“My determination is to ensure that this budget is fair. That is my determination … I don’t want anyone to say that this is an unfair budget.” So vowed Australia’s prime minister on 3AW this week.And indeed, Tony Abbott’s new pension plan, to save $2.4bn over two years and an undisclosed sum beyond that by reversing a Howard government decision that allowed quite wealthy retirees to claim a part-pension, is much fairer than last year’s plan to erode the value of all pensions over time.It’s similar to, but more cautious than, proposals made by the welfare lobby, and almost exactly the same idea reportedly advocated by then social services minister Kevin Andrews last year, before he was overruled by the prime minister. It will get through the Senate not because the Greens, or Labor, or the crossbenchers, have changed their minds about the overall need to cut spending, but because the government has completely changed the way it proposed to make the savings – and has come up with a genuinely fairer version.Big picture politics Big picture politics podcast: episode two – fantasy budget cabinetGuardian Australia’s political editor, Lenore Taylor, is joined in the studio and on the line by three experts in Australia’s budgetary optionsListenBut is this an epiphany, or a strategy? Is it evidence the government understands last year’s budget was rejected by the Senate, and the electorate, for good reason, or is it evidence of a government trying to make limited “fair” savings so it can use this year’s budget to recover from last year’s disaster, win the next election, and get back to a “reform” agenda based on a different concept of fairness during a second term.
A clue lies in a new and alarming political argument the government has been running in parallel with its fairer pension proposal this week.
Just last month Joe Hockey was sounding like he would consider reining in the $30bn a year (and rapidly rising) the government forgoes because of hugely generous superannuation tax concessions, 41% of which flow to the richest 10% of Australian households according to the latest research by Natsem for the Australia Institute.
His own tax review questioned the rationale for the tax breaks, and the treasurer was pleading for a genuine national debate, insisting he would rule nothing out, and calling for bipartisanship. When Labor put forward a very modest plan to haul back some of those ballooning tax benefits for the very rich (having left them largely in place during their own six years in government), Hockey said he would consider it as he developed a tax plan to take to the next election.
The treasurer would also have seen a raft of other advice saying the current tax system for super is outrageous and unsustainable – including from the head of his own financial system inquiry and former Commonwealth bank chief David Murray, who said it was expensive, poorly targeted and overly beneficial to the rich, the treasury secretary John Fraser who said retirement policy needed a “fundamental rethink”, and the former treasury secretary Martin Parkinson who said we needed to discuss whether super policy was creating a wealth creation scheme for the rich. And he had probably also read any number of reports from thinktanks such as the Grattan Institute and the Australia Institute suggesting changes that would reap up to $10bn a year for his budget.
Super concessions, obviously becoming a tax minimisation vehicle for high income households, with a cost growing three times faster than the pension, and predicted to overtake the cost to budget of the aged pension within a few years, would surely be in the sights of any treasurer, worried about the budget deficit and looking for fair ways to fix it, especially if he had the political “cover” of bipartisan political support and broad community backing.
And Hockey sounded like he was looking to fix it. Asked whether the current super arrangements were unfair, he said it was “unfair that there are a lot of people out there that have retirement investments and live off the money from those investments – they pay tax on those investments, and people who participate in superannuation may be getting an income where they pay no tax at the moment. So there are an enormous number of discrepancies and also discrepancies involving the age pension system.”
Pretty quickly the prime minister was publicly proffering a different view.
“It’s so typical of the Labor party that they immediately want to see more tax, not less. As far as I am concerned, as far as this government is concerned, we want lower, simpler, fairer taxes,” he said.
But this week Abbott and the social services minister, Scott Morrison, went further, apparently ending any chances of super reform and sounding a lot like they weren’t looking at any tax changes to help reduce the budget deficit.
Morrison said he and “the prime minister and the treasurer and others have been sending a very clear and consistent message to those who are saving for their retirement that we don’t think that Labor’s tax sledgehammer on your retirement income earnings is the right thing to do”. (Actually, not so many of “us” would be hit since Labor’s policy applies only to super earnings over $75,000 a year – which would require a super nest egg of over $1.5m, and the hit would not really be a “sledgehammer” since the plan is to tax earnings above $75,000 by 15% rather than than zero. And as we’ve seen the message hasn’t really been clear and consistent.)
In any event, Morrison went on, “they’re not lucrative exemptions. What they are is people who have saved for their own retirement, who’ve put their own money away and are drawing down to support themselves and not drawing down on a pension. Now if we are going to say go out there and support yourself we aren’t going to hit them with a tax sledgehammer which is what Labor wants to do. Because Labor thinks that actually taxing someone on the income that they have earned for their retirement is the same as giving someone a payment on welfare and they are not the same thing.”
The prime minister joined in for emphasis. “The other thing we have no plans to do – no plans whatsoever – is to smash people’s superannuation. The challenge for Bill Shorten is to keep his fingers out of people’s superannuation piggy bank and also to say where he stands on these pension changes, which will actually be giving pensioners with modest assets more certainty and security.”
These “non-lucrative” tax exemptions, according to a report by the Association of Superannuation Funds of Australia, allowed 475 people to accumulate super balances in excess of $10m and earn tax-free income of about $1.5m each year. The idea that reducing such a windfall amounts to “smashing” or “raiding a piggy bank” is not only ridiculous, it also sounds very much like the Coalition, in a quest for clear political differentiation with Labor, is ruling out taking any action on the biggest and easiest place to raise extra revenue by closing the country’s biggest personal tax minimisation loophole, ever.
It’s not clear where that leaves Hockey’s tax review, because it inches the Coalition towards a US Republican-style antipathy to any increase in any taxes. Falling revenue is contributing much more to the budget deficit than increased spending. If the Coalition really tries to balance the budget over time by using only spending cuts, rejecting even the most obvious, equitable and widely supported ways of raising more income from taxation it will inevitably stray back into policies viewed by many in the community as unfair.
At the same time Labor seems to be struggling to let go of last year’s budget speech in reply. It sounds reluctant to consider even much fairer cuts to spending, such as Morrison’s new pensions proposals (although it didn’t completely rule it out).
If we have one major party ruling out any increase in taxation and another unwilling to consider even reasonable spending cuts, we really are in a pickle.
And if the Coalition really intends to ignore the most obvious ways to raise extra revenue, and still means to return the budget to surplus one day, then its newfound commitment to fairness can’t last.