This is my second column in a row on superannuation as super choice looms. Super has been an area that Australia’s politicians have not excelled themselves. The ALP deserves considerable credit for moving on super and extending it to the hoi polloi. Focusing on the long term is also laudable in itself – especially in the light of what we’ve seen lately. Its pretty unclear what the coalition really think of super.
But the ALP didn’t show any real attention to detail. There was lots of pressure from early on I recall Barrie Unsworth stacking on a huge blue to ‘grandfather’ various entitlements that were, no doubt, none too fair.
So there may have been political difficulties that made it hard for them. But the ALP (particularly those who fancied themselves as a ‘big picture’ duo – Paul Keating and his ‘mate’ Bill Kelty) showed a lack of attention to detail which created all sorts of iniquities.
I don’t know this stuff well enough to be sure of my ground here, but it seemed to me very odd that the ALP went for a ‘flat tax’ within superannuation. This meant that it offered little in the way of tax concessions (or even tax penalties) for those on lower incomes whom they claimed to represent and major tax concessions for the wealthy.
I’ve never understood what would be wrong with running the super system through the normal tax system. If you’re on a marginal tax rate of 48.5% then that’s where your tax on super should start and if we feel like handing out tax concessions to encourage savings (not something that appeals to me because, particularly where one only targets a subset of saving, so much of it simply occassions the wealthy rearranging their affairs to capture the incentive) we could provide people with some systematic concession against their marginal tax rate (eg 10% off the marginal rate on their income). I’d be happy to be put straight by readers below, but I find it implausible that it would be much more administratively intensive than the flat tax on super earnings we have now. You might have had to do something smart involving the ATO in the administration of it, but we’ve done that more than once before.
Then there was the way in which fees became quite massive shares of total funds under management for those who made small payments into super, and the way they became fragmented between funds, particularly for itinerant workers. Just a detail for the pollies but I don’t spose it felt like that if you were a fruit picker and in effect you simply handed over part of your wage to a private bureaucracy. It took until Dawkins Treasurership for a fund to be developed which addressed this problem.
In any event, this week’s column argues that, in the context of reform of superannuation towards two goals that are worthy in principle – full funding and greater provision of choice – we’ve nevertheless managed to lose some of the intergenerational risk sharing that went on when we had pay as you go, defined benefit schemes.
As usual the 820 words I got weren’t enough to cross the ‘i’s and dot the ‘t’s. (I stuck an extra para in the version of the op ed appearing below to speculate about more than one kind of instrument for sharing intergenerational risk. I also threw in the Woody Allen quote for fun.) Also there was not all that much intergenerational risk sharing in defined benefit schemes. But the goal of providing more seems worthy of some thought.
I’d be interested in Troppodillians’ views on what would be the best instrument to allow people to take out some intergenerational insurance within their super portfolios.
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