The political time-bomb in the super system

Public sentiment is showing the earliest signs of the superannuation debacle to come. Will Canberra chiefs harness this energy before it blows up in their faces?

There are few things in politics as powerful as being first to identify a tide of social or economic change, and then first to loudly proclaim a policy response.

In good times, be first to order champagne. In lean times, be first to throw loaves to the mob.

In the early 1980s Bob Hawke was so quick in responding to the trade liberalisation and capital market deregulation led by Margaret Thatcher and Ronald Reagan, that he occasionally won plaudits from his own side of politics for ‘leading the world’.

In the late 1990s and early 2000s, John Howard was quick on his feet in responding to the early years of the house-price boom and the early part of the mining boom, and showered Australia with government largesse to make ‘battlers’ feel “comfortable and relaxed”, as he famously put it.

Howard’s luck ran out in 2006, when young zealots convinced him that the new hunger in the belly of now-wealthier Australians was to see radical labour-market deregulation to get things moving. It was a huge error.

The union movement, in 2007, read the public mood more accurately. Australians were largely quite fond of the ‘nanny’ effect of labour market regulation, and unions used the ‘Your rights at work’ ad campaign to destroy the Howard government and catapult Kevin Rudd into the top job.

But what tides are running heading into a 2016 election? What can be harnessed to either shore up the Abbott government or tear it down?

Surely one of the most potent untapped sources of power will be the inequities of the current superannuation system, some of which I discussed yesterday (How Keating’s super plan missed its target, August 28).

The drums are beating, with the Australian Council of Social Service again highlighting superannuation tax concessions yesterday.

Chief executive Dr Cassandra Goldie said in a statement: “The Federal Government cannot afford to keep giving the top 20 per cent of income earners half of all superannuation tax concessions if it wants the superannuation system to be effective in helping the majority of people to have a decent standard of living in later life, and have the revenue to pay for vital services for an ageing population.”

In the hands of a good political spin doctor, that message would once have been dismissed as ‘class warfare driven by the politics of envy’.

Importantly, however, at the present time it could also be embraced by either side of politics as a call to defend the ‘forgotten people’ or ‘battlers’ who can’t afford significant voluntary contributions to super and who, on current projections, will face low standards of living in retirement.

Goldie continued: “The government should shut down tax schemes which allow people over 55 years to churn their wages through their superannuation accounts, reducing their income tax rates to 15 per cent, at most.

“... Over time, the system of tax breaks for contributions should be restructured, so that all contributions are taxed at the individual’s marginal tax rate, minus a rebate. The high income earners would get the same tax break per dollar invested as low income earners, no more and no less.”

Goldie is dangling a ready-made election campaign in front of both parties, and many will assume that it will be the Labor Party that eventually grasps it.

Do not be too sure of that fact.

In power, the Labor Party knew all about the distorting effects of super tax concessions, but did not have the courage to significantly address the problem.

Part of the reason was that until late 2011, real incomes and personal wealth were still rising at reasonably healthy rates. In that scenario, each year sees more ‘battlers’ able to make use of the tax concessions, and makes the Goldie message unsellable.

However, the reverse is now likely to be true, given that the RBA recently pointed out the average Australian now has 13 per cent less spending power than at the peak of the terms-of-trade boom in November 2011.

What that means is that if 20 per cent of Australians get half the tax concessions now, the next few years are likely to see even fewer than 20 per cent getting half the concessions.

That is a political time-bomb.

Labor’s changes to taxing of super-fund contributions, earnings and distributions only affected a very small number of the wealthiest savers, but allowed them the say “we’re doing something!”

The Coalition, which is used to fighting for small business owners, and middle-Australians who don’t expect a subsidy from their neighbours to help them retire, will find ample room within the coming tax white paper to take Goldie’s challenge.

At present, having reversed Labor’s small tweaks to the super and tax system, the signs are not good that it will do so. But who knows? Perhaps Prime Minister Abbott will prove as good at spotting tidal shifts in tough times as his mentor, John Howard was when the sun was shining. 

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