers and shakers as you refer to them and they are not as adept at tax avoidance as you make out. They do it for sure but there are limits. Some of what they do is just plain basic and often times comes from sheer ignorance (or as more likely a basic but flawed understanding) of the tax laws rather than a specific plan to do so.

I also don't agree that Hong Kong did/does well simply due to a low tax rate. It is a factor for sure but does not explain why Ireland with its 10% tax rate is floundering (sure it did well for a while but it was a house of cards). I'm no expert on matters Honkers but there would be far more to it than simply a low tax rate.

I also think you might be surprised how many accountants don't actually work in tax areas.

 

Boyracer - Although I defend negative gearing to the death I would be happy to give it up in a perfect tax world where governments would imprison Prime Ministers and Cabinet members where a balanced budget with reserves was not maintained.

Your Laffer synopsis is correct.

With Hong Kong I couldn't find the You tube presentation on this topic, but the Chinese worship him;

http://www.fee.org/the_freeman/detail/the-man-behind-the-hong-kong-miracle

Ireland's issues were not with low tax but rather the EU madness that still has a long way to fall.

The movers and shakers I am speaking of make up less than 0.2% of the population. Lady Murdoch is an excellent example with her last battle with the ATO over 800 million that went from 1995 to 2008 and the tax office lost at every level of the courts and burned through hundreds of millions of our money.

For christ sakes she had the man that wrote that particular part of the tax act that the dispute revolved around on her team defending her

One of my children works in a Collins street firm as an accountant and your right he will also be moving on with a few more years experience under his belt.

Kind Regards
non recourse

 

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Check out the book "Vote for Caesar" http://www.amazon.com/Vote-Caesar-Ancient-Greeks-Problems/dp/0752891405


Opened my eyes quite a bit.

 

Boyracer I have deep hostility to the attitude that money (currency) not taken by the government in tax 'costs' the government money. If that were the case, the opportunity cost of government not taking anyones' income through tax is pretty much 100% of our currency.

The whole point of the concessional tax rates are to encourage and ensure people put money away for retirement and wean the population off the free ride of the pension. I fail to see how anyone has a problem with lower taxes on money you have no prospect of seeing for many decades, with the goal of being self reliant in retirement compared to those chained to a government pension of circa $22,000 per year.

The system has been in place for 20-odd years and yes, has accumulated a trillion nest egg of peoples' savings. If that wasn't the point, what was the point? To change it all would be a disgrace and a slap in the face of everyone who is active in using this vehicle to plan for retirement.

 

The concessional tax raters are certainly an encouragement to save, but they're also the quid pro quo for forcing people to give up wages (and wage increases) which they can't spend now.

Forcing people to save money isn't a bad thing in itself, but the concessions take some of the sting out of it.

The ability to give concessions comes from the fact that everyone else is paying enough tax to cover the national expenses. Or rather, not paying enough tax to cover expenses at present because we're running a budget deficit.

That's all well and good, but when there are some people with big enough piles of cash sitting in their super funds and/or enough money still coming in through earnings that they don't need any encouragement to save more and the cost of giving them a pension is less than what they'd pay in tax without the concessions, there's no reason to continue giving them those concessions.

We don't have "self funded" retirees in this country. We have taxpayer funded retirees that aren't collecting the pension.

The pension isn't a "free ride"any more that super tax concessions are, and if the current taxpayers are going to end up footing the bill anyway they should be entitled to get the best value for their money.

 

To create a captive industry that the bloodsucking finance industry parasites can graze on for the next hundred years perhaps?

Just sayin.

 

If you have the money to support yourself because you paid less tax than everyone else does, are you really self funded?

Collecting tax and then redistributing it via the pension isn't really any different to not collecting tax on the proviso that the money is locked away until pension time.

Put another way: take the value of a "self funded" retiree's super fund and retrospectively tax their contributions at their full marginal tax rate at the time the funds were paid in, and then subtract the interest earnings of those funds too. The fund is suddenly worth a lot less.

That sum is the taxpayer's contribution. It's the amount that everyone else had to pay instead so that roads can be built and doctors can make sick people better and new fighter jets can be bought to buzz around the sky and look cool and scary.

And I'm not saying this is a bad way of doing things either.

It can be a lot more efficient and it certainly means there is more capital to be invested which earns a bigger return which then gets re-invested and so on and so forth.

What it is not is a way to eliminate the expense to society of looking after people who are no longer productive by virtue of being too old to work. That expense still exists, but superannuation means it can be more effectively spread out over the course of an entire working lifetime.

When people get more concessions than their future expenses actually require, that system gets out of whack and stops being fair.

 

There have been self-funded retirees around forever, not necessarilly from superannuation. The ones who have done it out of super and are self funded after their marginal-rate tax has been extracted are champions.

 

There will always be people who make money managing the money of others.

If you don't like them, do it yourself. I do and thousands of others do.

 

Congratulations. I also manage my own super. Doesn't change the fact I dislike vehemently the way the whole super industry is structured.

So you have no problem with the finance industry being on a government legislated gravy train at the expense of the general public but when the government itself tries to get a piece of the pie you get all ticked off about it? Two sides of the same coin in my opinion.

 

This statement sums up the the bankrupt pie in the sky labor party game. Big AD what part of the balance sheet don't you understand ? More than 80% of all the wealth created in this country comes from the productive 20%. The unproductive 80% are supported by the government throughout their life and onto the pension.

I work in an industry that is dominated by government rules and subsides and my industry is bankrupt. I use to employ 9 people, I now employ no one and it is a badge of honor because I manage to run a business where the labor unions cannot touch me and I am profitable and independent of bullshit government regulations that do nothing more than insure you chase your tail .

I run a private business and associate with small businesses that do the same. As a young communist I read Ann Rand's fictional novel Atlas shrugged and her description of the cancer that now pervades both sides of politics. It changed the direction of my life and freed me from thinking that the government was going to look after me. It doesn't, it can't, and it never will.

When I hear the weasel world fair I sneer and relish thumbing my nose at big government, big business and Unions.

The SIS act and SMSF's previously called excluded funds was a fortunate accident that was never meant to be. It is a classic example of the Laffer Curve

Your balance sheet doesn't balance Big A.D. it is a recipe for everlasting misery and poverty in the guise of fairness.

Kind Regards
non recourse