Wednesday, May 13, 2009

So. Where were we?

The Budget, oh yes.

Right now I feel that I've given up on this lot.

They couldn't introduce good policy in their first budget, they had the need and opportunity to make that good in their second, and couldn't.

They got done-over over FuelWatch (mild but perfectly reasonable good policy) and done-over over Alcopops (also mild but perfectly reasonable good policy) early.

So they've come close to shutting up shop.

Good policy gets vetoed or introduced largely neutered.

Tuesday's budget documents were amongst the least-clear on record. Why? Because they began to do stuff and then undid it, and in the rush to put the presentations together they weren't able to properly explain what they were doing.

If you click on the link below, it'll take you to what I wrote - and I probably got that some of that wrong too. The presentation was a shemozzle.

The opening pages or so the Budget speech are beyond parody.

Swan's trick of not even mentioning the size of the deficit/surplus is a first, well almost.

As for the forecasts, they may well turn out to be right, or not. What will happen as the economy recovers is fairly forecastable. When that will happen is pretty unforcastable.

It could be next month, it could be next year, it could be in three years' time.

Your guess is good as Treasury's - probably better.

Treasurer sets sights on well-off

HIGH-INCOME earners bear the brunt of Wayne Swan's assault of the deficit, with superannuation concessions, pensions, private health insurance, family benefits and proposed parental leave all more severely means-tested, in part to pay for very generous, already-legislated tax cuts.

But while Australians earning more than $80,000 will enjoy a cut in the 40 per cent tax rate to 38 per cent from July 1, the pain will creep up more slowly on higher-income earners.

The upper limits on how much high-income earners can pump into superannuation at the concessional tax rate will halve on July 1, falling from $50,000 to $25,000 for people under 50 and from $100,000 to $50,000 for those over 50.

In four years the over-50 rate will vanish and all Australians will be limited to getting concessions on an indexed $25,000.

Contributions at that level are made by the very highest earners — less than 1 per cent of Australians under 50 and just 1.6 per cent of people over 50, but the measure will save $2.8 billion over four years.

Future high-earning part-pensioners will be worse off under new taper rules that will reduce their pension by 50 cents in every extra dollar they earn instead of 40 cents.

The maximum a couple can earn and still keep a pension will fall from $72,423 to $59,228 and the maximum a single pensioner can earn will fall from $47,444 to $38,693.

But existing part-pensioners will get to keep what they get right now plus an extra $32.49 a week for singles and $10.14 a week for couples combined, for as long as they are working. The measure will free up $1.2 billion, but in a way that even higher-income earners will not notice.

The private health insurance changes hit high-income earners with less carrot and more stick. People earning more than $75,000 and families earning more than $150,000 will get much lower rebates for taking out insurance, falling from 30 per cent to 20 per cent to 10 per cent and to zero if a family earns more than $240,000.

Families earning more than $180,000 and families earning more than $240,000 will be slugged with extra tax levies of 0.25 per cent and 0.5 per cent respectively on top of the present 1 per cent penalty if they do not take out private health insurance. Treasury says private health coverage will be little changed, but the budget will save $1.9 billion over five years.

Labor imposed means-testing on a range of previously universal family benefits in its first budget, denying Family Tax Benefit B, the Dependent Spouse, Housekeeper, Invalid Relative and Parent tax offsets as well as the baby bonus to families earning more than $150,000 a year.

This budget freezes the $150,000 threshold for three years, which means more families will be caught up in it over time as incomes rise. It also freezes for three years the income limit at which Family Tax Benefit A cuts out.

The combined measures will save $1 billion over four years.

When paid parental leave begins in 2011 the payments will not go to families in which the primary earner takes in more than $150,000.

Because only 3 per cent of Australians earn more than $150,000, most of the measures will leave most Australians untouched, and even most higher-income earners unharmed. High-income earners will be affected, but many only slowly, over time.

Mr Swan is banking on most Australians having little sympathy for the top strata of earners.

Mr Rudd is banking on the Senate feeling the same way.

Review shatters Keating dream and makes case for role of pension

PAUL Keating's Labor dream of extending universal super contributions to 12 per cent of every salary has been shattered by the first report of the Henry Tax Review, released by Mr Swan with the budget.

The review's retirement incomes report finds that 9 per cent will be enough to give most Australians "a substantial replacement of their income, well above that provided by the age pension" when a complete generation has been through the system.

It says that while lower-income earners might still have to rely on the pension, any increase in the 9 per cent compulsory contribution rate would run the risk of damaging their working incomes. The finding, which the review says will be elaborated on in its final report in December, stops dead the labour movement's long-term plan to increase employer contributions to 12 per cent and then to 15 per cent.

The review has also found against extending compulsory super coverage to Australians earning less than $450 a month as the costs involved would outweigh the benefit to the employee.

Although not presented in these terms, the recommendation would have the effect of keeping a lid on superannuation tax breaks disproportionately directed to high-income earners.

Another far-reaching recommendation would have the age at which money can be withdrawn from superannuation slowly increased to 67, the age to which eligibility for the old-age pension is to be increased to.

The change would end the schemes under which workers nearing retirement can both salary sacrifice into superannuation and take money out at the same time, cutting the effective tax rate on that income to 15 per cent.

The Treasurer made no comment on the recommendations in receiving the report but separately cut the amount high-income earners could pay into a super fund at the concessional rate from $50,000 to $25,000 for Australians under 50 and from $100,000 to $50,000 for Australians over 50.

From 2012-13 all Australians will be limited to contributing $25,000.

Mr Swan also cut for three years the government co-contribution to low-income super accounts from 150 per cent of voluntary contributions to 100 per cent, later increasing to 125 per cent.

The Henry Review signalled that its recommendations do not mark the end of its examination of super tax concessions, observing that there was a "case for distributing assistance more equitably between high and low-income individuals" and promising in its final report a comprehensive review of the tax treatment of saving and investment.

Its biggest concern appears to be not that super savings are inadequate, but that they are too quickly spent. It says as people live longer there is a growing risk they will "exhaust their assets before they die". Because very few commercial products are available to insure against that risk, the review says it is open to considering whether the government should provide such insurance.

The review says that a century ago a male retiring at 65 could only expect to live a further decade, and about half the population did not even make 65. Today five in every six live beyond 65 and a typical male will live another two decades.

It has signalled that its recommendation that super payouts be limited to retirees over 67 might not be the end of reform, saying that the new age limit should be examined again after 2020.

In a rebuff to the superannuation industry, the review argues that the age pension has a continuing role to play in Australia's retirement system, in part as a safety net should the investment incomes of superannuation funds be too low. "The pension supports people who live longer than expected and exhaust their private savings, and it supports those who have less-than-average full-time employment due to periods of unemployment, caring responsibilities, working part-time or spending part of their working life overseas," it says.

The review finds arguments against extending compulsory super to small business people and the self-employed, saying many have "alternative strategies for saving for their retirement" and would be inconvenienced by compulsion for no obvious benefit. It will decide its final position on the question by December.