AS SHE deflected questions about possible new taxes on superannuation Finance Minister Penny Wong as good as confirmed that changes to super are coming as the government looks for ways to meet commitments including the National Disability Insurance Scheme while also reining in the budget deficit.
Super was a system Labor had created, and was strengthening by raising the super contribution level to 12 per cent by the end of the decade, she said, but "there are lots of good policy proposals out there and often when you make decisions you have to prioritise, not between something that's good and bad but between two good things.
"If we want things like the National Disability Insurance Scheme . . . if we want things like our investment in schools . . . then we're going to have to make decisions to prioritise."
There are always spending and taxing priorities in government. The question raised by any move to more heavily tax super at this time however is whether an attack on the deficit that punches a hole in the super system is worth the price, both political and economic - and after allowing days of speculation about a big raid on the super kitty with a tax on distributions from super funds with assets of $1 million or more, Labor backed off on Wednesday.
Prime Minister Julia Gillard said there were no plans to tax super distributions to over-60s, and the talk in the corridors of Parliament House turned to a plan to boost the 15 per cent tax on super fund earnings for about 100,000 people who earn about $250,000 or more.
That would be yet another erosion of the super tax shelter (the government also doubled the tax rate on contributions by people earning $300,000 a year or more to 30 per cent last year), but it would be more limited in scope and less damaging to confidence than Plan A would have been.
A revived distribution tax on "millionaires" might have seemed attractive to Labor as it looked for ways to raise revenue and secure its political heartland, but it's not the size of the fund that matters, it's the income it generates, and based on long-term returns, $1 million is good for only about $50,000 a year: that's right in Labor's wheelhouse.
If it taxed super distributions again Labor would also have been reneging on its decision in the Henry tax review not to overturn Peter Costello's decision to simplify the system by making distributions to over-60s tax-free; and while a revived distribution tax would have only initially hit about 15 per cent of distributions, once created a tax can always be expanded - as may well now occur with Plan B, the increased tax on super fund earnings for high-income earners.
There has to be a limit to these incursions. The superannuation system that grew out of the deal struck in the Hawke-Keating government's first wages and prices accord with the ACTU in 1985 is worth protecting. It should be fine-tuned, but not raided just to fund an attack on a deficit problem that is largely illusory.
Australia has a debt overhang, but it is in households, not on the Commonwealth's balance sheet: household debt, secured against residential property in the main, outweighs government debt in this country by a ratio of about 10 to 1.
As the superannuation system's architect, Paul Keating, explained in a 2007 speech, super is designed to overlay the pension system, not replace it. The taxpayer-funded pension sits as the base of the system, as what Keating described as "the basic anti-destitution payment".
Immediately above it sits the portion of the super system that is mandated, and covered by compulsory contributions. Above that sits voluntary super, a layer that is optional, but supported and to an important extent induced by the concessional tax treatment that is being steadily eroded.
Super in this structure is a means to an end that surpasses a basic wage for most Australians. When Keating planned in 1995 to boost super contributions from 9 per cent to 15 per cent between 1997 and 2000 funded equally by tax cuts and employee contributions his target was people earning up to twice average weekly earnings, for example.
Contributions of 15 per cent over their working lives would deliver them retirement income equal to 70 per cent of their earnings, up from 40 per cent if contributions stayed at 9 per cent, Keating calculated. He believed 12 per cent was the bare minimum: the Gillard government is now aiming to hit that mark by June 2020, two decades after Keating's 15 per cent target would have been achieved.
Our super system is still pretty good, however. It has to be structured carefully to keep taxpayer-funded tax concessions under control, but it has already gone a long way towards coping with the transition to retirement of the baby boomer generation, and if nurtured will be even more central to the retirement of Generation X and beyond, who will be in the system for their entire working lives.
It also played a crucial role in protecting the Australian economy during the global financial crisis. Australian-listed companies repaired their balance sheets by raising $41 billion through share issues and placements in the second half of 2008, and raising $98 billion in 2009. That couldn't have been achieved without buying support from the big super funds, and the $1.5 trillion super pool can also play a significant role in the renewal of Australia's infrastructure.
Super would have been an even deeper investment and pension pool by now if Keating's plan to move to 15 per cent by 2000 had been honoured by the Howard government after its election in 1996.
Instead, the plan was ditched in Peter Costello's maiden budget. Now, the Coalition promises only to make no negative changes to super for a year if it is elected: that's something to watch in 2014 if Tony Abbott leads the opposition to victory in September.