Why We Will Always Get Stung On Super

Why We Will Always Get Stung On Super

Tony Abbott made some blunders as prime minister. He raised the top rate of income tax, ruled out curtailing health and education spending, and he walked away from his commitments on freedom of speech.

But for all of this, there’s one mistake he didn’t make. He didn’t throw into chaos the plans of tens of thousands of self-funded retirees – which is what Malcolm Turnbull and Scott Morrison did with their retrospective changes to superannuation in the 2016 federal budget, and which is what Bill Shorten and Chris Bowen are now threatening to do with planned changes to dividend imputation.

In the 2013 federal election campaign, Abbott said: “To help Australians have confidence again in superannuation we pledge not to make any unexpected detrimental changes to superannuation.”  It’s a promise Abbott kept for the two years he was prime minister. Keeping that promise makes Abbott and his treasurer Joe Hockey look better and better as every day passes.

The constant changes the Coalition and Labor make to superannuation policy are good arguments for abolishing compulsory superannuation. If superannuation is compulsory the laws governing it should at least be predictable and stable. Indeed, it’s precisely because it’s compulsory for Australians to pay 9.5 per cent of their income into compulsory superannuation that the Coalition and Labor feel they can raid people’s retirement savings with impunity – no matter how much tax is taken out of superannuation, people are still forced to pay it.

Iron law

Individuals should have the choice to opt out of compulsory superannuation and opt out of any claim to the pension.  If superannuation is in fact as good a financial and tax deal as governments like to make out then individuals would continue to contribute to superannuation voluntarily.

Of course, the ALP would never support such a policy because as Institute of Public Affairs research has revealed trade unions received almost $20 million between 2013 and 2017 from superannuation funds via directors’ fees.  But nothing is stopping the Coalition from making superannuation voluntary.

In The Sydney Morning Herald a few days ago, Ross Gittins neatly explained the iron law of the politics of superannuation. “As a political force, Grey Power has one large weakness: of all the age groups, the over-65s are those least likely to change their vote.  The great majority vote for the Coalition, so Labor doesn’t have a lot to lose [when it raises taxes on superannuation].”

He could have added the Coalition doesn’t have a lot to lose either because it’s made the calculation that no matter what it does to self-funded retirees they’re nevertheless unlikely to vote Labor.

It’s amusing to hear Turnbull and Morrison in recent days complain about Labor’s “tax grab on superannuation” when the Coalition started the process the ALP is simply continuing.  Labor’s rhetoric that “tax breaks” must be curbed because Australia can no longer afford the largesse of the Howard and Costello years is exactly the same language as the Coalition used two years ago.

Capital gains

It’s also amusing to read in the pages of this newspaper about the concerns of Frank Argondizzo, a former union official in Melbourne and a self-described “rusted-on Labor voter”.

Frank owns two properties –  his own home and an investment property in his superannuation fund.  That investment property will be subject to Labor’s higher taxes on capital gains.  Talking of Bill Shorten, who leads the party that Argondizzo votes for, Argondizzo said “It’s [a] very bad thing to work 40 or 50 years and all of a sudden he comes up and says, ‘You’ll have to pay more [tax]’.”

Frank Argondizzo’s plight brings to mind the fable of the scorpion and the frog.

A scorpion asks a frog to carry him across a river.  The frog at first refuses for fear the scorpion will sting him as they cross.  The scorpion replies he wouldn’t because if he did they’d both drown.  Satisfied with this response the frog agrees to take the scorpion.  Sure enough, half-way across the river the scorpion stings the frog.  While they’re drowning together the frog asks the scorpion why he had stung him.  The scorpion replied “Because it’s in my nature”.

When it comes to taxes on superannauation, the government are scorpions and the public are frogs.

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