31 August 2016
THE treasurer’s absolutely bull-headed refusal to reconsider his superannuation tax changes — other than in the very narrow context of a negotiating tactic with his own backbench — is a very, very, bad sign of the quality of policy more broadly we can expect from this Turnbull-Morrison government.
It should have been clear from budget night — indeed it should have been clear well before budget night, inside treasury and Scott Morrison’s office, if not his head — that the proposals added up to very bad policy and had to be changed, comprehensively and cohesively.
No, not changed because of the squeals of pain and outrage from high-income earners or those who had built up large multi-million dollar super balances, but changed for two very important functional reasons.
The first and most important was not to end up throwing the ‘baby’ out with the ‘bathwater;’ that for the sake of saving a few billion dollars upfront, you ended up compromising the entire purpose of the superannuation system and the tax concessions.
To remind the treasurer: this is, simply, to get as many people entirely or partially off the old age pension in future years, in future decades.
It would not simply be pointless but an utter disgrace, to have multi-billion dollar tax concessions each year, while also mandating the injection of over $20 billion a year into the pockets of fund managers and investment advisers, if all you ended up with was retirees being able to binge their super before spending the rest of their lives on the taxpayer pension.
The second reason why the budget proposals were bad policy is that they were proposed in a vacuum.
The government wants to put relatively low limits on how much people can put into super; while also increasing the taxation of the money that ends up in there anyway.
At the same it is leaving in place the low-tax regimes that apply to super’s two biggest competitors — negatively-geared investment, not just property but also into shares; and the capital gains tax-free family home.
As sure as night follows day, as sure as reality ultimately wins out over wished-for fantasy, people will in future double-down on negative-gearing — including inside their super funds — and also ‘invest’ more in their family home and stay in that home longer. It was almost as if Morrison brought down a budget deliberately designed to pour money into the pockets of property speculators and real estate agents — while imposing higher tax burdens and bigger budget deficits on the backs of his children and grandchildren, whose eyes he wants to be able to keep looking into.
Prime Minister Malcolm Turnbull and Treasurer Scott Morrison. Picture: AAP
As I noted on budget night — in accepting the inevitability of getting some wind-back of Peter Costello’s boomtime generosity — the government had set the two key limits too low. That was so, especially in the context of the ‘new normal’ of very low interest rates.
At a 3 per cent earning rate, the $1.6 million maximum tax-free super pension balance would generate only $48,000 a year as against between $22,700 (single) and $34,200 (couple) from the taxpayer pension.
Yes, the $1.6 million is per person, but Labor’s similar proposal would allow annual super pension income up to $75,000 to be tax-free. That’s more realistic, more reasonable.
The government should either adopt that approach or lift its tax-free ceiling to $2.5 million, which at a 3 per cent earning rate would be the equivalent.
Far more importantly, how does anyone in future even get to the $1.6 million in the context of the absolute limits to contributions that Morrison wants to impose: the $25,000 a year pre-tax ($21,250 actually into the fund) and the $500,000 lifetime maximum after-tax?
HOW can you on the one hand say that $1.6 million is an appropriate maximum sum to fund a lifetime in retirement, but accompany it with rigid contribution limits that make it impossible to actually get to that figure?
To say nothing of the good public policy objective of allowing — if not exactly encouraging — people in their early 60s to sell their family home and put, say, $1 million into super as a one-off?
It’s been nearly two months since the election. A competent treasurer, with an objective of merging good policy with effective politics, would have spent the time reworking the entirety of his super package, so that he would really have been able to confront first his backbench and then the parliament with well thought through basic good policy.
Instead Morrison has done the exact opposite: stuck his head in the sand and approached the issue as someone negotiating a deal where you want to give away as little as possible. This goes to the broader issue of leadership at the top — that of Morrison and the prime minister.
Exactly seven weeks ago, two weeks after the election, I suggested that everyone take a very deep breath and step back.
There was no need to rush to try to implement policy, whether election promise or left hanging from the budget. That in the coming weeks of the winter hiatus, this was the time for the PM to allow policy to be reconsidered, refined, and ideally made best ‘fit for purpose.’
What Morrison’s approach to the super mess demonstrates is that the first two months of the new term has been a complete waste of time.
That has been depressingly reinforced by Turnbull’s supposed 25-point action plan. Most of the proposals have more whiskers on them than a grizzly. They include such profoundly important measures as ‘registration of deaths abroad.’
We knew before the election that we had a dud — a political and policy dud — as PM. Since the election, the treasurer has made it his singular duty to convince us it’s a two-fer.
It’s going to be a very long and dispiriting three years. If we get that far.