But the level of government support provided to middle-income earners – those in the 30th to 70th income percentile – would fall to between $214,000 and $257,000 as a result of the pension changes…
The Australian Institute of Superannuation Trustees works with Mercer to release a “super tracker”, which assigns the retirement income system a “fairness” score. This score is based on the cost of government support for superannuation tax concessions and the age pension.
“A perfect score of 10 out of 10 would represent a level playing field of government support across all income percentiles,” AIST chief executive officer Tom Garcia says.
“Prior to the budget, the tracker’s fairness score was a worrying 3.3 out of 10.
“Budget changes to the asset test would reduce this score to just 0.3 out of 10, effectively blowing fairness off the table.”
The Abbott Government’s changes to the Aged Pension, which restored the assets test (excluding the family home) for the part pension back to its pre-2006 level (when Peter Costello halved the taper rate), were absolutely necessary.
The Aged Pension currently takes up over a tenth of the Commonwealth budget (excluding civil servants) and costs around $40 billion currently or some 2.9% of GDP. It was also forecast in the Intergenerational Report to grow to around 3.8% of GDP by 2055 without measures to curb its growth.
At the same time, the proportion of workers is projected to dramatically shrink (see next chart), meaning the burden on younger working Australians from rising pension costs will rise inexorably.
While the Government should be congratulated for its Pension reforms, it has behaved hypocritically in ruling-out corresponding reforms to superannuation, whose concessions are currently worth tens of billions of dollars, are growing by around 10% per year, and overwhelmingly benefit the highest income earners (see next chart).
When Tony Abbott first ruled-out superannuation reform, he claimed that “We respect people’s savings. We don’t think that superannuation is government money. It’s your money”. He also argued that “there is a world of difference between taxpayer-funded benefits and people’s own savings.”
In pursuing this line of reasoning, Abbott took ideological spin to a whole new level.
There is no difference in the Government giving someone $1,000 in cash or giving them an extra $1,000 via a tax concession. And yet, here we have Tony Abbott attempting to argue that it is somehow virtuous to allow wealthy, older Australians with huge superannuation balances to pay less tax (or zero tax in the case of those aged over-60).
Tony Abbott seems to honestly believe that tax loopholes are good and virtuous, whereas direct transfers are not. Of course, it is no coincidence that those benefiting the most from superannuation concessions are also high income earners.
As I keep saying, the biggest losers from the Coalition’s superannuation largesse are ordinary taxpayers, who now face ever-rising tax bills as fiscal drag pulls them into higher tax brackets, raising their average tax rates. Of course, lower income earners are also punished the most through bracket creep.
But instead of undertaking genuine tax reform – by reforming superannuation, negative gearing, and capital gains tax concessions in exchange for lower income taxes – the Coalition has chosen to maintain the status quo, continuing the “age of entitlement” for its wealthy constituents.
Not that Labor is much better, who despite proposing modest changes to superannuation (and possibly negative gearing), opposed reforms to the Aged Pension.
