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
year.
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
Frequently Asked Questions about this Article…
What did Treasury secretary Martin Parkinson say about government spending, taxes and the budget outlook?
Martin Parkinson warned that demand for government-provided “superior goods” (healthcare, aged care, disability assistance, education and welfare) will keep rising while the taxation base is weaker than previously expected. He said days of large surpluses driven by buoyant tax receipts are behind us, with tax receipts expected to be about $20 billion a year lower than pre‑crisis projections, and that meeting new spending demands will require either more revenue (including higher or new taxes) or significant savings elsewhere.
How could reforming superannuation tax concessions help pay for services like the NDIS?
The article reports a proposal from Richard Denniss and David Richardson to reform concessional tax treatment of superannuation and use the savings to help fund the National Disability Insurance Scheme (NDIS). That suggestion would redirect revenue forgone on super tax concessions towards the extra cost of the NDIS (estimated in the article at about $8 billion a year) and could make funding more equitable.
Who benefits most from current superannuation tax concessions?
According to the article, the benefits of super tax concessions are highly skewed toward higher earners: the top 5% of income earners receive 37% of the cost of those concessions. The piece argues that a large share of the ‘largesse’ flows to better‑off retirees rather than those most in need.
How large are the revenue losses from superannuation tax concessions?
The article states that rapidly growing revenue forgone on super tax concessions is projected to equal the cost of the age pension — about $45 billion a year — making those concessions a very large fiscal item relative to other spending.
Do super tax concessions actually save the taxpayer money by reducing pension costs?
Industry proponents argue super concessions save taxpayers by reducing future pension payments, but Denniss and Richardson’s analysis cited in the article suggests it costs the taxpayer about $2 for every $1 saved on pensions on average. This implies the concessions are not a cost‑effective way to reduce pension outlays overall.
Would reforming superannuation tax concessions be fairer for the community?
The article argues reform could improve fairness because current concessions disproportionately benefit the well‑off. Redirecting some of that fiscal support toward disadvantaged groups (for example, funding disability services) would take money more from higher income earners and give it to people with greater need, which the authors of the proposal see as a fairness improvement.
What realistic options do governments have to meet rising demand for healthcare, aged care and disability assistance?
Parkinson’s message in the article is clear: governments cannot meet rising demands simply by squeezing more efficiency out of existing programs or relying on existing tax bases alone. The realistic options are either raising more revenue (which could include higher or new taxes) or finding significant savings in other areas of spending.
As an everyday investor, should I be paying attention to debates about super tax concessions and budget reform?
Yes — the article makes the point that debates about superannuation tax concessions and broader budget pressures are policy matters that could change the tax treatment of retirement savings. While it doesn’t provide specific investment advice, it’s reasonable for everyday investors to follow policy proposals because reform efforts are being discussed as a way to raise revenue or improve fairness.
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