Parties' sameness hides a big difference

You could be forgiven for concluding there's little to pick from in this election; the age of ideology is long gone and the true difference between the parties is minor. The two sides have assiduously eliminated their differences to the point where we're asked to choose between the red management team and the blue management team.

You could be forgiven for thinking all this because there's much truth to it. The more "scientific" and calculated politics has become the further the sides have moved towards the centre.

But it's not the whole truth. The parties may not be terribly ideological and - with the notable exceptions of Julia Gillard and Wayne Swan - they may assiduously avoid the language of class conflict, but they do play favourites in the policies they espouse.

If you think the class war is over, you're not paying enough attention. The reason the well-off come down so hard on those who use class rhetoric is that they don't want anyone drawing attention to how the war's going.

All of them except Warren Buffett, the mega-rich American investor. "There's class warfare, all right," he once said, "but it's my class, the rich class, that's making war, and we're winning."

The reason the wiser heads in Labor don't want to talk about class conflict, either, is they know it gets them nowhere. It alienates people at the top without attracting many at the bottom.

This, of course, is why the well-off like me are winning. The workers are too busy watching telly to notice the ways they're being got at. It requires attention to boring things like superannuation when you could be up the club playing the pokies.

The significant thing about the looming change of government is not that the economy will be much better managed - it won't be; these days most of the key decisions are made by the econocrats - but that the Coalition will bring to its decisions about taxing and spending a different bias to Labor's.

How can I say that? By looking at Tony Abbott's promises. If you do pay attention it's as plain as a hundred dollar bill.

Let's start with that boring question of the concessional tax treatment of superannuation. It's by far the most expensive example of (upper) middle-class welfare.

Super has always been a scheme heavily favouring those on the highest rates of income tax, who also happen to be those most able to afford to save.

But towards the end of his time as treasurer, Peter Costello introduced "reforms" that made it far more favourable to the well-off by making super payouts tax free and opening the scheme wide to "salary sacrifice" by those able to afford it.

At the time, many economists said what they're saying now about Abbott's paid parental leave scheme, that it was so generous as to be fiscally unsustainable.

And so it has proved. In its unending search for budget savings the Labor government has chipped away at that generosity in almost every budget (as I know to my cost).

And as part of its mining tax package, Labor finally acted to remove one of the most iniquitous features of the scheme.

It introduced the "low-income super contribution rebate" to end a situation where everyone earning less than $37,000 a year gained nothing from the concessional treatment of super contributions (while people like me saved tax of 31.5? in the dollar).

Earlier this year, when Labor was making noises about doing more to make super less inequitable - and the big banks and insurance companies were putting up their usual furious fight - Abbott promised to avoid any further changes for three years. Labor later topped this by promising no further changes for five years. Who benefits most from this moratorium - aspirational families in the western suburbs?

And get this: to help pay for its promise to abolish the mining tax - paid on their super-profits by three of the biggest mining companies in the world - an Abbott government would abolish the low-income super contribution rebate.

Who would benefit most from Abbott's opposition to Labor's plan to remove the concessional tax treatment of company cars?

Abbott's paid parental leave scheme would introduce a major new example of middle-class welfare. Since even most on his own side disapprove of it, it's guaranteed to be chopped back in future.

Then there's his pledge to remove the means-testing from the private health insurance rebate.

To its unforgivable shame, Labor has repeatedly refused to increase the poverty-level rate of the dole. In March, however, it began paying dole recipients a twice-yearly supplement of up to $105. No doubt as part of its campaign against waste and extravagance, an Abbott government would abolish this supplement.

Early in its term, the Howard government rejigged its grants to schools so as to favour private schools. After doing nothing for six years, the Labor government accepted the Gonski report's plan to bias school funding in favour of disadvantaged students, most of whom are in public schools.

After roundly condemning the Gonski proposals, Abbott affected a deathbed conversion to them as the election loomed. Read his fine print, however, and the parents of children at private schools can rest easy. The disadvantaged will soon be back at the back of the queue where they belong.

Read more >>

Treasury secretary cracks the whip over super funds

When Peter Costello announced his mindbogglingly generous changes to the taxation of superannuation in 2006, the air was thick with economists prophesying such profligacy would soon prove unsustainable.

Even in business circles, the good news was widely judged too good to last. Super payouts would be tax-free for those 60 and over (thus making people's age as well as the extent of their income a criterion for how much tax they paid) and the salary-sacrifice lurk for the better off was opened wide.

At the time, Treasury, whose advice seemed to have been followed by the Howard government, wasn't having a bar of the conventional criticism, and I volunteered to make sure the government's side of the story got an airing.

Since the arrival of the Rudd-Gillard government, however, the approach to super seems to have changed, suggesting the policy advice may also have changed. Despite (or maybe because it is) planning to phase up the compulsory employer contribution rate from 9 per cent of salary to 12 per cent, Labor has been chipping away at the cost - and the unfairness - of the super tax concession. It has largely eliminated the salary-sacrifice lurk, corrected the situation where those on low incomes gained no concession on their contributions and, in effect, restored the Howard government's 15 per cent super surcharge for those earning more than $300,000 a year.

Last week, the present secretary to the Treasury, Dr Martin Parkinson, removed any doubt that Treasury's attitudes have changed in a tough speech to the super funds association. He warned that, looking ahead, there were challenges for the present super arrangements. An obvious one, he said, was the ageing of the population. Although Australia was much better placed than many of the developed economies to cope with the budgetary costs of ageing, "the question remains, however, whether the current framework for our superannuation system will be sustainable into the future. While changes to the superannuation guarantee have been important for improving adequacy, they will clearly come at the cost of forgone revenue. Also, governments over time have introduced a range of concessions that encourage increased voluntary saving in superannuation. Again, these concessions come at a cost, indeed a very significant cost.

"With the Commonwealth budget coming under increasing pressure over the next few decades, the fiscal sustainability of all policies, including superannuation, will demand greater public scrutiny. This scrutiny will be even more important to the extent that existing concessions are seen to favour some at the expense of the majority."

When you remember all the promises both sides are taking into next year's election, and the difficulty whoever wins will have keeping the budget on track, it is not hard to guess where Treasury will be suggesting they look for savings.

Apart from the motor industry, there are not many sectors greedier in their rent-seeking than the super sector. Dr Parkinson took the opportunity to remind the funds in person he is no soft touch. How is this for frankness: "The government ensures the superannuation sector is provided with a steady, guaranteed and concessionally taxed supply of money. No other industry has this guarantee. None."

That sounds to me like a heavy hint the government is entitled to, first, keep the industry pretty tightly supervised and, second, expect a high standard of performance. He who pays the piper ...

"I would suggest that the superannuation industry has a responsibility to its stakeholders, including members and the government, to invest money prudently so the returns are in the best interests of members and to develop new products to meet the demands of our ageing population," he said.

"To date, the superannuation sector has focused primarily on the accumulation phase. But as the system matures, as more people move into the withdrawal phase, and as people in general live longer, there will be increased demand on the industry to assist individuals to manage the various phases of retirement and key risks like longevity ...

"Members reasonably ask: What has super delivered for me? And, more importantly, what will super deliver for me into the future? That means asking tough questions about the industry's readiness and capability to meet future challenges."

Now cop this: "I am not necessarily advocating any particular investment pattern, although I do have reservations about excessive reliance on equities."

It is a safe bet that, not long after the contribution rate reaches 12 per cent of salary, the industry will resume agitating for it to be raised to 15 per cent.

Dr Parkinson left the super funds in no doubt where he stands on the question of super's adequacy, quoting the example of a 30-year-old entering the workforce today, earning median wages and working for 37 years. They are projected to retire with an income equivalent to 90 per cent of their standard of living while working.

He said the level of super funds' management fees had been "a concern for Treasury". To tackle this concern, the government commissioned the Cooper review, from which had emerged its "stronger super" reforms, including SuperStream and MySuper.

SuperStream will see greater automation, common date standards and a network to centralise information and transactions. MySuper will provide a low-cost default super product that removes unnecessary and costly features.

The reforms could increase the retirement payout of a typical young worker by $40,000. I get the feeling that, should industry resistance prevent the reforms from delivering as expected, the issue will stay on Treasury's to-do list.

Read more >>

Treasury thinks the unthinkable: tax rises

Note well: the secretary to Treasury, Dr Martin Parkinson, has provided voters with the only no-bulldust budgetary advice they're likely to get between now and the federal election. Everything they get from the politicians - on both sides - will be straight from vote-chasers' fantasy land.

Even much of the media believe their interests lie in feeding their customers more of the self-delusion they prefer to hear rather than reminding them of the harsh realities of fiscal arithmetic.

In a speech last week, 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. Using that term is an implicit admission the community's demands are legitimate rather than populist.

"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. (Some of us don't need to rely on hindsight for that judgment.)

"The take-out 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 - around $20 billion per annum 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 national dailies didn't think fit to print: 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 (closely followed by those people anxious to see both sides commit to introducing the Gonski reforms to education at an extra cost of $5 billion a year).

So what on earth can we do? Limiting our focus to the disability scheme, how could we possibly find that kind of money?

Well, one possibility not to be dismissed lightly is using an increase in the Medicare levy to pay for it. But as Dr Richard Denniss and David Richardson of the Australia Institute suggested last week, there's another, less obvious source of revenue: reform the concessional tax treatment of superannuation to make it more effective and less inequitable.

Using the savings 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 cost of the super tax concessions) and give it to some of the most disadvantaged people in our community: the disabled and their carers.

The Treasury secretary is telling us we have to make hard decisions about our priorities; we can't afford all the things we'd like to do. Just so.

So 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, almost twice what they spend on defence, and more than twice what they spend on the family tax benefit or on Medicare.

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, 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. (We should know the exact distribution, but the government won't tell us, for some reason.)

It's 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're given, and vice versa.

For those organisations urging us to spend big on worthy causes, the "take-out message" from Parkinson's sobering assessment of our scope for greater spending is clear: don't waste your breath unless you're prepared to get your hands dirty and suggest a good way to pay for it.

Read more >>

Self-funded retirees are kidding themselves - and us

One thing that gets me going is comfortably-off people who feel sorry for themselves: those who complain how hard it is to get by on $150,000 a year, or retired people who profess to be "self-funded".

Someone once asked me why I was so disparaging of self-funded retirees when, from what they could see, I was going to end up as one myself. It's true. Or, rather, it's true my superannuation is too generous for me to get even a smell of the age pension.

But I'd never claim that made me "self-funded". Why not? Because I know damn well other taxpayers have contributed mightily to funding the vastly bigger private pension I'll end up on.

The other thing that annoys me about the self-proclaimed self-funded is their motive for making this false claim. They say it because they've got their hand out. I'm too well-off to get the pension, therefore you owe me.

So how about a seniors' card that entitles me to pay next-to-nothing on public transport not because I'm poor but just because I'm old? How about charging me the same nominal fee for pharmaceuticals you charge pensioners but deny to the working poor?

The so-called self-funded - the Howard government's favourite charity - enjoy all these perks. But they don't seem to realise that, the more successful they are with their begging bowl, the less true their claim becomes.

The notorious superannuation "reforms" Peter Costello announced in 2006, which centred on making super payouts tax free for people 60 and over - and which successive governments will have to laboriously unpick at great political cost in coming years - included significantly liberalising the means test on the age pension.

Suddenly, there was a sharp fall in the number of people not receiving the pension and a sharp jump in the number receiving a part-pension. But did all those with their mouths now firmly clamped on the pension teat stop referring to themselves as "self-funded"? I doubt it.

The way the numerous spruikers for the super industry tell it, governments impose iniquitous taxes on those independent, prudent, frugal, virtuous souls who struggle to save for their retirement. Rubbish.

For working people, all the additional income we earn is taxed at rates of 19?, 32.5?, 37? or 45? in the dollar depending on how much we earn. But the 9 per cent - eventually to be 12 per cent - of our salary that employers are required to pay into superannuation is taxed at a flat rate of just 15? in the dollar. Ditto for extra contributions made through "salary sacrifice".

So super contributions are, in fact, taxed concessionally. Just how concessional varies inversely with your need - the higher your income, the more you save per dollar. People like me save 30? in tax on every dollar they put into super (plus the 1.5? Medicare levy). What's more, income earned on money in super funds is also taxed at no more than 15 per cent, no matter how high your income.

Super is taxed in a way that yields little benefit to the needy, but grossly favours the better off. As someone said, for he that hath, to him shall be given.

The cost to the federal budget in revenue forgone is huge and rapidly rising. It was $30 billion last financial year and is projected to reach $45 billion by 2015-16.

But whenever this unfairness is pointed out, those who benefit (including those who benefit by managing super funds or providing advice to them) are quick to fly to the defence. It's terribly unfair to look at the gross cost of the super tax concessions without taking into account the saving to the budget from all those people who won't be getting the pension.

A study by Richard Denniss and David Richardson, of the Australia Institute, Can the Taxpayer Afford "Self-funded Retirement"?, to be released today, advises that by 2015-16, the $45 billion forgone on super concessions is expected to equal the cost of the age pension itself. (It will dwarf federal spending on education or on Medicare, and be almost double what we spend on defence.)

So just how much will the super concessions save us on pension payments? Treasury could have estimated this but, if it has, it hasn't been made public - presumably because its paucity would cause too much embarrassment to a government game only to nibble away at super's unfairness to those whose interests Labor (and Bruce Springsteen) professes to represent.

Even so, Denniss and Richardson give us a fair idea. Treasury does project that, by 2047 - 35 years' time - the proportion of people of pension age not receiving the pension will have risen by just 3 percentage points to about 20 per cent.

The main effect of all the concessions will be to increase the proportion of people receiving only a part-pension by 15 percentage points to about half of those on the pension.

From this, the authors estimate the saving on the pension bill in 2047 will be about $14 billion a year in today's dollars. That's only about half what the super concessions are costing - meaning the other half represents clear cop for the better-off superannuants (including my good self).

Treasury estimates that just the top 5 per cent of income earners collect 37 per cent of all super concessions. The authors quote a representative example of someone on the top tax rate retiring with a payout of $780,000, 60 per cent of which comes from tax concessions.

So, please, let's have a bit less hypocrisy on the great favour well-off retirees are doing the taxpayer.

Read more >>

Summary of many tax and benefit changes on July 1

The government has taken to announcing changes in taxes and benefits long before they take effect. But that day has to come eventually and a host of changes - big and small, good and bad - are set to start tomorrow week, July 1, the first day of the new financial year.

Actually, all the bad changes start on July 1, but some of the good ones have arrived this month.

Even so, July 1 will be the most significant day for tax changes since July 1, 2000, the start date for the goods and services tax.

Two new taxes are starting, the carbon tax and the mining tax, though combined they raise far less than the GST.

Like the GST, both taxes come as part of packages, meaning much of the proceeds from them are used to cover the cost of cuts in other taxes and increases in pensions and benefits.

But here's a difference: the government is increasing the budget's redistribution of income from higher- to lower-income earners by imposing means tests and by other means.

A means test on the 30 per cent private health insurance rebate will take effect and the 20 per cent net medical expenses tax offset will also be means-tested.

Next are changes to the taxation of superannuation. Super contributions have been taxed at the flat rate of 15 per cent. Now, workers earning up to $37,000 a year will, in effect, pay no contributions tax, whereas those earning more than $300,000 a year will pay 30 per cent.

Older workers had been permitted to make concessional contributions to super, including by salary sacrifice, of up to $50,000 a year, but this will now drop to $25,000.

The minerals resource rent tax will raise only about $3 billion a year and has been designed to have no adverse effects on the economy or retail prices.

Proceeds from the tax will be used to provide two new tax concessions for small business and cover the cost of replacing the tax rebate on parents' spending on school children's education expenses with lump-sum bonuses for each schoolchild. The first bonuses have just been paid.

Mining tax revenue will also cover the cost of a tiny increase in unemployment benefits (from March) and an increase in the family tax benefit Part A, to take effect from July 1 next year.

The carbon tax will fall mainly on the production of electricity and gas. It will add 9 per cent to household electricity and gas bills, but quite small amounts to most other retail prices.

Treasury has estimated that, all told, the tax will add just 0.7 per cent to the consumer price index. Since Treasury was right in predicting the 10 per cent GST would add 2.5 per cent to the index, you can believe it.

However, the total rise in household electricity bills from July 1 will be twice that attributable to the carbon tax.

Whereas the GST will raise $48 billion next financial year, the carbon tax is expected to raise $4 billion in its first year and about $7 billion in later years.

Because it's designed simply to raise the prices of emissions-intensive goods and services relative to other prices, much of its proceeds are being used to compensate people for their higher cost of living.

But, again, the compensation is going only to low- and middle-income earners. Means-tested pensions, allowances and family benefits have already been raised.

And a limited tax cut will take effect from July 1. The tax-free threshold will be raised from $6000 to $18,200 (but with a largely offsetting reduction in the low-income tax offset). About 60 per cent of all taxpayers will get a tax cut worth about $5.80 a week, but no individual earning more than $80,000 a year will receive a cut.

All that higher-income earners get is a separate, backhanded saving: the end of the temporary flood levy.

Read more >>

Why we've become good savers

Who would believe it? Australia is turning into a nation of savers. We've already lifted our rate of saving - we save more than people in other developed countries - and we're likely to increase our saving rate further.

Who would believe it? Australia is turning into a nation of savers. We've already lifted our rate of saving - we save more than people in other developed countries - and we're likely to increase our saving rate further.

This the surprising message in this year's budget statement 4 - otherwise known as Treasury's sermon. The facts and figures that follow come from there.

Expressed as a proportion of gross domestic product, gross national saving fell significantly from the mid-1970s until the early 1990s. Between 1992-93 and 2004-05, it was fairly steady at 21 per cent. It began to rise in 2005-06 - well before the global financial crisis - and since the crisis it's shot up to reach almost 25 per cent last year.

This is well above the average for the developed economies of less than 19 per cent. Now, their saving rates are down because they're still trying to put the Great Recession behind them and it's arguable that some part of our increased saving since the crisis is also a passing reaction to the uncertainty it continues to cause. But we were well above them before the crisis.

The nation's rate of saving is the sum of the saving done by the three sectors of our economy: the households, the companies and the governments.

Households save when they spend less than all their income on consumption. Companies save when they retain part of their after-tax profits rather than paying all of them out in dividends. Governments save when their revenue exceeds their recurrent spending.

Most of the reason for the increase in national saving - and most of the reason for expecting it to increase further - rests with households.

The household saving rate declined steadily from the mid-1970s to the mid-noughties but then it increased significantly and is now 11.5 per cent of GDP, up from a low of just under 6 per cent in 2002-03.

One reason for this turnaround is the maturing of the compulsory superannuation system. Award-based super was introduced in 1985 but the scheme really got going in 1992, when they began phasing up employer contributions to 9 per cent of ordinary-time wages by 2002.

The value of Australia's super savings is now as much as $1.3 trillion, equivalent to 95 per cent of annual GDP (compared with the average for the developed countries of 68 per cent). Treasury estimates the scheme now makes a gross contribution to national saving of 1.5 percentage points.

Treasury says the more recent increase in household saving is likely to reflect a combination of increased consumer caution following the crisis and a return to more sustainable rates of consumption growth.

To the extent it's a return to more normal rates of growth in consumer spending, it's likely to be lasting. To the extent it's just caution, retailers and others can hope it will go away as all the upheaval stemming from the global crisis is resolved, people become more confident and lower somewhat the rate at which they're saving.

Now, no one can say how much of our higher household saving rate comes from lasting ''structural change'' and how much comes from passing caution. Until more of history unfolds, we can only make guesses.

But my guess is most of it is structural and not much of it is passing. In any case, I can't see the global economy becoming a much more placid place any time soon. Europe's weakness could roll on for a decade.

I think the econocrats are holding out false hope to retailers and others with their talk of ''the cautious consumer'', implying the tough times will end as soon as shoppers cheer up. It would be better to encourage the retailers to get on with adjusting to the new world they live in.

Treasury says the fall in household saving up to the mid-noughties primarily reflected a prolonged, but essentially one-off, structural adjustment to financial deregulation from the early '80s and the transition to a low-inflation (and hence low nominal interest-rate) environment from the early '90s.

Easier access to credit and lower rates led to greater borrowing, rising house prices, high levels of confidence and - thanks to big capital gains - people reducing their saving rate and allowing their consumption spending to grow faster than their incomes.

This adjustment process is likely to have been a significant driver of change in household saving. From the second half of the noughties, however, households began to slow their accumulation of debt and, as a result, the household saving rate began to rise.

With this process now likely to have been completed, households as a whole can be expected to consolidate their financial position over coming years by returning to more normal levels of saving and borrowing.

That's a quick explanation of why we've gone back to being good savers. But why expect our saving rate to go on rising? Partly because our (largely foreign-owned) mining companies are retaining a high proportion of their huge after-tax profits (which they're using to help finance their investment in additional production capacity).

Partly because the federal politicians (and their state counterparts) are struggling to get their budgets back into operating surplus, meaning governments are shifting from dissaving to saving.

But mainly because the compulsory super scheme will soon begin phasing up the contribution rate from 9 per cent of wages, reaching 12 per cent in 2019-20. Treasury estimates this will make a further gross contribution to the national saving rate of 1.5 percentage points of GDP over the next 25 years, with most of that expected to occur over the next decade.

Just as every punter knows in their gut that deficit and debt are always and everywhere a bad thing (it ain't true), so everyone knows saving is always a good thing. But what's so good about it?

The main reason people save is to smooth their consumption over time. For instance, you consume less while you're working so you can have a higher standard of living when you're retired. You can even use saving to pass some of your income on to the next generation. And saving makes you more resilient by providing a buffer against unexpected adverse events.

At a national level, borrowing less and saving more makes us more resilient to possible external shocks. And it helps moderate inflation pressure and so allows interest rates to be lower.

Read more >>

Why the pollies will keep fiddling with super forever

Have you noticed? Our guardians in the superannuation industry have come out swinging to defend us against the changes to superannuation announced in the budget. Mark Payne, a partner in the legal firm Hall & Wilcox, says "anyone that has turned 50 can feel dudded".

The changes "will be costly to administer, bring little revenue for the federal government and are a real disappointment for the over 50s, who will need to reassess their retirement strategies", he says.

According to John Brazzale, a managing partner of the accountants Pitcher Partners, "there's now less incentive to put money into super, particularly [for] those earning more than $300,000. They would be looking at how to get a better tax return by investing outside of super in, for example, businesses and managed funds etc".

One of his partners, Brad Twentyman, agrees.

"Superannuation at higher incomes has become very marginal and there is nothing compelling to drive self-sufficiency in retirement," he says. "This is not the system we should be aiming for. We need to be encouraging higher income earners to save for their retirement as well as lower income earners."

David Anderson, the managing director of Mercer, a financial services provider, warns that "continual changes to superannuation will unfortunately create a wave of uncertainty, confirming the commonly-held view that superannuation is an irresistible honey pot".

"There is a risk that further complicating and continually changing the rules in superannuation will reduce investor confidence in super and that would be a most unfortunate outcome," he says.

Sorry, but most of all that is self-serving tosh. For someone who's turned 50 to feel "dudded", they also need to be earning more than $300,000 a year (putting them into the top 1 per cent of taxpayers) or to have a super account balance of less than $500,000 and have been in a position to sacrifice salary of up to $25,000 a year.

The two decisions they're complaining about are to reduce the tax concession on super contributions by people on more than $300,000 from 31.5? in the dollar to 16.5? and to defer for two years the promise to raise the limit on concessional contributions from $25,000 a year to $50,000 for people over 50 with balances of less than $500,000. Few people on middle incomes could have afforded to take advantage of the higher limit.

The media have a tendency to quote uncritically business spokespeople who want to have a crack at the government of the day. But most of them are wolves in sheep's clothing.

They claim to be speaking in the interests of their customers but, for the most part, they are, in the money market phrase, "talking their book" - that is, offering advice that serves their own interests.

Even when measures have been carefully targeted to hit only the well off, they'll be shedding bitter tears and predicting dire consequences. Why? Partly because they're very highly paid themselves but mainly because they make more money out of the rich than the poor.

The guys who run super funds are in the ticket-clipping business. They take a tiny nick out of every dollar that passes through their hands and, since our super savings total $1.3 trillion, those tiny nicks add up to very big bucks.

The super industry - which includes not just the fund managers but also the (often union) trustees and the myriad outfits providing advice to them - is among the most lucrative in the country. These guys pay themselves extraordinary salaries.

And it's not just that clipping tickets is such a deceptively cheap way to make a fortune. It's also that, by compelling all employees to save 9 per cent of their wages, the government has delivered them a huge captive market.

Not content with that, however, after years of agitating they've finally persuaded the Labor government to phase up their monopoly from 9 per cent to 12 per cent - at a huge and ever-growing cost to budget in tax revenue forgone.

When this and other favourable changes were announced in 2010, no one in the industry was claiming continual changes to super were discouraging people from saving through super. They trot out this old favourite only when governments make changes that hit the industry's revenues.

Contrary to the claims we've heard, few people will need to "reassess their retirement strategies". And even for the very highly paid, the tax-effectiveness of saving through superannuation remains considerable, not "very marginal".

The proposition that the highly paid need to be bribed by tax concessions to put money aside for their retirement is laughable. Why would they be planning to live only on the age pension? And even if they do turn away from super to other ways of saving, why's that a problem for anyone but the super ticket-clippers?

When you combine this government's plan to ramp up super with the changes Peter Costello announced in 2006 - to make super payouts tax-free for those 60 and over; to sanctify the salary-sacrifice loophole and to ease the assets test on the age pension - you see it's not adding up.

The annual cost of super tax concessions is now growing so fast it's projected to equal the annual cost of the age pension by 2015-16. Such growth is simply unsustainable.

Now add the fact that these concessions go disproportionately to high-income earners, as well as advantaging the retired generation over the working young. The old don't pay income tax but the young do.

Get it? Barring the unlikely event of any politician summoning the courage to fix the whole unfair, unaffordable mess in one go, the pollies will go on fiddling at the edges of the super arrangements in just about every budget.

Read more >>