How not to cut government spending

The bloke who really runs the economy, Reserve Bank governor Glenn Stevens, has spoken: "There are quite some years of hard repair work ahead for whoever is the government over the period ahead."

He was endorsing the earlier warning of Treasury secretary John Fraser and Finance Department secretary Jane Halton that, given the Turnbull government's professed commitment to limiting the growth in tax collections, getting the budget back to surplus won't be possible "without considerable effort to reduce spending growth".

Trouble is, "reducing spending growth has proved difficult in practice", they said. Really?

This year's budget does little to reduce government spending and has trouble even in sticking to the Coalition's resolve to ensure all new spending (of which there's always a fair bit) is offset by spending cuts.

The practice of requiring spending departments to nominate equivalent cuts to cover their new spending programs may seem a healthy discipline.

But when you've been playing that game for years, the departments adapt, learning that their inefficiencies are valuable currency, not to be offered up except in return for some exciting new program.

It's a similar story with the ironically named "efficiency dividend" imposed on government departments and agencies, which is to be ramped up for a further three years, saving $1.4 billion on top of the normal "dividend".

Truth is that, contrary to popular impression, the cost of public sector wages, paperclips and so forth is such a tiny proportion of total federal (as opposed to state) spending that no amount of "efficiency dividends" could make a noticeable difference to the deficit.

But that's not to deny that yet further penny-pinching will worsen public service efficiency. The cuts have gone on for so long that "efficiency dividend" is now a euphemism for further compulsory redundancies.

The people who get the bullet tend to be those who could help their department and the government formulate better policies – not to mention the long-gone people in Treasury and Finance who knew where the real inefficiencies are still buried.

The point is that when you see a government resorting to yet another round of indiscriminate, no-brainer cost cutting you realise it isn't fair dinkum about "reducing spending growth".

Another sign of unthinking half-heartedness is when – as in this budget – you see the pollies taking the path of least resistance: picking on only those interest groups that lack political clout and public sympathy.

Such as? Well, public servants, for openers. We could cut the funding and staff of the Australian Securities and Investments Commission (until the opposition demands a royal commission into bank misbehaviour) and the Tax Office (until the punters get wind of how little tax the big multinationals are paying).

But also the unemployed, sole parents, overseas aid (with a budget deficit we can't afford to give money to poor foreigners, though we can afford to give tax cuts to rich foreign shareholders), legal aid and domestic violence (until Rosie Batty caught up with us).

Point is, if screwing the politically defenceless is the best you can do to control government spending you're never going to make it. They don't have enough to cut.

Until you're prepared to take on the powerful interest groups with their hands in the taxpayer's pocket – starting with the doctors, chemists, drug companies and private health funds, then moving on to the mining companies and even, dare I say it, the farmers and the self-seeking "self-funded retirees" – you won't make a dent.

Malcolm Turnbull does get big points for finally catching up with Costello's Battlers aka rich superannuants. The budget's superannuation reforms are a good example of expenditure control (in this case, tax expenditure) measures, carefully worked up by the econocrats over many weeks.

Treasury has had the reform of super high on its to-do list for yonks. My fear is that Finance – which has primary responsibility for the spending side – doesn't have any well-developed ambitions for genuine increases in the efficiency and effectiveness of major spending categories such as health, education and even defence.

There's been far too little championing of sophisticated measures invented by applied economists – such as income-contingent loans and case-mix funding of hospitals – and investing in later spending control, such as preventive healthcare.

When the econocrats aren't working up and pushing genuinely efficiency enhancing reforms, when they don't want to waste money on studies to determine what works and what doesn't, they and their political masters end up falling back on ad-hoc, end-justifies-the-means, no-brainer savings such as inefficiency dividends and cuts to grants to community groups that care more and try harder than any public servant would. Great Idea.

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Why Turnbull's super changes are sorely needed

I'll never forget the budget of May 2006. It was during the first half of the resources boom, before the global financial crisis. The economy was booming, tax dollars were pouring into the government's coffers and it was embarrassed at the way the budget surplus kept piling up.

John Howard and Peter Costello were competing with each other to shovel money back out the door. Howard liked spending it on middle-class welfare, whereas Costello wanted to use it to cut taxes.

He was more than halfway through his eight tax cuts in a row, but in the 2006 budget he found a way to go one better. He had to fix some problems with the superannuation system, and he hit on the idea of making sweeping changes to the various super tax concessions that made them far more generous.

The changes would be pretty expensive, likely to grow rapidly every year. But that didn't matter because the budget was overflowing and mineral export prices would stay high forever. An election was coming in 2007 – when the changes would start – and voters would love 'em.

I remember business people saying privately the largesse was too good to last. Big-name economists were saying publicly the new concessions were unsustainable.

That was 10 years ago. Turned out the doubters were right, and last week it fell to the next Coalition government to correct Costello's monumental miscalculation.

People say the politicians are always tinkering with super. It's true. That's partly because, in the intervening Labor years, Wayne Swan chipped away at Costello's excesses in almost every budget.

But the measures announced last week were much more comprehensive, and braver, than anything Labor did – or has promised to do if it wins this election. This is the Libs cleaning up their own fiscal mess, and doing it at the expense of their own supporters.

You've seen all the articles by personal finance journos explaining how the changes will work and heard all the complaints from the well-lined.

So let's focus on the changes from the perspective of public policy, not your pocket. You start to understand their rationale when you realise that, until now, all the tax concessions for super have never had a formally stated objective.

The new objective is "to provide income in retirement to substitute or supplement the age pension". Which is a nice way of saying we're no longer going to let you use super to amass far more than you're ever likely to need to live on – that is, to get a tax break on savings you're intending to leave to your kids.

In principle, there are three points at which the government could tax money being saved for retirement: when you make contributions to your fund from your annual income, when the money in the fund earns interest and dividends, and when, in retirement, you withdraw money from the fund.

Under the rules Costello established, contributions are taxed at a flat 15 per cent (rather than at your "marginal" rate of income tax which, depending on the size of your income, can vary from 21c in the dollar to 47c).

Earnings in the fund are taxed at a flat 15 per cent and withdrawals are tax free.

Malcolm Turnbull's new rules would lower the annual cap on concessionally taxed contributions and lower the threshold at which concessional contributions are taxed at 30 per cent rather than 15 per cent.

They would limit to $1.6 million the amount you could have in the pension part of your fund, where no tax is charged on annual earnings. Anything in excess of that would have to stay in, or return to, the pre-retirement "accumulation" part or your fund, where earnings are taxed at 15 per cent (less tax credits from dividends).

The new rules would also impose a $500,000 lifetime cap on non-concessional (after-tax) contributions. This affects people who want to transfer other savings or inheritances or the proceeds from selling investment properties into low-taxed super.

Treasury calculates that only the top 3 or 4 per cent of fund members will be affected by these measures. So the plan is to chop back the tall poppies. Even so, because they (including yours truly) have been getting the lion's share of the concessions, by their third year these measures would be saving the budget $2.1 billion a year – and rising.

Some of this saving would be used to pay for changes that made it easier for women to build up bigger super balances despite their years of broken and part-time service.

The changes would make it much harder to use "salary sacrifice" to boost super balances (at one stage Costello was letting people like me sacrifice up to $100,000 a year – a stretch, even for me) but would encourage more savings-splitting as husbands helped wives to get higher balances.

Rather than making super concessions fairer, I'd prefer to say Turnbull's plans would make them less unfair. It would still be true that people on less than $37,000 a year got no concession on their contributions, whereas people on $180,000 to $230,000 got a saving of 32c in the dollar.

The biggest "incentives" – which apply to contributions that are compulsory anyway – go to well-off people who could, and would, save a lot of their income even without any concessions.

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Oldies looked after while young don't notice

If I was going to wander around the inner city chalking messages on the pavement in copperplate, they wouldn't say Eternity. They'd say Wake Up. Why? Because, contrary to rumour, the Nanny State doesn't exist.

If you fail to pay attention because you assume that the market economy will always deliver you a square deal, you're heading for disillusionment. If you think it's the government's job to ensure no one ever rips you off, you have much to learn.

Indeed, it's just as likely to be the pollies who decided to short-change you when they realised you were too busy watching reality television to notice.

Take the great debate about tax reform. Now the best-informed are telling us the government has thought better of changing the goods and services tax, I fear the debate will turn in a distinctly more boring direction – to reducing the generosity of tax concessions for superannuation.

Mention super and everyone over 50 pricks up their ears, while everyone under 50 wonders what's on telly tonight. To date, that's meant that the over-50s have been looked after at the expense of the under-50s.

To date, the debate over super tax concessions has been about their rapidly growing cost – about $25 billion a year in reduced tax collections – and the fact that the lion's share of this loss to the budget goes to high-income earners (like me). That is, it's a question of fairness between rich and poor.

But in their latest paper on super tax concessions, to be released on Wednesday, John Daley, Brendan Coates and Danielle Wood, of the Grattan Institute, argue that the reform of super can also be advocated on the grounds of fairness between the old and the young.

It's not something often talked about, but our budget and social security arrangements – as with all advanced economies – have a "generational bargain" built into them.

The bargain is simple: except perhaps for the period when they're raising a family, people of working age generally pay more in tax than they get back in benefits, with the difference used to provide those who are too old to work with a lot more in benefits than the little they pay in taxes.

Since we all expect to get old one day, this was regarded as a quite fair bargain between the generations. And until recently, paying for it all wasn't a big problem, because the number of workers was growing a lot faster than the number of oldies.

What's changed is the ageing of the population and the retirement of the baby boomers, which means the number of oldies needing to be supported from the budget has started growing a lot faster than the number of workers.

But Daley and his co-authors point out that it's not just demography that's undermining the generational bargain. The politicians have been making it worse by increasing the generosity of benefits to the old.

In Australia's case, John Howard was always slipping extra benefits to the alleged "self-funded retirees", who he regarded as a key part of the Liberal heartland. He gave them the senior Australians tax offset and made it easier for them to get health cards and the pensioners' rate for pharmaceutical benefits.

Then Peter Costello came along and made a lot of supposedly self-funded people eligible for a part pension, as well as making super payouts completely tax-free for people over 60.

Not to be outdone, Kevin Rudd granted pensioners a big discretionary increase on top of regular indexation to average weekly earnings.

Daley and his colleagues show that the largest increases in government spending have been on healthcare (where federal and state governments spend twice as much on each 60-year-old as on a 30-year-old) and the age pension.

"Both of these spending categories grew substantially faster than gross domestic product, not because of the ageing of the population, but because of explicit and implicit choices to spend more per person of a given age," they say.

In 2010, and after removing the effect of inflation, the two levels of government spent $9400 a year more per household over 65 than they did six years earlier. At the same time, the average amount of income tax paid by those 65 and over fell in real terms, despite an increase in incomes.

This generosity has been funded by running budget deficits and borrowing to cover them. Who'll be paying the interest on that debt? Not the oldies.

Over the past decade, according to Grattan's calculations, older households captured most of the growth in Australia's wealth. Households aged between 65 and 74 years today are $400,000 (or 27 per cent) wealthier in real terms than households of that age 10 years ago.

Meanwhile, the wealth of households aged 25 to 34 years fell by $2000 (or 4 per cent).

This is partly explained by rising house prices, of course. Older households are far more likely to own their home than younger households. And, of course, the value of their home is ignored when assessing their eligibility for an age pension.

If the young do take an interest in the reform of super tax concessions, they'll find they're being asked to agree to exclude themselves from the largess being enjoyed by the older generation. But until a halt is called, the generational unfairness will keep worsening.

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Go to ex-bureaucrats' blogs for the good oil on policy

Dr Ken Henry, a former Treasury secretary, says he can't recall a time when the debate about public policies has been poorer. I can't either, and I guess the dreaded MSM - mainstream media - is part of the problem.

But if the challenge of digital disruption has tempted the mainstream to devote more time to political colour and movement and less to debating government policies, there's one respect in which the internet has made things better.

The advent of blogging has given anyone who wants to the ability to air their thoughts to the world. A lot of blogs come under the heading of you're-entitled-to-your-opinion, but sometimes they're written by people who know a lot more about the topic than most of us and have a valuable contribution to make.

That's particularly true when academics take to blogging. One of the earliest bloggers about economic policy  was Professor John Quiggin, of Queensland University. Other high quality Australian blogsites are Club Troppo, Core Economics and, for the more libertarian, Catallaxy Files. (There was a blog called Ross Gittins, Corrected but they seem to have given up.)

The best academic blogsite is undoubtedly the uni-sponsored The Conversation. To have all those academics writing short, timely, readable pieces in their area of specialty is an invaluable contribution to the policy debate.

And then there's the blog of the former bureaucrat John Menadue, called Pearls and Irritations. Menadue brings in other contributors, and his blog is the place to go to see ex-bureaucrats casting a critical eye over present government policy.

These guys know where the bodies are buried, and no one sees through the political smoke and mirrors  more easily than they do.

Earlier this year Menadue teamed up with the former econocrat Dr Mike Keating to instigate a special series on the many challenges facing the government today, called Fairness, Opportunity and Security, with a wide range of contributions from ex-bureaucrats (including Stephen Fitzgerald, David Charles, Andrew Podger and Jon Stanford), academics (including Michael Wesley, Ian Marsh, Ian McAuley and Julianne Schultz) and academics who've spent time in government (including Ross Garnaut, Glenn Withers and Stuart Harris).

Now Menadue and Keating have turned the series into a book of the same name, published by AFT Press, which they asked me to launch last week. It covers 13 topics ranging from the role of government to the economy, foreign policy, health, the environment and Indigenous affairs.

In his discussion of the way vested interests seem to have excessive influence over policymaking, Menadue notes the remarkable rise of the lobbying industry, estimating there are now more than 1000 lobbyists operating in Canberra.

"The health 'debate' is really between the minister and the Australian Medical Association, the Australian Pharmacy Guild, Medicines Australia and the private health insurance companies," he writes.

"The debate is not with the public about health policy and strategy; it is about how the minister and the department manage the vested interests."

Menadue says much of the policy skills in Canberra departments have been downgraded and policy work is contracted out to accounting and consultancy firms. Policy work within the government is now undertaken more in specialist organisation such as the Productivity Commission.

"Departmental policy capability has been seriously eroded. That is the real story behind the problems of the pink batts scheme."

As for the "inexperienced and young ministerial staffers", they're "much more likely to listen to vested interests".

On foreign affairs and internal security, the blog collection says we've become overdependent on the United States at the expense of our relations in our region. As Paul Keating once said, we should be "finding our security in, not from, Asia".

In dealing with the threat from terrorism, "a balance needs to be struck between national security and the freedoms essential for a civil society, including the humane treatment of refugees. The politicisation of security has arguably made us less safe."

On Medicare we're told it "has stood the test of time but it now represents the single biggest budgetary challenge and it is over 30 years since it has been seriously reviewed and reformed".

On superannuation, Andrew Podger, former head of various government departments and now a professor at the Australian National University's Crawford School of Public Policy, makes a plea for considered and balanced reform rather than piecemeal tinkering.

You'll go a long way before you find someone providing a more authoritative, independent and sensible commentary on budget repair and other fiscal matters than Mike Keating, former head of the Finance department and Prime Minister's and Cabinet.

In this book he has hardheaded things to say about the dream of lower taxation, which "has been embraced by all political parties without any evidence that, given our already low starting point, less taxation will in fact lead to higher economic growth, let alone pay for itself".

He quotes John Howard saying that tax cuts should be considered only "after you have met all the necessary and socially desirable expenditures".

All the evidence is that these spending demands, even if efficiently funded, are most unlikely to be fiscally sustainable without a modest increase in taxation relative to gross domestic product.

"Indeed, Australia already has lower taxation than almost any other advanced nation, but we aim to provide the same level of public services and welfare as the others," he writes.

"Thus the biggest challenge facing modern governments is the gap between expectations on them and their capacity to deliver.

"In these circumstances, encouraging unrealistic expectations of tax cuts is only making government more difficult."

Reading this collection of blogs leaves you with the impression the good bureaucratic advice our successive governments have needed to do a better job of running the country now resides outside the public service, in the minds of the retired bureaucrats who're from the days when they were expected to know about policy.

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We've become a nation of graspers

Did you see an older bloke with a goatee beard ask Joe Hockey a question about the budget's changes to the assets test for the age pension on the ABC's Q&A program a few weeks back?

He was Dante Crisante, a retired chemist, according to a subsequent interview he did with the Financial Review.

A lot of relatively well-off retirees have been complaining about the changes, which could reduce or eliminate their entitlement to the pension. They've been wondering what changes they could make to their finances to get around the new rules.

Hockey probably assumed Crisante was asking on his own behalf. He replied that he wasn't an investment adviser. But Crisante was asking a policy question, aimed at highlighting the long-standing anomaly that someone's home is excluded from the value of their assets for the purposes of the assets test. (Bad luck for people who've rented all their lives.)

Turns out Crisante doesn't receive the pension and says he never wants to get it. Which means that the man who wanted to "end the age of entitlement", and who drew invidious distinctions between lifters and leaners, missed a golden opportunity to congratulate Crisante and hold him up as an example for other comfortably off old people to follow. Maybe put him up for a gong on Australia Day.

It's possible, however, that even had Hockey known Crisante didn't have his hand out for a handout, he wouldn't have been game to praise him for his self-reliance. He might have been afraid of offending too many people; too many of his own supporters (not that a Labor politician would have been any braver).

The point is, something bad has happened to Australians over the years: we've become a nation of graspers. There was a time when the comfortably off were too proud to put their hand out for the pension. "The pension is for those people who need it. I don't need it, so I won't be joining the queue at Centrelink, thanks."

But those days are long gone. These days we display our wealth by the suburb we live in, the flash house we live in, the flash car we drive and the flash clothes we wear. But none of that stops us arranging our affairs so as to claim a pittance more from the taxpayer.

I suppose it's a good thing there's now no shame attached to being an age pensioner. But it's gone too far when it means there's no shame in claiming a pension or part-pension you don't really need.

And, as I've experienced myself in recent years, there's a whole industry of financial advisers out there these days making their living – a lucrative one, by all accounts – advising older people on how to maximise their call on other taxpayers.

Not just how to minimise the amount of tax you pay on your superannuation – how to put as little as possible into the community kitty – but also how to maximise the pension and associated benefits you receive; how to get as much as possible out of the kitty.

We do all that, most other people do all that, then we wonder why our governments have so much trouble getting their budgets to balance. We even tell ourselves how worried we are about these governments leaving so much debt to be picked up by our grandkids.

Notice how it's always those terrible politicians doing terrible things to our grandchildren. It's never the collective consequences of their grandparents being selfish.

Actually, it's funny. An important part of our motive in using our last years to pay as little tax as possible and make the biggest claim on other taxpayers as possible is our desire to maximise our children's inheritance.

It's a form of selfishness we see as unselfish. Ripping off the system to help our children. Rip off your fellow taxpayers before they rip you off, a great philosophy of life to pass on. Surprisingly, selfishness is catching. Some people find their children even more anxious than they are to maximise their inheritance.

In vain do politicians protest – quietly, and only occasionally – that the billions lost in tax breaks on super every year are sacrificed to help people with their living costs in retirement, not to help the old maximise their kids' inheritance.

In the popular reaction to the latest changes to the assets test, angry oldies are talking of finding ways to prevent the government from cutting their pension. Move to a more expensive house, one far bigger than you need or want to look after?

Give a lot away to your kids in advance? The government has low limits on how much you can give away each year without reducing your pension entitlement, but that's OK, just lie to the government. Lying to governments isn't really lying, is it?

This wouldn't be the first time old people, in their mania for extracting the last dollar of supposed entitlement from the government, have done crazy things. Years ago people would keep thousands in non-interest-bearing cheque accounts so as to avoid reducing their pension.

Rather than losing one dollar of pension they preferred to lose two dollars of interest. Volunteer for the big banks to rip you off? Sure.

The government had to introduce "deeming" to stop pensioners from self-harming. We've become a nation of graspers.

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Super: ignore it and miss seeing you're being bled

You know you're getting old when you attend the funeral of the man who hired you four decades earlier. Among all the rough-and-ready types in journalism, Alan Dobbyn, long-lasting news editor of the Herald - in the days when that meant he was really the editor - was a true gentleman.

When, as a chartered accountant, I applied for a job as a cadet journalist, Dobbyn told me he wasn't sure I'd last, but was prepared to give it a go. He didn't know how keen I was to escape the round eternal of the cash book and the journal. At the wake, I learnt from his family his concern was his inability to offer me a wage of more than $100 a week.

Not to worry. He got me a hefty pay rise four months later. And, in any case, being an accountant with an interest in such matters, I joined the Fairfax super scheme in my first week and this has served me more than well.

Just as it never crossed my mind I'd one day attend my boss's funeral, so most people under 50 can't bring themselves to think about superannuation. It is too complicated and too boring. It deals with contingencies so far into the unknowable future that they're inconceivable.

Why do bankers and other purveyors of "financial services" earn stratospheric incomes that chief executives have been quick to copy and medical specialists to envy? To a fair extent because so few people can bring themselves to keep a watchful eye on their super.

How do you get ripped off in a capitalist economy? By not paying enough attention to what the capitalists are doing to you via boring things like superannuation. By ignoring the watchwords of capitalism: caveat emptor - let the buyer beware.

Paul Keating is particularly proud of Labor's introduction of compulsory employee super in the 1990s. John Howard has always had his doubts, partly because of the compulsion, but mainly because it's meant so many unwashed union officials getting a hand in administering the billions that, by rights, should be the exclusive preserve of Liberal-voting business people.

I have no problem with the compulsion. It is an easily justified government intervention to help counter the very market failure we've been discussing: life-cycle myopia. But even if you regard our present arrangements as a great reform, it remains true they're also a great scandal. A remodelled house that's yet to have its tarpaulin replaced by a new roof to stop the rain getting in.

Lately, we've heard much about the way a mainly compulsory saving scheme is accompanied by tax inducements that cost the government about as much as the age pension, but are of little benefit to low-income earners, with most of the lolly going to high-income earners like me.

It's a scandal for the government to be proposing cuts to the age pension because its cost has become "unsustainable", while ignoring the super tax concessions going to the more than well-off.

But another scandal gets far less attention: the way the banks and life insurance companies and innumerable hangers-on are able to quietly overcharge all those mug punters who can't muster any interest in their super.

Think of it: the government compels employers to take 9.5 per cent of their workers' wages and hand this over to the "financial services" industry, then looks the other way while these fat cats rip off the mugs the government has delivered into their hands.

As Jim Minifie explains in his report, Super Savings, for the Grattan Institute, the previous government did do something to improve things, mainly by tightening requirements on the "default" super funds that workers are put into when, as usually happens, they don't exercise their right to nominate a fund.

But this just scrapes the surface of the potential reductions in the administrative and investment management fees imposed on people's accounts. The industry is inefficient because its customers' inattention means competition is inadequate.

To be fair to punters, it's just too hard to understand how super works and how different funds compare, and too time-consuming to complete the forms needed to move money around. Putting that into econospeak​, information and transaction costs are prohibitive, causing the market to fail.

Minifie finds there are too many super accounts - on average, about two per person - and too many super funds, which stops the exploitation of economies of scale. He says the government should encourage fund mergers and make it easier for people to consolidate their accounts.

But most of all, the government should inject more competition by calling tenders for the right to be a default fund, with those funds charging the lowest fees winning.

These reforms could cut the $21 billion in fees paid each year by people with super accounts by up to $6 billion a year. That's a decrease of almost 30 per cent.

Punters assume that, apart from the size of your wage, how much super you retire with depends on how well your investments do. Often, however, how much you're charged in fees can make a bigger difference.

Few realise they're paying about $1000 a year in fees. Minifie estimates that just introducing a tender for default funds would cause the average retirement payout of people in such funds to be 5 per cent higher.  That's about $40,000. Worth worrying about, I'd have thought.

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Tears for first-home buyers the crocodile kind

Joe Hockey wants to help young people buy their first home by letting them dip into their superannuation, while NSW Labor leader Luke Foley wants to improve affordability by letting them pay off the stamp duty on their purchase over five years. Really? I often wonder whether our politicians are knaves or just fools.

But while we're questioning the sense and morality of our pollies, we shouldn't neglect to ask whether they're just reflecting our own weaknesses. There are few subjects on which more crocodile tears are shed than housing affordability.

At bottom, the economics of housing affordability is dead simple. Sometimes housing can be hard to afford because mortgage interest rates are way too high. But that hasn't been the case since we got inflation back down to normal levels in the mid-1990s.

And at present just the reverse applies. Mortgage interest rates are abnormally low. They won't stay that way, of course.

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So if interest rates aren't the problem, the other factor is home prices. In a market economy like ours, the price of anything – whether ordinary goods or services, or an asset such as a house – rises when the demand for it exceeds its supply.

For some years now, the supply of additional houses and units has failed to grow in line with "household formation" – young people getting married, people immigrating to Australia and couples splitting up.

So inadequate growth in supply has been the real problem, caused by state and local governments placing too many legal obstacles and charges in the path of developers seeking to build new estates on the edge of the city and – perhaps more important – seeking to provide medium- and high-density "infill" closer in, where people increasingly prefer to live to avoid long commutes.

The NSW Coalition government claims to have made progress in reducing these obstacles, and it's true that housing construction is growing faster in Sydney at present than it has been.

But though the basic problem has been maintaining an adequate supply of appropriately located housing to meet the growing demand, the supply side of the problem isn't terribly visible to you and me.

We're more conscious of the demand side, represented by the high and ever-rising cost of buying a place faced by our kids and other young people. What's more, we suffer from a kind of optical illusion. Your daughter and her partner are just sitting there saving, watching some invisible force push house prices further and further out of their reach.

The trick is that while no single purchaser can move the market price, the combined demand of all purchasers can – and does, as we watch.

Our natural, uneducated tendency to see the house price problem from the viewpoint of the individual buyer makes us susceptible to the pseudo solutions peddled by politicians seeking votes.

If only my daughter could get a bit of a leg-up in either putting together a sufficient deposit (say, by being allowed to dip into super) or in lowering the initial cost of the purchase (say, by staggering the cost of stamp duty), she could afford to take on the mortgage and she'd be right.

See the weakness in that logic? If it helps your daughter and her partner, it also helps all the couples they're competing against to buy a place. Which means it gets your daughter nowhere. Actually, she's worse off. Since everyone can now more easily afford to pay the existing price, the prices of the homes they want to buy go even higher.

As economists say, the benefit from the caring pollie's supposed helping hand is "capitalised" into the price of "ideal first homes". And that means the benefit of the measure ends up going not to first-home buyers but to first-home sellers.

Economists have understood this perverse outcome since the year dot. Their rule is simple: when demand for housing is running ahead of supply, anything you do to make it easier for people to afford the high prices ends up only making prices higher, to the cost of buyers and the benefit of existing home owners.

It's possible Hockey and Foley aren't sufficiently economically literate to have worked out that their proposals would be counterproductive. (Not to mention that Hockey's would leave young people's eventual retirement payouts significantly diminished because of their loss of compound interest, or that Foley's would leave fully financially committed couples with additional large lump-sum payments for five years.)

What's not credible is that these guys' economic advisers would have failed to warn them of the perverse consequences of their proposals. So they may just be fools, but my practice is to give their intelligence or competence the benefit of the doubt and assume they're knaves: they knew it was a con, but were confident most voters wouldn't see through it, so they proposed it anyway.

And remember this: in any year, the number of voting home owners far exceeds the number of would-be home owners. So how could proposing a scheme that pretended to help first-home buyers while actually helping existing home owners cost you more votes than it gained?

The pollies know that proposing phoney schemes to help young home buyers without actually lowering the value of the homes owned by the rest of us is exactly the kind of help we prefer them to offer.

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Treasury under new management

How much does the Treasury's view of the world change when a prime minister comes to power, sacks the head of Treasury (and his heir apparent) and replaces him with his own hand-picked man from outside the public service?

That's what the economic cognoscenti were asking last week when our first political appointment as Treasury secretary, John Fraser, made his first public appearances at a Senate estimates hearing and as a speaker at a conference of the Committee for Economic Development of Australia.

Fraser had risen to the rank of deputy secretary when he left Treasury in 1993 to make his name and fortune as an investment banker at the global level of the UBS bank. It's hard to imagine such an old and rich chap would hang around long if he found his advice wasn't being heeded.

From what he's said so far, you don't get the feeling Fraser has spent the past 22 years keeping tabs on the Australian economy or keeping abreast of the latest applied research on fiscal policy. Even so, he's a man of strong and confidently held opinions, who isn't afraid to tell you about them.

His views were pretty conservative when he left Treasury, at a time when the views of Treasury itself were more cautious than they've been in recent years, and his time as a chief executive is unlikely to have radicalised him.

Dr Martin Parkinson and Dr Blair Comley seem to have been sacked for their lack of scepticism about climate change, so we can presume Fraser doesn't share that failing. I may be wrong, but I don't see him as someone who wastes much time worrying about "wellbeing frameworks".

We know from his evidence to the Senate that he's a great admirer of Ronald Reagan's tax cuts of the early 1980s (which did so much to lay the foundations for America's present towering public debt), but has "old-fashioned" views about the evil of public debt.

He is sceptical about using the budget to stimulate the economy when it's very weak – which means he's invalidated one of the best arguments for getting debt down: the need to "reload the fiscal cannon" ready for the next recession.

And he thinks the policy of "austerity" practised in Britain and (by default) America has been a great success. This opinion he expressed to the Senate and backed up with figures in his later speech.

To silly people on the left, "austerity" is a swear word you slap on any budget saving you disagree with. But it really means a policy of cutting the budget deficit hard even while the economy is very weak.

The lefties never understood that Joe Hockey's first budget was carefully crafted to involve minimal net cuts to the deficit in the first three years, with the big hit delayed until 2017, when the economy was expected to be back growing strongly.

So, is true austerity about to come to Oz under the advice of the new Treasury boss? You might think so. Fraser says "we need to start now" and repairing the fiscal (budgetary) position is "an immediate priority".

But I'm not so sure. Later in his speech he advocates "committing now to savings measures that build over time to deliver a return to surplus over the medium term". And asked if now was the time to cut savagely considering the weak outlook, he said the coming budget would have to be "tailored to the situation".

While much of what Fraser has said so far is what you'd expect of an Abbott appointee, some of it isn't. His summary of how the budget got into its present state doesn't put all the blame on Labor, but acknowledges the role of excessive tax cuts and spending by the Howard government.

And while noting that government spending has grown at an average real rate of more than 4 per cent a year since 2007-08 (mainly under Labor), he also noted that it grew by about 3.5 per cent a year over the four years to 2007-08 under the sainted Howard government.

He is sharply critical of the increase in "middle-class welfare" in Howard's last years, including Peter Costello's (obviously unsustainable) superannuation changes, which he highlights for reform.

And unlike the huge majority of economists, he frankly admits the great drawback to using immigration to boost economic growth: it "places additional demands on government budgets in areas such as infrastructure, health and education".

Maybe high immigration, but inadequate investment in business equipment, housing and public infrastructure, help explain why our rate of productivity improvement isn't as great as Fraser says we need.

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Big business now calling the economic shots

Sometimes I wonder whether the economy is being managed for our benefit or for the benefit of the big businesses that dominate it. The two big supermarket chains we get to choose between, the two domestic airlines and privately owned airports, the three foreign mining giants that were allowed to redesign the mining tax they didn't like, and the four big banks that control so much of our superannuation and the investment advice we get, not to mention our savings accounts and mortgages.

I'm old enough to remember when economic life seemed to be dominated by big unions. Hardly a month passed without our lives being disrupted by some strike. We'd be walking miles to work or finding someone to mind the kids while the teachers were out.

I remember finishing a holiday in New Zealand with our young family, only to find the baggage handlers in Sydney were on strike and being stuck in Christchurch for an extra two days.

Thank goodness we don't have to put up with all that any more. But in place of being bossed around by the unions, we now have big business calling the shots. They don't inconvenience us like the unions did, but they do seem to have the ear of government.

Big business is always complaining about some way the economy's being run that doesn't meet with its approval. It's always warning of the terrible economic price we'll pay if it doesn't get what it wants. Its complaints are always treated with reverence by the media. And always taken seriously by the government, Labor or Coalition.

We seem to be developing a new economic religion that what's good for big business is good for the country. No one believes this more fervently than the big business people themselves - plus their never-silent lobby groups.

These paragons of industry want to be unfettered in their efforts to expand their businesses and make higher profits, which they're doing purely in the interests of you and me. And they're always terribly impatient. They want to frack wherever they want to frack, they want to start tomorrow and they don't want selfish, short-sighted people to slow them down, let alone stop them.

They want to invest in a new mine or a new something which will create tens of thousands of new jobs in the district, and what other consideration could possibly trump that? If you want to consult the locals before granting permission, this is "red tape", which by definition is bad and must be swept aside. If you want time to investigate the environmental impact of the project, this is "green tape" and just as much economic vandalism as the red.

Another problem is the breakdown of "caveat emptor" - it's the buyer's job to make sure they're not ripped off. Products, particularly financial products, have become complex and hard to compare - deliberately so, you have to suspect.

In theory, we're supposed to read every word of the contracts we sign, know whether the nice man giving us advice on our savings is being paid to push some products but not others, know whether he'll go on receiving a commission for years without contacting us again, check continually to see whether our bank is now offering a better deal than we get without telling us or whether we should be moving our banking business, check what fees we're being charged on our superannuation and whether a different fund would give us a better deal.

In theory, we should devote much of our free time to doing all that. In practice, few do. We like to relax when we're not working and are diverted by an ever-multiplying range of commercial entertainments.

In practice, big business knows far more about this stuff than we do. So we need governments to protect us from being exploited, prohibiting certain kinds of behaviour, requiring financial institutions to keep us informed in ways we can understand and not take advantage of our inferior knowledge and inertia.

After many people lost their savings during the financial crisis, the previous federal government decided to tighten up on financial advice. Its original plans were modified after lobbying by the banks and their lobby groups, and now they've been watered down further by the present government - all in the name of reducing red tape.

The government compels most employees to contribute 9.5 per cent of their salaries to superannuation, from which the people running those funds extract very high fees - now equal to an amazing 1 per cent of gross domestic product - which greatly reduce final payouts.

The interim report of the inquiry into the financial system found that the fees appeared high by international standards. It found little evidence of strong fee-based competition between funds. The funds have got a lot bigger in recent years, but these economies of scale haven't led to lower fees.

The previous government introduced a new, simpler super account called MySuper in an effort to reduce fees, but the report says it's too early to assess its success in doing so. Last week, the Financial Services Council lobby group began arguing strongly that fees aren't too high. We must hope it isn't as influential in resisting the push for lower super fees as it was in getting the investment-advice protections watered down.

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Your guide to business entitlement

With the Abbott government's close relations with big business, we're still to see whether its reign will be one of greater or less rent-seeking by particular industries. So far we have evidence going both ways.

We've seen knockbacks for the car makers, fruit canners and Qantas, but wins for farmers opposing the foreign takeover of GrainCorp and seeking more drought assistance, as well as a stay on the big banks' attempt to water down consumer protection on financial advice.

The next test will be the budget. Will the end of the Age of Entitlement apply just to welfare recipients (especially the politically weak, e.g. the unemployed and sole parents, rather than politically powerful age pensioners) or will it extend to "business welfare"?

With Joe Hockey searching for all the budget savings he can find, there's a lot of business welfare or, euphemistically, "industry assistance" to look at. The Productivity Commission measures it every year in its Trade and Assistance Review.

Government assistance to industry is provided in four main ways: through tariffs (restrictions on imports), government spending, tax concessions and regulatory restrictions on competition. Although much rent-seeking takes the form of persuading governments to regulate markets in ways that advantage your industry, the benefit you gain is hard to measure, so it's not included in the commission's figuring.

Assistance through tariffs is far less than in the bad old days before micro-economic reform, but there's still some left. However, its cost is borne directly by consumers in the form of higher prices. So it's not relevant to Hockey's search for budget savings. Even so, I'll give you a quick tour.

The commission estimates that, in 2011-12, tariffs allowed manufacturing industries (plus the odd rural industry) to sell their goods for $7.9 billion a year more than they otherwise would have.

In the process, however, this forced up the cost of goods used by manufacturers and other industries as inputs to their production of goods and services by $6.8 billion a year. About 30 per cent of this cost to inputs was borne by the manufacturers themselves, leaving about 70 per cent borne by other industries, largely the service industries.

(This, by the way, shows why import protection doesn't help employment as non-economists imagine it does. It may prop up manufacturing jobs, but it's at the expense of jobs everywhere else in the economy.)

So now we get to budgetary assistance to industry. On the spending side of the budget it can take the form of direct subsidies, grants, bounties, loans at concessional interest rates, loan guarantees, insurance arrangements or even equity (capital) injections.

On the revenue side of the budget it can take the form of concessional tax deductions, rebates or exemptions, preferential tax rates or the deferral of taxation. In 2011-12, the total value of budgetary assistance was $9.4 billion, with just over half that coming from spending and the rest from tax concessions.

Often people will virtuously assure you their outfit doesn't receive a cent of subsidy from the government, but omit to mention the special tax breaks they're entitled to. Think-tanks that rail against government intervention and the Nanny State, hate admitting they're sucking at the teat because the donations they receive are tax deductible (causing them to be higher than otherwise, but at a cost to other taxpayers).

This is why economists call tax concessions "tax expenditures" - to recognise that, from the perspective of the budget balance and of other taxpayers, it doesn't matter much whether the assistance comes via a cheque from the government or via the right to pay less tax than you otherwise would.

Of the total budgetary assistance in 2011-12 of $9.4 billion, 15 per cent went to agriculture, 7 per cent to mining, 19 per cent to manufacturing and 45 per cent to the services sector (leaving 14 per cent that can't be allocated to particular industries).

To put that in context, remember that agriculture's share of gross domestic product (value-added) is about 3 per cent, mining's is 10 per cent and manufacturing's is 8 per cent, leaving services contributing about 79 per cent.

Within manufacturing, the recipients of the most business welfare are motor vehicles and parts, $620 million, metal and metal fabrication, $270 million, petroleum and chemicals, $220 million, and food and beverage processors, $110 million.

Within services, the big ones are finance and insurance, $910 million, property and professional services, $610 million, and arts and recreation, $350 million.

But if you combine tariff and budgetary assistance, then compare it with the industry's value-added (share of GDP), you get a different perspective on which industries' snouts are deepest in the trough. The "effective rate of combined assistance" is 9.4 per cent for motor vehicles and parts, 7.3 per cent for textiles, clothing and footwear, and 4.7 per cent for metal and metal fabrication.

Get this: outside manufacturing, the most heavily assisted goods industry relative to the size of its contribution to the economy is forestry and logging on 7.2 per cent. We pay a huge price to destroy our native forests.

Within services, the most heavily assisted industry is the one where incomes are so much higher than anywhere else: financial services. Virtually all the assistance picked up in the commission's calculations comes via special tax breaks, such as the tax concession for offshore banking units and the reduced withholding tax on foreigners receiving distributions from managed investment trusts.

But that ain't the half of it. These calculations don't pick up two big free kicks: the benefit to the industry because the government forces almost all workers to hand over 9.25 per cent of their pay to be "managed" by it, and the benefit it gains from having one of its main products, superannuation, so heavily subsidised by other taxpayers.

Cut these fat cats? Naah, screwing people on the dole would be much easier.

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Compulsory super without protections is a rip off

A few weeks ago, when I offered my list of our top 10 economic reforms of the past 40 years, I was surprised by the number of people arguing I should have included compulsory employee superannuation in the list. Really? I can't agree.

It is, after all, merely a way of compelling people to save for their retirement. That's probably no bad thing in principle, countering our all too human tendency to worry excessively about the here and now and too little about adequate provision for our old age.

But compulsory saving hardly counts as a major reform. I suspect some of my correspondents see it as a boon for workers because it extracts a benefit from employers over and above the wages they're paid.

If so, they've been misled by appearances. Economists are in no doubt it all comes out in the wash: that when the government obliges employers to contribute to workers' retirement savings, the employers eventually make up for it by granting smaller wage rises than they otherwise would have.

It's true that compulsory super contributions - and the subsequent earnings on them - attract tax concessions, being taxed at a flat rate of just 15 cents in the dollar. But while upper income-earners do disgracefully well out of these concessions, people on incomes around the average gain little advantage, and those earning less than $37,000 a year gain nothing. Hardly sounds fair to me.

My other reservation about compulsory super is the way it compels employees to become the victims of the most shamelessly grasping, overpaid industry of them all: financial services. These are the people who made top executives and medical specialists feel they were underpaid.

Compulsory super delivers a huge captive market for the providers of investment services to make an easy living from and for the less scrupulous among them to prey upon. The pot of money the government compels us to give these people to manage on our behalf has now reached $1.6 trillion.

Most of us have little idea how much these people appropriate from our life savings each year to reward themselves for the services we're compelled to let them provide to us - and little desire to find out.

We should be less complacent. For many workers it's more than we pay for electricity each year. Think of it: we put so much energy and passion into carrying on about the rising price of power - and Tony Abbott used our resentment to get himself elected - while the men in flash suits dip into our savings without most of us knowing or caring.

To be fair, industry super funds dip into our savings far more sparingly than the profit-driven "retail" funds backed by the big banks, insurance companies and firms of actuaries. Since most workers do have a choice, you'd need a very good reason not to have your money with an industry fund.

But even this worries me. It means the union movement - the people whose job is to protect workers by being full bottle on the tricks the finance industry gets up to - has divided loyalties. Those who should be holding the industry to account are also part of it.

For years the industry campaigned for an increase in the super levy of 9 per cent of salary, arguing it was insufficient to provide people with an adequate income in retirement. This is a dubious argument, rejected by the Henry taxation review.

But look at it another way: here is a hugely profitable industry arguing the government should increase the proportion of all employees' wages diverted to the industry for it to take annual bites out of before giving us access to our money at age 60 or later.

This is classic rent-seeking. The Howard government was never tempted to yield, but as part of the Labor government's mining-tax reform package, it agreed to boost compulsory super contributions to 12 per cent by 2019. Why? I don't doubt Labor was got at by the union end of the financial services industry.

Contributions increased to 9.25 per cent last July, but the Abbott government came to power promising to defer the phase-up for two years. I'd lay a small bet this deferral will become permanent - though probably not before contributions rise to 9.5 per cent on July 1.

I wouldn't be sorry to see the phase-up abandoned. The Henry report recommended against it, arguing that action to reduce the industry's fees could produce a similar increase in ultimate super payouts. And it's doubtful that low income earners are better off being compelled to save rather than spend their meagre earnings.

The government's policy of compelling workers to hand so much of their wages over to the finance industry surely leaves the government with a greater-than-normal obligation to ensure the industry doesn't exploit this monopoly by misadvising and overcharging its often uninformed customers.

This - along with the millions lost by investors in Storm Financial and other dodgy outfits - prompted Labor's Future of Financial Advice reforms, which focused on prohibiting or highlighting hidden commissions and requiring advisers to put their clients' interests ahead of their own.

But now Senator Arthur Sinodinos is seeking to water down these consumer protections in the name of reducing "red tape". The financial fat cats live to rip us off another day.

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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.

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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.

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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.

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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.

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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.

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