Joe Hockey embraces the Age of Entitlement

ScreenHunter_39 Oct. 17 10.14

By Leith van Onselen

If anyone wants an example of why politics is mostly form over substance, look no further than Joe Hockey’s actions on entitlement spending.

Earlier this year, Joe Hockey gave a speech entitled “The End of the Age of Entitlement”, which lamented the blow-out of entitlement spending by governments:

“As the electoral pendulum has swung between socialist and conservative sides of politics, the socialist governments – often winning electoral success thanks to the funding from unions – have created a huge array of entitlements for selected classes of individuals”…

Hockey then went on to detail how governments will need to wind-back entitlement spending in order to return their budgets to a more sustainable footing.

In many ways, it was a great speech by Hockey and one that I broadly agreed with.

In Australia’s case, entitlement spending blew-out under both the Howard and Rudd-Gillard Governments, where we witnessed a ballooning of payments to a wide range of constituents, including middle-class families, the aged, and wealthy retirees. Among other things, we saw baby bonuses handed out, increases in family tax benefits, aged pensions, and generous tax breaks for superannuation, which have now placed the budget in structural deficit.

The situation is particularly acute when it comes to aged pensions and superannuation tax breaks, where Australia now finds itself in the unsustainable situation where benefits to households aged over 65 years of age have ballooned just as their incomes and wealth have grown, which will place undue pressure on the Federal Budget as the baby boomer generation retires and the share of workers in the economy shrinks.

Given Hockey’s strong words on entitlement spending, and the demographic tsunami facing Australia, one would have thought the superannuation system would have been high on his list for reform. Not so, with Entitlement Joe this morning announcing that the new Coalition Government will jettison the former Labor Government’s planned changes to superannuation, maintaining generous tax breaks for around 16,000 wealthier Australians whilst cutting tax concessions for 3.6 million workers on lower incomes.

Treasurer Joe Hockey and Assistant Treasurer Arthur Sinodinos announced the changes following an audit of 96 unresolved tax and superannuation reforms dating back to 2001. The Treasurer described the reforms as “undeliverable” and committed the Coalition to stability in the superannuation system.

Whether the Coalition can maintain the superannuation system in its current form, given pressures on the Budget, is debatable. But if successful, it would certainly worsen outcomes for everyone else.

The continuation of the existing superannuation rules by Hockey would significantly exacerbate inequities in the superannuation system, since under the flat (15%) tax, an even greater share of tax concessions – a direct hit on the Budget – would flow to those on higher income earners, whilst lower income earners will receive next to no tax benefit.

The sustainability of the superannuation system would also be reduced under the Coalition’s policy. It is the lower end of the tax scale that are most likely to be reliant on the pension in old age, yet they will have less incentive and opportunity to build-up a retirement nest egg following the announced changes.

In the end, the policy change announced by the Coalition would result in a superannuation system that costs the Budget even more money – mostly via the huge concessions granted to higher income earners – whilst doing little to relieve the strain on the aged pension, since those most likely to require the pension in old age will receive an even smaller share of the superannuation concessions.

It’s enough to make a cynic like me suspect that Hockey’s bluster over entitlement spending is just hollow rhetoric designed to mask an assault on government support for the poor, whilst maintaining benefits to his rich constituents.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

  1. Correction: nothing is being ‘reinstated’. The ALP’s plans to tax earnings over 100K for funds supporting superannuation earning streams are being ditched, but to my knowledge they were never legislated and certainly never actually put into place.

  2. ceteris paribus

    When I hear news like this, I feel old and weary.

    I naively thought that welfare was instituted only to combat genuine need. More the fool me.

    • Yes, it should be “form over substance”, this is the right dialectic of something lacking substance – empty form.

  3. Having regard to recent statements by the ‘Boy in the Bubble’ it is clear that there will be no real engagement with economic issues or the challenges facing Australia until circumstances offer no other choice.

    Until then we will have a continuing performance by career opportunists talking tough and doing little while supporting (or doing it directly) the selling off of the silverware (assets and IOUs) as fast as they can.

    With their tag team opponents watching on enviously.

    • +1

      And until then, it is best to be a cheerleader for the inevitable if for nothing else than to maintain one’s sanity.

  4. I am not surprised in the least. This is what Australians voted for. I hope he continues this barrage of bad policy as it will take a whole lot more of it before people actually learn to vote properly.

    Anyway, good entertainment for today. But this is just typical bad policy. Doesn’t get me as excited as proposals to sell HECS or remove the dole for those under 30 years old. Come on Tony.. you’re dropping the ball!

    • The trouble is that the alternative is only marginally better, if that.

      My gripe is that there is no party in Australia that actually represents me or my interests. The major parties (and the greens) represent relatively minor interest groups, and dishonestly represent themselves as representing wider groups. This disconnect extends far beyond economics and into social policy.

      For example, the Coalition says it represents business – crap. It represents a small number of high worth individuals. Small to medium business people don’t get a look in. Similarly, the Labor Party represents the interests of union officials and the likes of Eddie Obeid – also high worth individuals. The Greens represent a small number of individuals too – although possibly of lower net worth than the other parties, which probably explains why they don’t get as high a vote.

      Perhaps the only thing that Australians can do is to change their vote at every election until it gets home to politicians that they are not going to get their hands on the levers of power until they change their ways.

      I don’t really blame the Australian Voter for any of their choices in the last twenty years. We really have not had much of a choice to make. Maybe it might have been better to have had Hewson in ’93, and Beasley in 2001. But really, that is tinkering at the edges imho.

  5. Isn’t it interesting how blind we each are to our own ignorance and weak logic?
    Liberals see entitlement everywhere except where changes to it might have a flow-on effect and reduce their own revenue stream or increase tax they pay.
    The tax system must therefore only be allowed changes that do not impact adversely on incomes that mirror or are above their own. $195,130 is what a sitting backbench politician* gets paid so I suppose one of battlers Hockey and mob will look after is in the group $150,000+.
    What we see each time this kind of ‘I want the lion’s share’ mentality appears is the result of the misguided attempts of egoic thought trying to exalt itself by undermining the work of others. Increasing the GST is going to move large numbers of families into the working poor class. Good work Liberals, you are worthy representatives of what I will not say.
    backbench politician* – http://www.abc.net.au/news/2013-07-01/off-the-hustings-james-glenday-politicians-pay/4790894

    • Remember, according to Abbott&Co $150,000 per annum is not a lot of money [when you live in inner-Sydney with two kids in private school]…

  6. The real entitlement of the compulsory defined-contribution superannuation system is the entitlement of the Sydney finance industry to clip the ticket to the tune of 1.23% pa or $18.6 billion in the year to 30 June 2013 (that’s four times the total amount paid by households in bank fees) for doing very little.

    It’s not as if compulsory defined-contribution superannuation has increased overall national savings or provided retirees with financial security in their old age.

    When the money is recycled back into government spending – through the sale of public monopolies to private owners, or through tax-farming schemes like the tolls roads, or through commercial-in-confidence public-private “partnerships” – they get to clip the ticket again!

    Also, it is interesting to note that the seven internally-managed listed investment companies in Australia (AFI, ARG, AUI, BKI, CIN, DUI and MLT) have an MER rarely exceeding 0.2% pa. This year some of them are as low as 0.1%.

    Comparing these rates with the average 1.23% being paid by mug superannuants in the government-protected compulsory superannuation industry gives us some idea of the magnitude of “entitlements” being extracted by Mr Hockey’s investment banking friends.

  7. When Hockey crows about ending the age of entitlement, he’s talking about entitlements for the poor, not the inner-city families on $X00,000 per year putting their kids through private school.

    I thought that much was clear about that speech at least.

  8. Labor had a chance to end this tribal mentality and reinstate housing affordability. But they attacked the people who pay most of the taxes and made the bubble so much worse.

    You’re not rich on $100k because of house prices. Far from it. So gimme gimme.

    How about people on $50k who are far richer because they rode the boom? They might have a PPOR and an IP. It wasn’t that long ago that Melbourne and Brisbane properties were cheap as chips. Actually make that everywhere except Sydney.

    The whole discussion of who’s got what is pitiful and infantile and lacks basic information like what I stated above.

    We all seem to have a certain definition of what constitutes “entitled”. Scabbing money off people on $100k to give to people on $60k for spitting out kids is certainly entitled in my book. Downright theft even. All or nothing, get rid of the lot except for the most unfortunate. Say, 30k and under, and even then only give them a hundred bucks or so a week.

    • But they attacked the people who pay most of the taxes

      Does Bill Gates pay a lot of tax? or should that tax be attributed to the people who buy Microsoft products? or is it down to the people who programmed the products?

      Who contributed the most to society, Bill, the users/buyers or the software builders?

    • It wasn’t that long ago that Melbourne and Brisbane properties were cheap as chips.
      It’s been thirty-odd years since houses in Brisbane were “cheap as chips” (median multiple < 3).

      Downright theft even. All or nothing, get rid of the lot except for the most unfortunate. Say, 30k and under, and even then only give them a hundred bucks or so a week.
      If all those rich people you idolise paid their employees better wages, there’d be less people needing welfare to get by.

      • And of course it’s worth pointing out that the superannuation fund reform was to tax funds that earnt more than $100,000 per year and had nothing to do with income tax.

        I feel pretty confident in saying that you’re rich if your super fund is earning that much.

  9. Hollow rhetoric designed to mask an assault on government support for the poor, whilst maintaining benefits to rich constituents.

    Of course. But that is textbook conservative political management. The real trick is to convince the great majority that they’re actually part of, or have an interest in defending, the wealthly minority.

    • The real trick is to convince the great majority that they’re actually part of, or have an interest in defending, the wealthly minority.

      Very perceptive.

    • “The real trick is to convince the great majority that they’re actually part of, or have an interest in defending, the wealthly minority.”

      And Bob’s right on cue…http://www.businessspectator.com.au/article/2013/11/6/financial-services/shining-victory-super-holders

      “The Australia superannuation movement has had the most enormous victory. Any person aged over 60 who classifies their super funds as being in “pension mode” will have no tax levied on their investment income. They will be required to pay a minimum pension that rises with age, but that pension is also tax-free.”

      • it ain’t just pension income that is exempt.

        Most small business operators who own their work premises, are advised to put it in their super fund, then the super fund rents it back out to the owner, collecting the rent.

        Now whilst the rent has to have an independent valuation as being related parties, you can always find one that’s the highest spectrum of the reasonable basis, so pay yourself whilst only paying 15% tax on it during accumulation.

        Then the final coup de gras, commence a pension, then sell the property… CGT exempt.

  10. $195k a year counts as wealthy in my book, esp when you add all the extras like business class travel, etc, etc.

    Ergo, Government of the wealthy, by the wealthy, for the wealthy.

    Or, perhaps more fittingly:

    Government of the powerful, by the powerful, for the powerful.

    And so it goes, and has gone for centuries. What indeed has changed? We have exchanged one set of powerful (kings, emperors, etc.) for another set of powerful (Stalin, Pinochet et al – dictators of every stripe) for yet another set of powerful (career parliamentary politicians owned by the rich and powerful).

    Democracy? Pull the other one. It’s just a ballotocracy. And it becomes more and more like voting for a reality show contestant. Just look at the vacuity and shallowness that reigns across governments in almost every country I can name – and I can name a few (Geography was one of my better subjects 🙂 )

  11. Today’s Fairfax was putting barnaby’s claims under the spotlight once again.

    Now it’s travel to State of Origin matches, and when returning from Gina’s friends’ wedding in India, claimed an education reimbursement flying back via Malaysia.

    This is what rankles most, particularly with that side of politics, and their evil chattering voices such as Judith Sloan.

    They decry the inflation circumstance as mainly working class peopple getting too much money, being able to demand too much product.

    At least their consumption is limited by their wages,

    Barnaby seems affronted when he may have to call on his own income stream to pay for his own consumption.

    I would ask the question, what does he think his parliamentary income is meant for, if not for paying his own way?

  12. Just so everyone knows what Hockey announced today…

    Mr Hockey formally dumped Labor’s proposed $1.8 billion fringe benefits tax crackdown on cars that the Coalition campaigned against.

    Appalling policy.

    He also cut the tax on superannuation pension earnings above $100,000 for 16,000 wealthy people at a cost of $313 million.

    Appalling policy.

    Labor … said it was unfair the government was cutting tax on savings for high-income earners at the same time it was removing a tax cut worth up to $500 on superannuation for 3.6 million low-income workers, including 2.1 million women.

    Appalling policy.

  13. You know what’s ultra sad about this? For all their harping on about the debt left by Keating it was actually Howard and Costello who created the structural deficit in the first place.

    New Liberal government, no change.

    • And you know what’s worse? The Howard/Costello debt truck was all about total foreign debt, not just government debt.

      Any guesses as to what happened to total debt during the Howard/Costello reign?

      http://www.smh.com.au/business/debt-and-politicians-sleight-of-hand-20090602-bub3.html

      In the days before the 1996 election, John Howard and Peter Costello had a Debt Truck driving around the countryside to remind everyone of the huge net foreign debt the nation had run up under the Labor government. By the time of the election it totalled $193 billion.

      Despite inheriting a “budget black hole” from Labor, within two years Costello had the budget back into surplus. The successive surpluses were used to repay debt and by June 2006 the Commonwealth’s net debt had been eliminated. As Costello never ceased reminding us, the Libs had paid off “Labor’s debt”.

      Just one problem: the debt they paid off wasn’t the one they’d made so much fuss about before the election. That was the net amount the entire economy – both the public and private sectors – owed to foreigners.

      The debt they paid off was one they’d thought hardly worth mentioning while in Opposition, the much smaller net amount owed by just the Federal Government – mainly to Australians.

      And despite the paying off of the Commonwealth’s debt, the net amount the economy owed to foreigners just kept growing, completely unmentioned by Costello. By the time Howard left office it had more than trebled to $603 billion.