Opinion & Commentary
The super rip-off is unfair, not the tax cuts
The debate over the budget reveals some confused thinking on both sides of politics. Kim Beazley opposes what he calls a "blatantly unfair tax package" on the grounds that the Government is giving more money to higher earners than to those on middle and low incomes.
It seems Labor politicians still do not understand that governments do not give money to anybody when they reduce taxes: they simply agree to take a bit less away.
The huge budget surplus means the Government has taken more in tax than it needs to fund its commitments (despite the extravagant pre-election spending binge). We might expect the Opposition to have criticised this over-taxation and to support the principle of returning surplus funds to the people from whom they were extracted.
Nearly two-thirds of the revenue raised by personal income tax comes from the top quarter of income earners (the bottom quarter contributes only 3per cent). If we reduce the amount of tax politicians take, the biggest reductions will obviously fall to the people who contribute most.
Beazley's complaint that the budget tax cuts favour higher earners forgets this is only because our income tax system is so steeply progressive. If he really wants to ensure everyone gets a fair (proportional) share of any future tax changes, he should argue for a flat (proportional) tax, where everyone pays the same percentage of their income no matter how much they earn. We would all then suffer or gain equally as taxes went up or down.
As it is, the Opposition Leader apparently favours progressive taxation when taxes increase but flat taxation when they decrease. This is known as having your cake and eating it.
Meanwhile, on the other side of politics, Peter Costello has decided not to hand back all the excess revenue he has collected. Rather, he is stuffing some of it into a Future Fund that will be used to pay the unfunded superannuation of Canberra public servants.
Costello says future generations will thank him for this because it lifts a burden of debt from their shoulders. But there are other and better ways in which he could have achieved this.
The Future Fund requires non-government workers to pay for the retirement pensions of public servants while also funding their own super. Not only that, but the public service pensions are a lot more generous than other schemes, so taxpayers are having to make a bigger contribution to the superannuation of Canberra bureaucrats than they make to their own funds.
To add even further insult to this injury, taxpayers are also getting clobbered with triple taxes on their own superannuation contributions. Contrary to common practice in any other country in the Western world, superannuation here is taxed when the money goes into the scheme, taxed again when the fund makes profits and taxed a third time when the cash is withdrawn on retirement.
To give him his due, Costello's budget has scrapped a fourth super tax, the superannuation surcharge paid by higher-income earners. This was a wretched anti-savings measure that his Government introduced in the first place.
But the best way to lift the debt burden from the next generation would have been to scrap tax on super contributions. This would allow us all to accumulate bigger retirement incomes, thereby reducing our future call on taxpayer-funded age pensions and lowering the tax burden on our children.
By using this money instead to set up his Future Fund, Costello is effectively reducing the superannuation funds of individuals (by continuing to tax them) while accumulating a huge government fund. Favouring state over private accumulation in this way does not seem very liberal.
Instead of getting annoyed about the unfairness of a budget that relieves taxpayers of a tiny fraction of their tax burden, Beazley should be questioning the fairness of the Future Fund. Is it fair that we are taxing people's super so their money can be diverted into funding the much more generous pensions enjoyed by government employees?
Of course, most of those Canberra public servants vote Labor. Beazley's bravery in opposing the tax cuts may not extend to telling his public sector supporters that they should be funding their super shortfall with a special levy or out of productivity savings.
Professor Peter Saunders is social research director at The Centre for Independent Studies.
