No one underestimates the political difficulty of clamping down on the generous superannuation tax concessions for high income earners. Even so, the government is making such a hash of things that it needs urgently to rein in the damage - and the best way of doing this would be to sort out its position and announce it quickly.
To have the present frenzied controversy running from now until the May 14 budget would be disastrous.
Treasurer Wayne Swan and Superannuation Minister Bill Shorten both say the changes to super being considered are not primarily about immediate big savings. “We have a substantial savings task in this budget and whatever changes are made in super will not be making a significant contribution to that savings task”, Swan told a news conference.
Rather, the government wants to “build the system up” for an ageing population, and to put the concessions on a sustainable basis for the longer term. It has made it clear they are not at present. Swan described them as “excessively generous” for those “at the very top”.
If Labor is casting its plan primarily as a reform measure, there is all the more case to set it apart from the budget.
The government has been trying to reassure voters that whatever it does won’t hurt most earners. But its messages have been muddled, and also undermined from within, with former minister Simon Crean issuing public warnings about the risks of putting uncertainty over people’s savings, and now former superannuation minister Nick Sherry, who is retired from parliament, opposing a crackdown on concessions.
On Tuesday the government let it be known that the changes it contemplates would hit only the top 1 per cent-2 per cent of earners. This was more precise (and less emotive) than earlier comments about the targets being just the “fabulously wealthy”.
But then, speaking to the ABC the following morning, Julia Gillard undid any progress made.
Superannuation was “a Labor invention” and therefore “safe in Labor’s hands”, she said.
But “safe” for whom, precisely?
“Well, I’m not going to get into income ranges”, Gillard said, when asked whether she was “fabulously wealthy”.
“I will say this. We made some superannuation changes in the last budget for people who earn more than $300,000 a year.”
Ah, so that’s the figure we’re now talking about?
Maybe, maybe not. “I’m not asking you to draw an inference from that, other than to note when Labor has dealt with superannuation in the past, we’ve dealt with it on the basis of sustainability”.
Gillard was pressed on whether she could say one way or the other whether changes would be retrospective, something that Crean has been banging on about.
Her answer was: “I’m not playing a game about this”.
She added: “Other than to say, when people pick up their newspapers, obviously they should discount things that are just speculation and rumour.”
But there’s the catch. While some things in the newspapers are “speculation and rumour” others are government-inspired. How do the readers distinguish?
Even the apparently authoritative government signals may be fuzzy. Sources now warn that the 1 per cent-2 per cent is indicative rather than absolutely firm, and decisions are not finalised.
When Swan faced a news conference, questioning on super was cut short.
Superannuation gets tax breaks on three fronts. Contributions are taxed at 15 per cent in the fund; investment earnings are taxed at this rate as well. Withdrawals are tax exempt where the recipient is 60 or older.
On Treasury figures, it is estimated that in 2012-13 the top 5 per cent of contributors will receive 20.3 per cent of contribution concessions, while the top 1 per cent will get 5.3 per cent of contribution concessions. Higher income earners also do best out of the earnings tax concessions.
Concessions on super are officially estimated to be $32 billion in 2012-13. becoming the largest tax expenditure for the first time. They are set to rise to nearly $45 billion by 2015-16. In that year, spending on super tax concessions is expected to overtake spending on the age pension. The growth is driven by the rising cost of the concession on earnings, which is expected to increase from about $17 billion in 2012-13 to about $25 billion in 2015-16.
There is a good case, on grounds of equity and long term budget needs, for further action at the top end, beyond the changes in last year’s budget which are still to be legislated. But the forces arrayed against change are formidable and the government is having trouble with its message. As Sherry said, an election year is not a good time to be having this debate. A point the government should have thought of many moons ago.