The Intelligent Investor Growth Fund is listing on the ASX. Initial Offer closes Friday.

End the largesse of super tax concessions

NOTE well: Treasury secretary Martin Parkinson has provided voters with the only no-bulldust budgetary advice they're likely to get between now and the federal election.

NOTE well: Treasury secretary Martin Parkinson has provided voters with the only no-bulldust budgetary advice they're likely to get between now and the federal election.

In a speech last week, Dr Parkinson noted the community's demand for the sort of "superior goods" governments provide such as healthcare, aged care, disability assistance, education and social welfare will only continue to rise. (That's because demand for superior goods grows faster than our income grows.)

"At the same time, the taxation base is weaker than we had imagined in the mid-2000s," he says. "With hindsight, it is apparent that part of revenue collections then reflected a temporary bubble in the economy."

Translation: perhaps it wasn't smart to award ourselves eight income-tax cuts in a row.

"The takeout message is that the days of large surpluses being delivered by buoyant tax receipts are behind us ... tax receipts are expected to remain substantially lower about $20 billion a year lower at the Commonwealth level alone than pre-crisis projections. The outcome is that ... we face, as a community, a widening gap between the demands we are placing on government and what we are prepared to pay to fund government."

Now get this: contrary to every impression the pollies will be giving you, "we will not be able to meet these demands for new spending by increasing the efficiency and effectiveness of existing government spending alone [although this is important in its own right].

"Nor can we rely solely on our existing tax bases, as these are expected to deliver less revenue as a proportion of gross domestic product ...

"What will be required of governments at all levels to meet the community's demand for new spending, will be more revenue or significant savings in other areas."

That's the news: the Treasury secretary, high priest of economic rationalism, has countenanced higher taxes and even new taxes.

All this is a blow to those people anxious to see both sides of politics commit to introducing the National Disability Insurance Scheme at an extra cost of $8 billion a year.

So what on earth can we do? Well, as Richard Denniss and David Richardson, of the Australia Institute, suggested last week, we could reform the concessional tax treatment of superannuation to make it more effective and less inequitable.

Using the saving to pay for the disability scheme would strike a double blow for fairness. It would take money disproportionately from the well-off (the top 5 per cent of income earners get 37 per cent of the cost of super tax concessions) and give it to some of the most disadvantaged people in our community: the disabled and their carers.

Consider this: within a few years, the rapidly growing revenue forgone on super tax concessions is projected to equal the cost of the age pension itself: $45 billion a


That's way more than the feds spend on education and almost twice what we spend on defence. We can afford to shower this largesse on the better-off 60 per cent of the population of pension age while the disabled get screwed?

The grossly underpaid financial services industry and the direct beneficiaries of the super concessions argue they're justified by the consequent saving to the taxpayer in reduced pension payments.

But as best Denniss and Richardson can determine, it costs the taxpayer $2 for every $1 saved. That's an overall average, of course. People at the top would save a lot more than $2 for every $1 they gave up, while many towards the bottom would save less than they gave up.

It is not hard to see why the super tax concessions offer other taxpayers such a rotten deal. As a supposed incentive to people to make their own provision for retirement, they're hopeless.

Most of the people who receive it save no more than they're compelled to, while people at the top of the tree are hugely rewarded for saving they'd do anyway. The less your ability to save, the smaller incentive you are given, and vice versa.

For those organisations urging us to spend big on worthy causes, the "takeout message" from Parkinson's sobering assessment of our scope for greater spending is clear: don't waste your breath unless you are prepared to get your hands dirty and suggest a good way to pay for it.

Twitter: @1RossGittins

Join the Conversation...

There are comments posted so far.

If you'd like to join this conversation, please login or sign up here

Related Articles