I know you mean well Tristan but your claims about superannuation are both incorrect and distorting. You can model super quite easily on a spreadsheet and you will see that over 40 years a typical fund will have paid out about 30% of the fund balance in tax. Super pensions payment levels are directly in proportion to the fund balance on retirement. To put it in perspective, income tax of 30% is only paid by those earning more than $150,000.

I do agree that some people on very high incomes are doing very well with super but they make up only a small proportion of the total. Recent data released from the ATO show that 89% of SMSF have less than $2 million in total. For a typical husband and wife fund this is equivalent to paying out two pensions of $40,000. Obviously, a combined family income of $80,000 isn't doing it that tough, but remember that 89% are getting less than this.

Hi Wattle;

Richard Denniss shows that a third of over $40 billion in superannuation tax concessions were going to the top 5% And yes we're talking about millionaires and multi-millionaires.

see: http://www.abc.net.au/worldtoday/content/2012/s3568235.htm

Assuming a strata of 'upper middle class' recipients as well that would probably extend to at least 50% to the top 10% - probably more.

And the following article shows that the bottom 20% income demographic accounts for only 1% of total wealth -

see: http://theconversation.com/income-and-wealth-inequality-how-is-australia-faring-23483

So there really are tens of billions to be saved if we remove regressive concessions, and restructure the overall tax mix.

Remembering that the alternative they're mooting is to hit disability and aged pensioners.

The problems raised by Tristan, are created by the revenue raising model, with all of is flaws and exclusions; usually for the very wealthy and or, a large portion of the multinationals, (40%?) who pay no company tax to anyone?
Yet continue to prosper, doing business here!
Bringing just this element into the tax collection fold, could increase the budget bottom line, by as much as 100 billion.
The only way this could ever be done, is by completely jettisoning the current complexity, in its entirety, and replacing all that convoluted complexity, with a single stand alone, unavoidable expenditure tax, set at around 4.8-5%.
This would also end the ability of huge companies like Rio Tinto, to offshore our money, and start finally paying a fair share of a common tax liability.
Just this much change, would lift the budget bottom line by as much as an 100 additional billion!
The upside, would be the repeal for Gina Clive and all the other self made men, [ born in log cabins, created with just their own two hands,] would be the accompanying repeal of fuel excise, payroll tax, personal income tax, company tax, the mining tax, the carbon tax and so on.
I mean, an expenditure tax, is also a defacto carbon tax, given your's and my carbon footprint, is only as large as our actual expenditure!
And with the repeal of all other tax, save say a states' alcohol and tobacco excise, we could add another 7% to the averaged bottom line, due to, it would no longer be necessary to comply with, or expend any actual money, complying with a jettisoned tax act!
A huge and inordinately powerful lobby, which likely includes many of the former bankers, [Directors and CEO's,] who between them created the GFC, will cry foul or reject change or increased tax transparency!
As will all those with skin in the current complexity.
I mean, and for heavens sake, where we successfully lead, others with even more powerful reasons for reform, will surely follow!
Rhrosty.

Hi Tristan.

I think you should be wary of the $45 billion that Richard Denniss is referring to because it's a Treasury number taken out of context. It assumes that super is taxed at the top marginal rate. This would mean that retirement savings would be taxed at a much higher rate than normal income. For example, a person earning $38,000 would pay 35% tax on their entire super contributions, and do you think this is fare?

The main problem we have with super taxation is that it is taxed at the front end rather than the back end. When somebody is making contributions when they are 18, we don't know how wealthy they will be at 65. A system that didn't tax fund contributions or earnings but taxed withdrawals at normal tax rates would give low income earners a much better deal and deter the super wealthy from loading up their super.

Wattle,

Good posts, thank you.

What I don't understand is - why target pensions
and the vulnerable? Why allow the big-end of town
to become richer, and the poor, poorer? If we're
in such tire straights economically as they claim -
why not get polluters and mining companies to pay?
Why insist on keeping the Paid Parental Scheme - and
neglect investing in child-care. Why take away funding
from Charities such as the RSPCA and others that do such
a good job and are involved in the community? The list
goes on and there are so many unanswered questions.
Being selective in who to target for "belt tightening,"
is simply not fair. Politicians should take heed of
public opinion. Their jobs depend on it.

Wattle, your links don't seem to lead anywhere? Or maybe its a virus or something on my computer messing it up for me?... (I keep on getting words repeated twice in my hyperlinks - very frustrating) I'm getting hyerlinks appearing in this very post which I haven't intended. I don't know what's happening there...

But anyway - that fact remains that a third of superannuation concessions are made available to the top 5% income demographic. And removing those would save approximately $15 billion.

And remember its mainly the wealthy who can afford to put tens of thousands into super every year; and effectively escape paying tax.

Sure there are other ways of taxing the wealthy. Inheritance taxes for instance. But neither major party will touch that with a ten foot pole.

Also when you talk of people earning $35,000 a year - re you talking about retirement income? OR during a person's working life?

Giving a fairer go to low income Australians can be achieved via a broader restructuring of the tax mix as I've suggested.

Also it needs to be remembered that if someone retires on $35,000 a year they are doing VERY well. The Aged Pension is around $20,000 - and those surviving on it are living in poverty.

Good points Foxy.

Gillard just indexed the aged pension by another three years (67) and Abbott is going to add another three years (70). It was Howard who re-indexed pension payments by changing the permanent formula so high that even Treasury had a panic.

There is some substantial BS going on here. If you were born TODAY, you might live to mid 80s. The majority of the Boomers will still croak in their mid to late 70s, especially men who did hard physical labour. Quite a few female Boomers will go the distance in to their 80s.

But here's the thing. It's a statistic. It's not REAL. There are about a dozen policy levers you could pull before reaching for the shotgun. Try over coming age prejudice in recruitment would be one.

Absolute shocker. Oh yeah, remember when they deregulated the economy, we'd all be living on easy street? BS

Hi Tristan,

I apologise for not putting in links. You can get it straight from the horses mouth at the ATO website

http://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Super-statistics/SMSF/Self-managed-super-fund-statistical-report---June-2013/?page=2#Total_asset_range_table

or you can look at Trish Powers summary

http://www.superguide.com.au/comparing-super-funds/typical-smsf-trustee-profile

I agree that a $38000 super pension is better than Centrelink but we were discussing taxation levels, and a person employed and earning $38000 pa is paying about 10.5% tax overall but their marginal tax rate is 35%.

If we were to tax super at someone's marginal tax rate, as suggested by Richard Denniss, then low income earners would be hit hard.

Thanks Wattle;

Richard Denniss points that the top 5% income range benefit largely from the concessions - making up about a third of the cost... If we removed those concessions from the top 10 per cent income demographic alone - or maybe the top 15% - we would probably be able to save over twenty billion without hitting low income earners.

It's Abbott's attack of super co-contributions which is hurting low income earners.

As will attacks on the Aged Pension.

$38,000 a year for retirees is not 'wealthy' - but it is a relatively privileged position to be in compared with most.

Workers have a right to a decent retirement. Capitalism as we know it is focused on chronic growth regardless of the effects upon the 'social life-world'. Under capitalism we have achieved abundance - but rather than making the most of that abundance to set us free - instead we are enslaved to the accumulative imperative, and the accumulative logic.

That is neither 'the good society' nor 'the good life'.

Dear Malcolm (Paddy),

Thanks for that.

I'm worried sick about people like my mum who's
currently in an aged-care facility. Independent
Living it's called. She had to
share the money that they got from the sale of
their home to put Pop into a Nursing Home after
a stroke left him needing 24/7 care. Now if she's
going to need a Nursing-Home in the future - although
she's got a bit of money left - she's barely keeping
her head above water. The costs of decent Nursing Homes
these days are outrageous and coming up with the huge
bond fees is a keller for most people. That's why
cutting into people's pensions is such a worry.

I wish the government could do something about putting
caps on Nursing home fees, especially bonds. The homes
make enough profits as it is - but they should not just
be about profits - or am I being naive?

Foxy sweetie, you've got that wrong, most nursing homes make a very poor return on investment. It was the poor return that caused a crisis in availability of places in the Keating/Howard era. No one would invest in the things, as they were offered a lousy return.

That is why Howard introduced the bond as a way of covering the capital cost of new facilities. I don't like it any more than you do, but without it there would not be places available when our folks, & ultimately us, need them.

I made a pretty serious study of it when my mother had to go into one. The system looks pretty much like mobile phone contracts, almost designed to make it easier for the smarties to rip us off. I opted to pay the $300/400 a month extra, & not lodge the bond.

She & the fool who did her tax had made it harder by telling the tax office she owned her own home. In fact she owned the granny flat, value about $20,000, I had paid the $35,000 to install it, after a huge hassle with council. As her address was my address, the taxman had her down as owner of my property. She cost herself a large chunk of pension because of that. It then led to problems with the bond story.

Still I'm sure if many of us knew in advance of all the restrictions & costs we are saddled with after pension age, I'm sure we would have given anything we had to our kids while we still could. Do get some advice yourself, while you still have the freedom to do as you want

Tristan it is pretty obvious you were not a math teacher. Did you do any?

It is also pretty obvious you did not notice the soviet union, who's government was to be all things to all people, collapsed under the load of it's socialism.

Perhaps you also missed the fact that Communist China was going the same way, until it changed to a market econom, if not to a democratic political system. Of course that is also only a matter of time too.

Perhaps you have not noticed the collapse of the bountiful Mediterranean countries, who's socialist policies had sent them broke, but surely you have heard the UK is trying desperately to back off it's public health system, as it is sending them broke.

No you say? Could that be, because you turn your eyes away, rather than accept, & understand that these policies encourage the bludger in most of us.

Reward your dog for doing your bidding, & it will respond, doing what you ask. Reward your bludger with ever more handouts, & as you should expect, you will get an ever increasing population of bludgers.

Dignity comes from providing for you & yours. It can not be had from a government cheque. Learn that, & we may then be able to consider you an independent adult, rather than a dependent kid.

You might then understand the NDIS was to some a pipe dream, but to Gillard was a neat trap she could load to injure her replacement. She new damn well they would be injured by cancelling it, but could never afford it. I'll bet she is still giggling every time someone like you push for it's fairyland ideas.

One of the things to think about, is the banana republic, third world economy, we will become without a manufacturing industry, particularly when we've gone past our own minerals peak.
Our young folk, due to their own apathy, and lack of involvement in the political process, are in for a very rude awakening, and will have nobody but themselves to blame.
Those without an adequate education, will be limited to part time work, and extreme competition for too few very menial jobs!
And our universities are following the American model, with higher and higher tuition fees, and private debt collectors, harassing the unwary, who thought that their HECS fees were forgotten. What follows that? Tent cities and soup kitchens?
The phenomena that confronts our future, is a time not too far ahead, when the have nots, will greatly outnumber the haves, and as elsewhere, the haves will retreat into private gated prisons of their own making, just to feel safe?
And this is the future we can all expect, given our current crop of illustrious leaders, can't think beyond free trade agreements, with basically bankrupt countries?
Selling the family farm, the family silver and or, our very economic sovereignty; and winding back social welfare is their only available illogical response to contraction?
Thereby guaranteeing even more contraction, as discretionary spending continues to dry up, or is further consumed by higher house prices and the cost of energy, and all that depends on it.
The federal budget seems focused on reducing real welfare for the real needy, while preserving expanding welfare for the rich.
And given that is so, the economic illiterates, would simply compound our current raft of economic problems?
What we need are visionary leaders! What we have gotten instead, are ideologues, who seem to be self serving, and or part of the problem?
Unfortunately, for the average battler, gripped by traditional apathy, is things will likely have to get a lot worse, and from where, it could take centuries, if ever, to recover!
Rhrosty.

Dear Hassie,

Thanks for the advice.

I'm not sure how we're going to cope when mum needs a
nursing home. But it's good advice, so Thanks.
We've done some inquiries regarding some homes - and
do you believe that for a single room with an ensuite -
in several nursing homes here in Melbourne the asking
price for a bond - is from $550,000 on up. A larger room
is between $650,000 to over $1 million.

Who the heck has that kind of money?

And "extra service," fees are on top of that of course.

Has been; You say we "cannot afford" the Aged Pension, and presumedly the Disability Pension also. But the Aged Pension costs $38 billion, and the Disability Pension $15 billion OUT OF A US$1.6 TRILLION economy. So to put it all in perspective - it shows that our welfare bill is hardly "living beyond our means". Rather it is - and always will be (in our lifetimes) a matter of *priorities*.

Do we deliver $40 billion of tax cuts to the middle and upper middle class; all the while spending billions more on Parental Leave and Private Health Insurance Rebates - for those same people? Do we deliver superannuation concessions to millionaires? Because if we don't, then we have plenty more revenue at our disposal...

Greece has a debt crisis, yes. But that's because they were consistently spending more than they were bringing in. And for the record they had a minimum retirement age of 55. By contrast I am arguing that our retirement age should revert to 65.

Tristan what do you think we are doing.

Right now, thanks to Ruddy & Gillard, we are spending much more than we earn, & that is before the NDIS, Gonski or the NBN, [currently off budget to hide the huge cost] kick in.

With the current outlook, our debt is going to get worse, for a long time before it gets any better. I really can't understand how they got us into so much trouble, so quickly, but they managed it to some extent by thinking like you.

They did not decide if we could afford something, they just spent the money. They even locked in spending way past any time they were likely to be in government. That could have been to try to buy votes, but was probably just malevolent act of revenge on voters who wanted them gone.

I'm not against moderate welfare, I'm an age pensioner, & extremely grateful to the taxpayer for their generosity, but we still have to be careful of the goose & golden egg syndrome. Take too much, & we will destroy our economy, & everyone's well being.

I agree Tony's maternity thing is crazy, & inequitable, why are well paid mothers worth more than stay at home mothers who probably have more need, but do remember, my generation raised our kids with out any of it.

As for other things, the debt must come down, not increase, & until it does, no new spend should occur, & some cuts may be required, even to the age pension.

Tristan, I agree with your six reforms.

However, even if we were highly successful in achieving all of these, we’d still be in deep poo if we failed to address immigration.

You just touched on a vitally important factor of this whole story, which was then left unexplored… and hasn’t been commented on by any posters thus far.

You wrote:

< There is also the question of what matters most in life: the chronic capitalist commitment to endless economic growth regardless of the social cost… >

Endless rapid growth. THIS is the biggest issue here! What we should be pursuing is genuine per-capita economic growth. What we are actually getting is massive population growth, which is constantly and enormously increasing the demand for everything. It is costing us the earth to accommodate new residents. We are spending in the order of 80b$ per annum just to duplicate all the basic infrastructure and services for ever-more people.

As a fundamental part of your approach, you would surely support the freeing up of a large part of this money, by winding immigration right back ??

If we don’t do this, even our best efforts at the reforms you suggest are not likely to get us very far.

< Budget pressures also need to be considered in the context of a growing infrastructure crisis. >

Yes! And our very high immigration rate is making this infrastructure crisis rapidly worse!

HasBeen - it is considered 'common sense' that 'we are living beyond our means' and that we need to manage our Federal Budget as if it were a household budget.

But a number of points are worth observing.

Even in a household budget sometimes you need to make long-term investments - for instance in a car to get to work; in a house - because people cannot do without a roof over their heads.

Secondly, though: Our debt is low and serviceable by global standards. But it begs the question also why the Govt is selling off a profitable enterprise like Medibank Private - which bolsters both competition and the Budget bottom line. The problem is an Ideology of small government.

Thirdly I am not suggesting money grows on trees. I am making the point that in Australia we have small government by global standards - and that it is that very small government that isn't sustainable. Why? Because without increasing tax and making strategic savings where upper-middle class welfare is concerned - we cannot afford transport, communications, health, education etc. Unless we do something this will probably end in 'user pays' for roads, schools etc - which if inefficient AND inequitable.

I make the point that our GDP is worth about US $1.6 TRILLION. And I want people to get that figure in their head -$US 1.6 TRILLION.

Abbott, Hockey and co want to scare us with big numbers and confuse us about the level of debt and our capacity to service it. *I make the point* that we could make an array of savings re: upper middle class welfare and 'welfare for the rich' which could save tens of billions... WE DO NOT NEED pension austerity. We are well within our means if we restructure tax and spending progressively.

Abbott, Hockey etc do not believe in the social wage or the welfare state - for them it is 'every man (and woman) for themselves'. That's not the way you build a 'sustainable society'.

Ludwig - re: immigration it cuts both ways.

Yes immigration means greater strain on infrastructure that needs to be paid for somehow.

But it also creates economies of scale. For instance - we can get away with a *proportionately* smaller Defence budget.

Though if we don't invest in infrastructure as we grow we'll end up in a right royal mess. And that's what governments in this country are allowing to happen.

Tristan,

A bigger population also creates diseconomies of scale. As just one example, desalinated water is four to six times as expensive as dam water. The last lot of water restrictions cost us around a billion dollars, according to newspaper reports, and $150 million in Melbourne alone according to the Productivity Commission 2010/2011 annual report. This is due to such things as cracks in walls and foundations, and elderly people injuring themselves while carrying water to gardens. The cost of upgrading infrastructure for a denser population in an area that is already built up, tearing up the streets and the like, is also greater than for a green fields site.

The economist Leith van Onselen gives a graph showing total GDP and GDP per capita since 1996. GDP per capita has had very little growth over the past 8 years despite massive population growth.

http://www.macrobusiness.com.au/2014/03/gdp-is-rubbish/

van Onselen says:

"This infatuation [with overall rather than per capita GDP] has led to spurious policies like the pursuit of endless population growth on the basis that it stimulates headline GDP (more inputs equals more outputs), even though it provides next to no benefits to everyone's share of the economic pie as measured by GDP per capita and arguably reduces the living standards of the pre-existing population."

So far as your main argument is concerned, I am mostly in agreement with it. The 37% of superannuation tax concessions that are going to the top 5% are wasted money because these people would save anyway, since they want a better standard of living than they could afford on the pension. The politicians' problem is that they want to squeeze low and middle income earners until the pips squeak, while touching the genuinely rich with a feather. If they can't bring themselves to tax the money on the way out, as Wattle suggests, they should tax on the basis of how much has been accumulated in superannuation, with a reasonable benefit limit on the total amount, beyond which there will be no tax concessions.

Yes Tristan, but to make those long term private investments, & pay back the borrowings, we have to cut back on luxuries. No flash car, no restaurants or holidays.

Those are the NBN, the NDIS, Gonski & the maternity leave, not only for private industry, but all government funded employees also, are the national luxuries we can not afford, & will have to cut back.

Ridiculously generous public sector pension schemes are another luxury which we not only can no longer afford, but are so discriminatory that equity demands they be massively reduced.

Shoving rather dumb people through totally useless university degrees is another luxury we have to stop. Many of these degrees are of no earthly use, other than as a ticket to a public service job. Another luxury we need to eliminate is the thousand of university people running & teaching these courses.

The only economy of scale immigration brings, is the payment of more welfare cheques by the same bureaucrats. With the growth of ethnic ghettoes in our larger cities, the scale of law enforcement cost requirements will make any economies elsewhere infinitesimal by comparison.

Then you suggest cuts to defense. Mate Julia cut defense by over a billion a year to spend on boat people, then wasted heaps of the remaining budget ferrying the bludgers about. We are already dangerously low on defense, much lower than ever. Much lower than similar countries. Defense is one thing that demands a 25% increase immediately, & another 25% over the next 5 years.

Yep, time to drop those "that would be nice" 7 start doing what must be done. Do you know anyone who could run a course on use of shovels in our universities. A degree in real work is the one we really lack.

Has been - I don't support 'flat' or 'overall' cuts to Defence - but only a *proportionate* reduction as the country grows. And if we're going to cut defence it needs to be linked with multilateral disarmament in the region... Although I accept greater self-reliance in Defence could mean more foreign policy independence...

Hasbeen: You call "NBN, the NDIS, Gonski" 'luxuries' 'we cannot afford'. But if you read the article you will see that we are a $US 1.6 TRILLION economy, and that we can save tens of billions from restructuring tax and withdrawing superannuation concessions. Wake up! Abbott and Hockey are pushing this 'beyond our means' argument because they have an IDEOLOGICAL commitment to reducing govt spending.

Also keep in mind that NBN and Gonski are crucial for our competitiveness. And you cannot put a price on the value of an educated citizenry - even where some courses don't have as much of a direct application in the labour market as some...

And even though we do have an ageing population - Even in 20 years time we will still need to make *choices* and decide about *priorities*. Personally I think a decent retirement, decent health care, decent aged care, educational opportunities for our kids - are worth the social investment... Sure it might mean some people might have to put off the new car for a year or two; or have an overseas holiday every *second* year... But it is well worth it.

And who can put a price on supporting the disabled - who suffer in ways you probably cannot imagine... And yet you are willing to dismiss care for those people as 'an unaffordable luxury'...

<< Though if we don't invest in infrastructure as we grow we'll end up in a right royal mess. >>

Absolutely Tristan.

So it is surely completely daft to continue to rapidly increase the demand for infrastructure while the supply side is looking precarious!

This is an amazing phenomenon – that just about everyone thinks that the demand side is unaddressable, even if the supply side is critically not up to meeting the demand!

I encounter this all the time on OLO!

It is just so utterly nonsensical! We absolutely need to pull right back on the immigration rate, at least until we catch up with infrastructure and services…. and then have an immigration rate that does not exceed our ability to provide I&S, and in a manner that leads to an overall steady improvement for the whole population.

Yes there are economies of scale. And there are diseconomies. More congestion, more environmental alienation, a faster rate or exploitation of non-renewable and potentially renewable resources, etc. In fact I would argue that the downsides well and truly outweigh any economies of scale or other upsides to rapid immigration.

Afterall, we’ve had high immigration for a long time now, and it just hasn’t cut it in terms of providing real economic growth, improving our nation’s average quality of life or future prosperity and security. And we’ve got steadily further and further into debt and further behind in I & S... despite the massive wealth generating by the mining boom.

High immigration is enormously stupid. It is a critically important factor that everyone should be thinking about in relation to the next federal budget.