Labor themselves divided by the politics of super.

And they reminisce over better days....

And they reminisce over better days…. (Photo credit: Alex E. Proimos)

 

 

 

 

Retirees’ perspective

Older retirees still remember with gratitude the changes Peter Costello made as Treasurer during the last Liberal coalition era, to effectively exempt them from paying tax on their super in retirement.

The changes were timely, and helped in a small way, to cushion the devastating effects of the global financial crisis on their retirement savings. For many, the GFC nearly halved  retirees’ investment capital.

Retirees become nervous when governments change the super rules. They realize how hard it is to accumulate enough wealth to support them in their old age. They soon discover that it is even harder to stop the erosion of their savings when they retire. How do you guard against the vagaries of the financial markets, and curtail excessive charges and not infrequently the unchecked selfish dishonesty of many so-called financial gurus?

Then there is the depreciating effect of inflation, with escalating charges for basic necessities such as water, gas and electricity, council rates, health insurance and telecommunications. Even pensioners sometimes get unwittingly pinged for traffic infringements, such as driving at 58km/hr in a 50 zone, and are hit with fines of $3-400 – equal to a fortnightly pension payment. Perhaps all pensioners need to stop driving!!

Is Simon Crean right?

Retired Australians and those nearing the retirement age will applaud the outspoken comments of Simon Crean warning his own party of the risks inherent in playing the politics of class differences.

The government admits to taking a hard look at the taxation concessions that apply to superannuation. It is just not possible for Labor to fund their many reform initiatives, without economies elsewhere and/or increasing taxation where they can get away with it. The argument that superannuation is only for some; that the super tax concessions benefit only the well-off strikes a sympathetic cord with Labor ideology, as the party for the battlers. In reality Labor’s weightier motive is to improve its fiscal position.

It is just plain wrong to assert that low-income workers subsidize the retirement benefits of the wealthy. The truth is just the opposite. High income earners through their taxes enable the government to fund the pension safety-net for low-income earners.

Super taxation concessions benefit the government’s fiscal position by encouraging those who can to provide for their own retirement. As it is there are few retirees who manage to stay independent of the pension throughout their retirement; even those who enter retirement with apparently adequate savings.

The government argues that super tax concession are a cost. Strictly this is not the case. The government may be foregoing potential revenue, but this is true of any tax not levied. The absence of a tax on food in the GST does not mean that it is a cost to the government.

Under pressure the government is striving to allay community fears by saying that higher super taxation will affect only the “super-rich”. If it is true that it will only affect those with incomes in excess of $300,000, will the revenue justify the measure?

Such a decision may well just be the thin end of the wedge. Who would arbitrate on what is a reasonable income level? The more wealthy will find alternative avenues for investment, but the less affluent may not be able to.

In all probability such a measure will diminish  contributions to superannuation, and discourage thrift. The reality is that already most self funded retirees sooner or later fall back on the pension for financial support.

Do superannuation tax concessions have to be reduced for superannuation to be sustainable?

With an ageing population, the government would be short-sighted if it sought short-term fiscal gain by discouraging Australians from taking a more active role in the funding of their retirement. The retirement age is to rise to 67 in the next few years to limit the cost of providing the pension.

Rather we should ask: Are Pension Benefits Sustainable without superannuation tax concessions to encourage greater thrift?

Labor is proud to take credit for the superannuation guarantee payment system for working Australians. The legislation requires industry to pay 9%, increasing to 12%, of workers’ salaries into a superannuation account. But the government itself makes no contribution to workers’ superannuation. The government has halved the Co-Contribution subsidies for low-income workers (up to $46,920 income)  when they make a non tax-deductible contribution to their own super, to a miserly $500 maximum payment.

If the government increases tax on super contributions and earnings, will they use the revenue to supplement the superannuation benefits of low-income earners, or increase the aged pension? I think not.

About Kenneth Robson

I studied at Adelaide Boys' High School, and the University of Adelaide, Medical School. graduating in 1961. My field of specialisation was Plastic and Reconstructive Surgery. Prior to establishing my practice in Adelaide, I spent 5 years working in India, and Papua-New Guinea, in the field of reconstructive surgery for leprosy. In retirement I joined the Australian Technical Analyst Association and passed the two examinations for a Diploma inTechnical Analysis, and the designation Certified Financial Technician (CFTe) by the International Federation of Technical Analysts.
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