Ideas@TheCentre
Mugged by a Swan
Although the contents of the 2012 Budget are unknown at the time of writing, we have been led to expect that one revenue-raising measure will be a doubling of the concessional rate of tax from 15% to 30% on superannuation contributions by individuals earning $300,000 or more. These comprise the top 1% or so of income tax payers. It is ironic that this latest fiscal mugging of high income earners was revealed within days of the release of statistics by the Australian Tax Office showing that the top 1% accounted for 9% of taxable income but paid 17% of all net personal income tax paid in 2009–10. The latest impost makes one wonder just when Wayne Swan and his colleagues will be satisfied that high income earners are paying enough.
Although many people will see the top 1% as fair game in a tough budget, the worthy goal of restoring the federal budget to balance does not justify every single measure the government may contrive to achieve it. In the case of this particular measure, there is much to criticise. The criticism so far has focused on the constant ad hoc tinkering with superannuation tax, which undermines confidence in the system of saving for retirement and adds more complexity to its administration. These criticisms are valid, but there are more fundamental ones.
Means tests and levies for ‘high earners’ (the definition of which seems to change depending on the purpose) are adding to effective marginal tax rates and sapping incentive for the most productive individuals in the economy. If the withdrawal of benefits from high income earners were accompanied by cuts in statutory marginal tax rates, that would help make the tax system more efficient, but there are no such cuts in marginal rates. There were some cuts several years ago, and now Swan seems determined that high income earners should pay for them over and over.
There is a moral as well as an economic dimension. For those of us who struggle with the morality of loading 17% of the tax burden on to the top 1% (and 67% onto the top 25%, who accounted for 50% of taxable income) for reasons of raw and cynical political calculation, the struggle becomes harder with each measure like the latest highly discriminatory superannuation slug.
The 15% superannuation contributions tax is effectively a flat income tax on one component of personal income separate from a highly progressive tax applying to other income. To some people, that makes it a distortion in the tax system, but for those attracted to a flat (or at least less progressive) income tax it is something that should be preserved and extended.
Doubling the concessional contributions tax for a tiny group of taxpayers to raise a relatively trivial amount of revenue, on the grounds that the benefits of the concession are unevenly distributed, smacks of an obsession with redistribution.
Robert Carling is a Senior Fellow at The Centre for Independent Studies.
