Tuesday, October 20, 2015

Asking what super is for opens a can of worms

The Treasurer jumped the gun.

Promising in his formal response to the financial system inquiry to determine and enshrine in legislation the objectives of Australia's $2 trillion superannuation system Scott Morrison cut to the chase. It's primary purpose was to "ensure that when Australians reach retirement age they will not be reliant on welfare".

Which is fair enough. But other people think super is for other things, which is why the Murray Review demanded that someone clarify its purpose.

Some think it's for income smoothing, in which case it make sense to allow withdrawals for home deposits. Some think it's for wealth accumulation, in which case it makes sense to keep giving high earners the biggest super tax breaks. Some think it's to build national saving, in which case tax breaks for high earners also make sense.

If the government adopts Morrison's definition of the purpose, tax breaks skewed to high earners make no sense at all. They ought to be skewed in the other direction, towards those actually at risk of falling back on the pension.

Right now, as the Murray review told him, the top 10 per cent of earners get more than 35 per cent of the concessions. The bottom 10 per cent get none, the next 10 per cent get just 1 per cent.

It would be easy to switch things around. Labor's Henry tax review suggested taxing all super contributions at the taxpayer's marginal rate offset by capped rebates...

But maybe that's not what Morrison means. He and Assistant Treasurer Kelly O'Dwyer are keener to talk about putting people in the "driver's seat" when it comes to managing their money. That means allowing all Australians the right to choose their own fund, whatever their enterprise agreement says. David Murray saw it as human right. Morrison and O'Dwyer might also see it as containing the influence of unions.

Murray suggested going further and introducing a competitive tender to pick new default funds, taking the power away from employers. The Coalition is less gung-ho on that, punting the idea off the Productivity Commission to develop models ahead of an inquiry later this decade.

There are good reasons why no-one has adopted a formal definition of the purpose of super until now. Clarifying the purpose would involve clarifying the role of tax concessions and compulsion. It would involve asking hard questions.

In The Age and Sydney Morning Herald