Labor’s shadow Treasurer, Chris Bowen, gave a speech at the National Press Club yesterday.
All things considered, it wasn’t a groundbreaking oration. Bowen was there to spruik Labor’s updated retirement policy, which he championed as a policy for fairness.
Bowen announced two modest tweaks to superannuation tax breaks for the rich, which he claimed would save around $14.3 billion over the next decade. The costings come from the Parliamentary Budget Office, and appear solid.
The changes would shave the tax break for wealthy superannuants earning above $250,000 a year, and also remove a Costello-era tax break for those with superannuation balances of more than $1.5 million. Perhaps 60,000 older, richer Australians would be affected.
Bowen is not a demonstrative politician. Yesterday's measured performance was about as strident as it gets from this moderate leader of Labor’s western Sydney right. But there was an unmistakable focus on fairness and equity. “Labor’s approach to the fiscal task is this," he declared: "difficult decisions are necessary, unfair ones are not.”
Many will question just how “difficult” this decision really was. Should the policy be legislated, wealthy superannuants will still receive extremely generous tax treatment on their retirement savings, most of the value of which accrue to the wealthiest few per cent.
So skewed are superannuation concessions in this country, the top 10 per cent of earners receive 38 per cent of the concession; the top 20 per cent receive nearly two-thirds. That tax break for the top 10 per cent equalled $8.3 billion in 2009-10, the last year for which figures are available. It could be worth more like $11 billion this year.
As the Grattan Institute’s John Daley points out today, under Labor’s new policy, “a retiree with superannuation earnings of $100,000 would pay only $3,750 in tax, less than a wage earner on $38,000.” Daley recommends the threshold be set much lower, so that superannuants only get their super payouts tax free up to, say, $20,000. “This would bring the tax on well-off retirees more in line with the tax working Australians pay, while still allowing retirees with modest superannuation balances to pay no tax,” Daley writes.
Yesterday’s announcement dealt with super tax breaks at the top end of the income scale. It’s apparently all Labor thinks it needs to do in the area. “We believe these changes are all that are needed to ensure sustainability at the very top end of our superannuation system,” a media release touted yesterday.
To his credit, Bowen did acknowledge that there is still much to do at the bottom end, particularly to address the glaring gender imbalance in super that sees so many women penalised by the gender pay gap and for their time out of the workforce.
“We know the problem: a gender pay gap in Australia which is disgraceful,” Bowen said yesterday at the Press Club. “And when women earn less, they get less in retirement through superannuation.”
This is encouraging: there is an obvious case for a Labor government to redirect some of the many billions in current tax concessions away from old, rich men and towards younger, poorer women. But whether we’ll see anything concrete before the next election remains to be seen.
At the bottom end of the scale, Bowen also had nothing to say about the Low Income Superannuation Contribution, which gives low-income earners a tax break on their super up to $37,000 a year. The LISC is due to run out in 2016-17, which would leave low-income workers in the perverse situation of paying more tax on their superannuation than they do on their ordinary income.
Bowen’s office told New Matilda that there’s more on the super agenda yet to be announced, particularly in relation to the stalled increase of the superannuation guarantee up to 12 per cent. We’ll watch with interest.
Still, it is encouraging that Labor seems to be putting progressive policies to voters in the middle of an election cycle, and that these policies are at least mildly redistributive. Bowen was right, I think, to argue that the public debate on inequality has left the Abbott government behind.
That’s not to say these measures are the best we could hope for.
In general, Labor still has a lot of work to do to balance up Australia’s amazingly lop-sided taxation system, which treats income from labour much more punitively than income from capital. When it comes to removing tax breaks for the wealthy, negative gearing for property would be the first place most people would look.
Bowen seems to be hinting that Labor will seek to wind back negative gearing, no doubt in a cautious and calibrated way that grandfathers existing investments.
But if Labor really wanted to do something about inequality, there are plenty of options not yet on the table. What about reintroducing inheritance taxes, so that the children of Gina Rinehart, Andrew Forrest or James Packer pay tax on the “income” they receive simply by being lucky enough to have a billionaire for a parent?
Gifts from parents to children are also generally tax-free in Australia. This is another special advantage for the children of billionaires. A gift from dad is one thing when he spots you $200 to make rent, and another when your father is Rupert Murdoch, and he’s giving you $150 million in News Corporation shares in return for letting his youngest children into the family trust.
Even more speculatively, could Labor consider a wealth tax? Why shouldn’t we ask the wealthiest members of our society to contribute tax revenues on the basis of their accumulated wealth, and not just their income?
Such seemingly radical ideas appear far-fetched right now, and no-one is expecting Labor to revive them. But, as Daley observes, the idea of removing tax breaks for superannuation also seemed politically impossible just a few years ago.
Many have been critical of Labor’s small target approach under Bill Shorten, but the opposition has now announced two costed policies in the last month, both of which have a progressive skew. In addition to yesterday’s super announcement, the ALP has also announced a mild crackdown on multinational corporations shifting tax offshore.
It will be interesting to see how Labor’s proposals on superannuation are received by the public. I suspect they will be quite popular. Recent polling on tax and fiscal policy has been overwhelmingly in favour of addressing the budget deficit by hiking up taxes on corporations and the rich.
The ALP tried to adopt the mantle of fiscal conservatism throughout the Rudd-Gillard years; voters never warmed to it, and Wayne Swan repeatedly flunked the test he set himself of a budget surplus anyway.
If Labor is being dragged towards more redistributive policy proposals by public sentiment, it might well result in a better medium-term strategy for the party. A narrative of fairness suits the party of workers, even as it accords more closely with electoral values. The task of voters and progressive advocates will be to keep the pressure on the ALP. When it comes to fairness in Australia's retirement policies, the scales remain tilted heavily towards the rich.
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