AUSTRALIA'S roughly 12 million superannuation contributors are nervous, and they vote. The fixing of the September 14 election date has supercharged the super debate, stoking fear and fuelling a nascent class war over retirement income. The sums involved are enormous as are the political stakes as both sides pander to a growing tide of baby boomers reaching retirement age from now and over this decade.
Tony Abbott says Labor is preparing to soak the rich to rescue its parlous budget position via harsh tax increases on superannuation accounts of the well-off. Julia Gillard says the Coalition is revealing itself as fiscally reckless and champion of the rich.
The first skirmishes have already forced some sideways steps. Abbott has promised to make no negative or unexpected changes to superannuation for an entire parliamentary term - despite ballooning costs to the budget and ample evidence the present rules benefit the rich disproportionately.
But the admirable simplicity of his message was tempered by his continuing commitment to scrap the mining tax-funded Low Income Super Concession. The government argues the LISC, which relieves 3.6 million workers earning below $37,000 of paying any tax on super contributions, is essential assistance for the least well-off, more than 2 million of whom are women.
The pressure this week also forced Julia Gillard to rule out re-introducing tax on withdrawals for wealthier over-60-year-olds, thereby substantially narrowing her options for recouping losses.
The game speaks to the powerlessness voters feel about superannuation. For many, it is a confusing subject tinged with hope and fear. On the upside, there's the rosy assumption that we will live long enough to retire and that our post-working lives will be comfortable enough to make it all worthwhile.
We expect our investments to grow and we trust that the rules protecting them will not change. Governments encourage us to these conclusions to ensure people make provision for their own retirements rather than become a burden on future generations. Demographic models project that the number of those paying taxes relative to those in retirement, will shrink from a ratio of about five to one to less than three to one over the next 35 years. The age pension is not an option, we're constantly told.
On the downside of the superannuation compact, is the doubt: Doubt that we will live long enough to enjoy the fruits of our labours; doubt that the amount saved will be enough; and doubt that we can trust politicians to stay out of it.
The sweetener to make hope trump fear is an implicit promise of policy stability and, of course, favourable tax treatment for super over normal income. Contributions up to $25,000 a year attract a 15 per cent tax rate rather than the generally higher marginal income tax rates. The same rate applies to earnings and a zero tax rate applies to withdrawals on retirement.
On paper, this is a long-range deal that works - it benefits the individual and helps the state meet the burgeoning costs of a greying population. However, these concessional tax rates, designed to encourage saving, are working too well. High-income earners simply have greater scope to save and thus evade the 46.5 per cent marginal tax rate on income by sending it into super.
The result is that what is saved on the age pension budget through self-funded retirement, winds up being less than what the superannuation policy costs in tax revenue foregone.
The Australia Institute's Richard Denniss says the problem is not widely understood. "Superannuation tax concessions are forecast to be $45 billion a year in the next few years and this will soon be the largest single expense of government," Denniss said. "At the moment, the more you earn, the more the taxpayer contributes to your super."
Consistent with the class battle, Labor's changes, expected to increase the tax rate on both contributions and earnings for the wealthy, will be sold as restoring fairness. There's certainly an argument for that, but Denniss says a more fundamental rethink is required. "Ask yourself this: 'If the government is going to spend $45 billion on retirement income, who should we give it to, should we give most of that to the wealthiest 10 per cent, or should we spread it around more evenly?' "
It is a very good question, but politics is rarely the place for good questions, especially during a class war.