Opinion & Commentary
Future funds for everyone
Last month Treasurer Peter Costello forecast another huge budget surplus for this year. Yet again, individuals and companies have paid far more tax than the Government knows what to do with.
Some of this surplus is earmarked for the Government's new piggy bank, its so-called Future Fund. The Government says it needs a Future Fund to pay for public servants' superannuation in 15 years' time, yet these superannuation liabilities are forecast to fall from 0.6 per cent of gross domestic product in 2001-02 to 0.3 per cent in 2021-22.
Much more pressing is the escalation in the cost of age pensions and public health care as the population ages, but the Future Fund will do nothing to ameliorate this. The best way to protect future generations from this burden would be to encourage people to accept more responsibility for their own health and retirement needs, but government tax policies are achieving precisely the reverse effect.
For example, three-quarters of retirees will still be claiming a part or full age pension in 2050 despite many of them having made compulsory super contributions. The 9 per cent salary contribution is in many cases insufficient to guarantee an adequate retirement income, but the commonwealth is making matters worse by taxing contributions as well as fund earnings, thereby depleting people's retirement savings.
Superannuation taxes provide nearly 3 per cent of Canberra 's revenue, but the result of taking money out of people's savings now is that demand for higher spending is stoked up later on. Because the taxman has been dipping into our savings, we cannot support ourselves when we retire, so we have to rely on the government age pension.
This is not the only example of government taking money away in taxes and then having to give it back in welfare payments and services. In 2003-04, Australian governments spent $80 billion on income support payments and $100 billion on health, education and housing. More than half of this money went back to the people who contributed it in the first place.
In 2001-02, for example, an average couple raising two school-age children received $508 worth of weekly government health and education services and income support payments. But they paid for $394 of this in their taxes. Their net tax-welfare gain was only $114; the rest was churned.
It is obviously inefficient for one government bureaucracy to take money from us while others hand it back. All of this churning also leads to higher taxes than are necessary, and this damages work incentives and reduces living standards.
Churning also exacts a heavy sociological price, for as governments assume ever greater responsibility for our lives, we become disempowered. Although we pay in tax for what we consume, we give up responsibility for our health, the education of our children and our income security to politicians and bureaucrats.
The key to reducing churning is to allow people to retain more of their income in return for making fewer claims on government benefits and services. But the Government's Future Fund is doing the opposite. Far from cutting taxes to enable people to save, the Government is taxing us more than is necessary so it can build up its own savings.
As the receptacle for future budget surpluses and proceeds from the Telstra privatisation, the Future Fund is expected to reach $62 billion as early as 2007. But these budget surpluses belong to taxpayers, and the receipts from the sale of Telstra should be remitted to the public, which owns these assets. If all of this money was handed back rather than hoarded, $62 billion would give every adult and child in Australia an initial $3000 of savings. Rather than one Future Fund, we could have 20 million.
Redistributing this money into personal future funds for all Australians would enable dependency on government payments and services to be rolled back. For example, people could draw on their own savings to provide a basic income during short periods of joblessness. There would then be no need to go, cap in hand, to Centrelink.
In return for tax reductions, people might also opt to build up their funds and use them to pay for GP visits and pharmaceuticals, or to cover health insurance deductibles. Young people might similarly invest tax-free savings in their future funds to purchase a first home, pay for education and training, or set up a business. In all of these cases, self-reliance would be fostered and future demands on government spending would be trimmed.
A truly liberal government would denationalise the Future Fund and reallocate the money to its rightful owners. This way, individuals could start to reclaim control over their lives while reducing the burden on future generations of taxpayers.
Professor Peter Saunders is social research director at The Centre for Independent Studies. This is based on his paper ‘Twenty Million Future Funds’, which was released on December 21, 2005 , and is available at www.cis.org.au.
