With each passing retort to the Albanese government, dutifully relayed by The Australian and the AFR, it becomes harder to maintain that former prime minister Paul Keating is any kind of progressive.
Sure, he may once have contributed to some noble policies, and some of his foreign policy views — vulgar China apologia aside — provide a useful counterweight to the defence establishment. But on economics, his supposed forte, he merely tries to drag an already lacklustre government further to the right.
Take his most recent pronouncement: last week, the AFR reported that Keating is opposed to Labor’s $3 million cap on superannuation tax concessions and has been saying so to various fund managers. He reportedly wants the threshold raised to at least $5 million.
I cannot best AFR reader Graeme Troy’s rejoinder to Keating on the paper’s letters page: “Any person who has in excess of $3 million in superannuation is not doing it tough. The sole objective of superannuation for such individuals is tax avoidance.”
Super-sized gains for the rich
Keating is lauded for his role in establishing compulsory superannuation. But his reasons for resisting Labor’s current changes cast his vision for the system in a more questionable light.
According to the AFR, he thinks Labor’s changes would “condemn super to becoming a low- to middle-income scheme, completely at odds with the universal scheme he introduced”. He believes the key to the system’s longevity is its support from high-income earners.
Let’s set aside the fact that superannuation was never “universal” — it was only paid to employees, leaving those outside the workforce worse off, which Labor is only now partly remedying by paying it to those on parental leave. Even among employees, Keating’s notion of universality is absurd.
Most universal programs, such as pensions paid to all elderly people, buy support from those on high incomes by benefiting them a little. However, they still benefit lower-income earners much more, relatively speaking. In Keating’s vision, high-income earners must benefit disproportionately ad infinitum, to the tune of untaxed millions, so that lower-income earners can benefit a little — or, for those who have spent significant periods out of the workforce, hardly at all.
The Howard government introduced many of the worst tax loopholes in the super system. But with Keating himself now defending high-income earners’ access to them, it seems his aims aren’t so different.
Fully automated tax increases
Keating is particularly incensed by the decision not to index the threshold to inflation, calling it “unconscionable”.
The Coalition, teal independents, Jacqui Lambie, Tammy Tyrrell and David Pocock have also expressed concerns about this, the latter three of whom will determine whether Labor’s legislation passes the Senate in the coming months. Even the Greens, who’d like to see the threshold lowered to $2 million, have argued it should then be indexed.
This is because over time inflation will lower the cap in real terms; when people now in their 20s and 30s retire, it will be more like $1 million in today’s dollars. The Financial Services Council estimates more than 500,000 current taxpayers will be impacted during their lifetimes.
But 500,000 is still a relatively small proportion of Australia’s population — and these would still be some of Australia’s wealthiest residents. Plus, once you consider such an account will keep accruing investment gains (most superannuants die with more in super than when they retired), $1 million is a reasonable nest egg — and the aged pension is always a fallback.
Super should be for your retirement, not your kids’ inheritance. You only need so much.
Not adjusting the bracket is politically cunning — it allows the government to draw some much-needed revenue from the richest in the short term. In the long term, it helps transition the superannuation system from the nation’s biggest tax avoidance scheme, to a more defensible supplement/alternative to the pension. It wouldn’t complete this task alone, but it would help.
Realising the benefits
Another bugbear of Keating and the crossbench is Labor’s application of the additional taxes to “unrealised gains”.
Yet taxing unrealised (not-yet-sold) capital gains is not a radical idea. It is supported by numerous economists across the political spectrum, including the former Ronald Reagan adviser Art Laffer, and is being pursued by the Biden-Harris administration.
Under regimes where investors only have to pay tax on assets when they are “realised” (sold), unlike other taxes on income and purchases that have to be paid more regularly, investors effectively get a long-term, zero-interest loan from the government to pay the tax when it’s most convenient for them. Better to tax more regularly than provide refunds if an asset later loses value.
Holding off the taxman might be fair enough for those with modest super balances — you and your employer had to contribute the funds, and you can’t access them before retirement, so it’s less reasonable to expect you to pay taxes on them during your working life. But for large accounts, most of which have accumulated due to voluntary contributions, the deferral of taxes is effectively another subsidy for lucrative investment choices.
For cash-poor people with large assets in self-managed funds (Keating raised the hypothetical of farm properties) the government could, as Biden and Harris are proposing, impose “deferral charges” which are payable later — effectively adding interest to that interest-free loan.
Keating should butt out
All of this tinkering is necessary because Keating’s overhyped superannuation reforms were full of holes from the outset. The least he can do now is get out of the way while his Labor successors tighten up the rules and impose limits.
Labor’s current reforms modestly backpedal from Keating’s flawed vision. Perhaps the elder statesman should consider retirement as the government — whose treasurer wrote his PhD on the man — charts a new course.
Is it time for Paul Keating to butt out of politics? Does the superannuation system need reforming? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
