Seeing through Labor's super con

Like Margaret Thatcher, Labor's super reforms will win short-term praise. But they achieved just one thing: locking in a tax minimisation scheme for the wealthiest savers in the face of Labor and Liberal values.

Political legacies, as the death of Baroness Margaret Thatcher demonstrates, take a long time to settle.

The long financial bull market started in the US under Ronald Reagan, and mirrored by Thatcher's policies across the pond, gave the Iron Lady nearly two decades of good press, before the collapse of the credit bubble that fuelled it began in October 2008.

The stockmarket crash of 1987 had been a glitch – growth recommenced virtually the next day – whereas the global financial crisis was the collapse of a model of capitalism that could carry us no further.

In the broadest terms, Thatcher had allowed a major industry to flourish in the City of London – international finance – and Britain's uncompetitive sectors to wither.

Around 1992 I bought one of the last Black & Decker power tools stamped 'Made in Britain', but it was the end of an era. The economic text books had been right, it seemed. Competitive advantage won the day, and the Brits were much better suited – Saville Row suited, in fact – to spivvery and the buying and selling of global capital, than they were to exporting useful things like my hardworking jig-saw (still going strong).

And now the Baroness's legacy looks stained forever. The City, though pumped up temporarily with the capital flows from US and European money printing, will not be seen by the British people again to be an engine of growth.

The Cameron government wants green shoots to emerge in many of the truly smart sectors of the economy - high-tech, aerospace and automotive manufacturing – all aided by the low, low pound. Best of luck old boy.

Meanwhile, in the land my own family migrated to just seven months after Thatcher came to power, political leaders are setting themselves up for similar legacy revisions in years to come. Short-term politicking is blocking some of the major reforms needed to grow the Australian economy, and a willing media industry is cheering the carnival on – and to hell with long-term economic growth.

Last week's superannuation debate is a prime example.

Relatively few commentators have noticed that Labor's reforms acheived only one thing – locking in a tax minimisation scheme for our wealthiest savers.

The super system is designed to put away money for long-term investments, the fruits of which help pay the dividends required to support an aging population – putting in giant chunks at 59 and beginning to draw them down at 60 is not the way it was supposed to work – even if the scheme's progenitor, Paul Keating, now rather lamely says the Gillard government has got the "balance about right".

Richard Denniss, of The Australian Institute – who has been banging the super reform drum for well over a year – told me this morning: "The whole point is to encourage workers to save over the course of their lives, but the current arrangements only encourage people to shift assets into a low-tax environment just before they retire."

Down the income scale, families that do not have spare cash to put away dutifully pay the progressive marginal tax rates that all sides of politics agree are a good idea.

Higher up the income scale, those that find it easy to stash away up to $35,000 a year in their final years of work are allowed to do so – the net effect, is an opaque way of flattening the progressive tax scale for a very small proportion of Australians. 

Not only does that fly in the face of Labor's visions of 'fairness' and 'equity', but it disadvantages the great bulk of hardworking, aspirational voters the Liberal Party was set up to represent.

Moreover, because so few Australians reap the benefits of this money laundering, it works against the purpose compulsory superannuation was set up to serve.

Providing a tax minimisation scheme for the top third of Australia (and only a small part of that top third have $25,000 or $35,000 spare in their final years of work), and leaving two-thirds to retire on insufficient savings (economists do not think even 12 per cent compulsory super will take substantial numbers of oldies off the pension), means the bulk of retirees will be a burden on the government pension and will have less money in retirement to support the consumption side of the economy, or pay their own medical bills.

That is, Wayne Swan and Bill Shorten sold Australia a pup. They were 'protecting' Australians' super funds from the tax man, when the vast bulk of super savers don't have the free cash to top up their compulsory savings, and so don't get to enjoy the tax breaks being discussed last week.

What a con. This is the same party that, on the instructions of Ross Garnaut – achitect of so much of the Hawke/Keating reforms – is handing back billions of dollars to lower income workers based on the rationale that it is the best place, in productivity terms, to recycle carbon-tax revenue.

And so it is – it incentivises participation, boosts consumption in the sectors that need it most, and is one aspect of the carbon-tax package that has been widely accepted by economists. Good long-term thinking. Good for economic growth and good for business.

But the super debacle was the opposite. The coalition's cheap, but successful attempt to characterise possible reform of this giant money laundering scheme as a "raid on people", disgraceful as it was, was egged on by a media industry that had not done its sums.

In 25 years or so, my Black & Decker jig-saw and I shall retire. The fewer of my contemporaries that need to be bailed out by the state, the better. And that is specifically not what last week's super reforms will achieve.

Like Thatcher, Gillard may win a little praise in the short term – in this case for winning the argument against a 'raid' on 'people's' savings.

But a couple of decades down the track, the people living that 'legacy' will have a different view. If only we had an opposition leader who would stand up and make it clear to hard working Australians that they've just been duped.