Almost 50 per cent of mums to lose government paid parental leave entitlements

May 10, 2015 – 11:29PM

Judith Ireland and Matt Wade

Almost 80,000 new mothers will lose some or all of their government parental leave payments in a move slammed by a key consultant for the paid parental leave scheme as “the mother of all insults”.

"You cannot get both parental leave from your employer and from taxpayers": Joe Hockey.

“You cannot get both parental leave from your employer and from taxpayers”: Joe Hockey. Photo: Alex Ellinghausen

Treasurer Joe Hockey made the surprise announcement on Mother’s Day, as the Abbott government revealed its new childcare package ahead of Tuesday’s budget.

The move represents a stunning turnaround from the government that less than six months ago was still promising to provide six months of paid parental leave for families, under Mr Abbott’s now-dumped “signature” policy.

It will see almost half of new mothers lose access to the full $11,500 available under the federal government’s existing scheme from July 2016.

 

The Sydney Morning Herald

We have to raise revenue, not just cut spending

April 17, 2015 – 9:44PM

Jessica Irvine

Senior writer

To balance the books, Australians will have to pay more tax, the only questions being what will be taxed and how high the rate.

Treasurer Joe Hockey has to decide what should be tax-exempt what should not be taxed.

Treasurer Joe Hockey has to decide what should be tax-exempt what should not be taxed. Photo: Graham Denholm

Boasting glittering skyscrapers and label-clad youth, Singapore is the new jewel in the capitalist world’s crown.

The city state is home to the third-highest density of millionaire households in the world after Qatar and Switzerland: one in 10 households.

It is also home to super-low income taxes and a cut-price corporate tax rate of 25¢.

How do they do it?

“I can tell you in a nutshell why taxes are low here,” says Annette Beacher, an Australian economist based in Singapore with TD Securities. “Scant welfare, no free health or pensions here. Unemployment, aged care, disability and illness are all the responsibility of the individual or extended family.”

When it comes to taxes, citizens get what they pay for, Beacher says.

“It’s very sad to see the elderly still working, but that is the reality here not to expect government support.”

It’s a reality Aussies have proven loath to accept, despite Treasurer Joe Hockey’s clarion call to “end the age of entitlement” through deep cuts to pensions, health and education spending.

The Coalition’s first budget failed the fairness test. It also failed to fix the books.

In the past six months alone, the plummeting price of Australia’s major export, iron ore, has wiped another $30 billion off the bottom line.

Cabinet’s razor gang continues to search for new spending cuts to fund new promises on childcare and families.

But a growing chorus of economists is pointing out the obvious: Australia has a revenue problem, not just a spending problem.

“The problem we have is a long-term mismatch between what people expect government to spend on them and what they’re willing to pay in taxes,” says Saul Eslake, the chief Australian economist at Bank of America Merrill Lynch.

Eslake says government spending is now 1.75 percentage points above the Howard government era average. But revenues are about 2.25 percentage points below the Howard era average.

“If you take the Howard era averages as benchmarks there is a strong case for reducing government spending and there is a strong case for increasing government revenue.”

The chief economist at BT Financial, Chris Caton, agrees: “It is inevitable that taxes as a share of the economy do have to rise.”

“I think we clearly have a medium-term balance problem that needs to be fixed and it would be silly to rely only on one side or the other. We are not a high tax country.”

The chief executive of the Grattan Institute, John Daley, says the history of budget repair suggests a need for a higher tax take.

“There are very, very few governments that have ever done that on the expenditure side, invariably it happens on the revenue side.” The Kennett government cut public servants and closed schools but it also introduced a $100 tax on all households to share the pain. It’s about equity, says Daley. “If you try to fix on the spending side, you only hit the bottom half. If you fix on the tax side you more or less hit the top half.”

Higher taxes are inevitable, says Daley, because Australians have made some clear choices to spend more money on health and disability support.

“That’s the choice we have made as a community and I don’t see us as a community about to walk away from that. I just don’t think you’re realistically going to bridge that gap in the foreseeable future on the spending side. .”

And higher taxes are coming anyway. Even under a “do nothing” scenario, economists point out that Australians will end up paying higher taxes on personal incomes through bracket creep – when rising incomes push more people into higher tax brackets.

Either way we pay. But some methods are better than others, economists say.

 

Broaden the base

Eslake says the way to go about increasing the tax take is not to raise tax rates, but to broaden the base .

Similarly, spending cuts should not be about cutting payments to those who rely solely on government support, but about reducing the proportion of citizens who get handouts from government.

“The objective of all of this should be the same philosophy as Howard in 2000: to broaden the base and lower tax rates,” Eslake says.

Taxes on personal incomes remain the biggest contributor to government coffers.

And yet, many loopholes apply. Most economists agree that tightening up on these loopholes in the income tax system is the simplest and fairest way to restore the tax base.

Cut superannuation concessions

The flat taxation of super at 15¢ in the dollar delivers the biggest benefits to those on high incomes, Daley says. Australia’s trillion-dollar superannuation system is now a significant drain on the tax base – about as big as the Age Pension itself. It has also failed to bring about a significant fall in the number of retirees reliant on the Age Pension. Super contributions and earnings should be taxed at a rate that better reflects a person’s ability to pay.

Tax family trusts as companies

Family trusts are used by high income families to distribute income to low-earning family members to minimise income tax paid. They offer a way to reduce income tax not available to low income earners and result in much lower income tax collected. Eslake says taxing trust incomes at the company tax rate of 30¢ in the dollar would be better than the current situation where income splitting allows families to pay a much lower marginal rate.

End the discount on capital gains

Investors are currently entitled to a 50 per cent discount on any capital gains they enjoy on shares and property. Taxing gains at the full amount would boost income tax collections and help to cool the investor frenzy in Australian property, particularly in Sydney.

End negative gearing

Property investors are allowed to use losses on investment properties to reduce the personal income tax they must pay. Millions of landlords use the deductions every year. Ending this loophole could raise billions of dollars in personal income tax.

End dividend imputation

Under this unique system, Aussie shareholders get a tax credit for any tax paid by companies on their dividends. Shareholders can reduce their personal income tax paid by the equivalent amount. The aim is to avoid double taxation. But it is a significant drain on revenues, particularly thanks to former treasurer Peter Costello’s decision to not only allow the credits to offset personal income tax, but to be claimed as cash back from the government if they have no tax bill to offset. According to Eslake, the revenue raised from ending this could fund a cut to the company tax rate to 25 per cent.

Increase the GST

Most economists agree it is time to raise both the rate of the GST and apply it to more goods and services.

Chris Richardson, a veteran budget watcher and director at Deloitte Access Economics, says increasing the GST “stands out as a logical thing to do”. “This is a tax that doesn’t damage the economy much and we can fix fairness by compensating low income earners appropriately.”

Eslake calls it the elephant in the room. “I think there’s an unambiguous case for broadening the base and increasing the rate.” While often dismissed as regressive, Eslake says applying the GST to excluded things like private school fees and health insurance would not hurt fairness. And even on food, the fairness argument is less clear because the top 20 per cent of households spend five times as much on fresh food as the bottom 20 per cent.

Daley says we have no choice but to look at increasing consumption taxes, given the global race to the bottom on company taxes. “Singapore’s company tax rate is essentially parasitic on the rest of the world. It’s beggar thy neighbour.”

Only a GST increase will deliver the revenue needed to remain competitive.

The GST raises $57 billion a year as a 10 per cent tax levied on 47 per cent of household spending. If applied to 100 per cent of spending, this would raise another $50 billion. If you then increased the rate to 15 per cent, you’d get another $50 billion. “We’re talking about a lot of money here,” Eslake says.

If combined with compensation for low income earners and a crackdown on tax loopholes for the wealthy, such a package could go a long way to solve the government’s budget woes.

Tax land

Economists like taxing the value of land because it is hard for taxpayers to avoid coughing up. Even Singapore applies a progressive tax on property values, including owner-occupied homes.

Eslake says Australia could do the same. “Get rid of stamp duty altogether and replace it with a broad-based land tax and apply it to owner-occupied homes.” Home owners could get a credit for any stamp duty they paid in the past seven years and use it to reduce their land tax bill, to avoid double taxation. Farming land could be exempt, or only apply to the land around the homestead. Local councils could collect the tax. “Good tax reform is about getting the lowest possible rates over the biggest possible base,” Eslake says.

All of these options are on the table for the Coalition’s tax review, which will craft its tax policy to take to the next election.

But the clock is ticking on budget repair, Richardson says. “I’m happy that much of the budget repair tax should be in spending, but equally I’m happy that we need to do more on the revenue side”.

“What you can’t do is keep your head in the sand.”

 

 

The Sydney Mornig Herald

Prime Minister Tony Abbott and Treasurer Joe Hockey lead Coalition poll dive

April 12, 2015 – 10:30PM

Mark Kenny Chief Political Correspondent

Budget woes leave Abbott vulnerable: Prime Minister Tony Abbott and Treasurer Joe Hockey.

Budget woes leave Abbott vulnerable: Prime Minister Tony Abbott and Treasurer Joe Hockey. Photo: Andrew Meares

The question of the Liberal leadership could be revisited in months as support for Tony Abbott’s government drifts south again, with Australians signalling they are not convinced by the sudden switch to “fairness” and the promise of a routine second budget.

With that budget just 4 weeks away and attention in national politics focused squarely on the economic sphere, Mr Abbott’s woes appear linked to the sinking popularity of his Treasurer Joe Hockey, who as architect of the first politically toxic blueprint, has suffered a massive 45 per cent reversal in his approval rating over the last 13 months from plus 20 per cent in March 2014 to minus 25 now.

The morale blow for the government comes as the Fairfax-Ipsos poll for April, found 6 out of 10 voters (58 per cent) say they still want the budget deficit addressed as a “high priority” and a growing number favour an increase in the 10 per cent goods and services tax to help balance the books.

And while half of those polled said they wanted superannuation tax rules left alone, 43 per cent now back changes that could see the generous concessional taxation rate of 15 per cent on superannuation contributions for middle and higher income earners doubled.

More than a third of respondents, at 37 per cent, say they support an increase to the rate of the GST – up 7 percentage points in a year despite neither party proposing it.

The result is a repudiation of Mr Abbott’s barnacle-scraping efforts to rid the government of tough policies seen as “unfair” and his rhetorical switch from fiscal hardliner to a softly-softly approach to budget repair. Voters appear to have taken a second look since the Prime Minister narrowly saw off a spill motion in February, and decided they still do not like what they see.

 

The Sydney Morning Herald

Tony Abbott, Joe Hockey signal China bank decision is imminent

March 20, 2015 – 3:41PM

James Massola

Political correspondent

Treasurer Joe Hockey.

Treasurer Joe Hockey. Photo: Robert Shakespeare

Prime Minister Tony Abbott and Treasurer Joe Hockey have given the clearest signal yet the federal government is prepared to sign on to the China-led Asia Infrastructure Investment Bank, though both have cautioned Australia must be satisfied with the bank’s governance arrangements.

And Mr Hockey has also dismissed concerns that Australia joining the bank could have implications for the US-Australia alliance, while holding out the prospect of the US$100 billion institution generating jobs for Australians.

Fairfax Media revealed on Friday the federal cabinet’s National Security Committee has cleared the way for Australia to invest as much as $3 billion in the body.

That green light is expected to lead to a formal decision to sign up to the precedent-setting Chinese initiative when the full cabinet meets on Monday.

On Friday, Mr Abbott confirmed a final decision was pending but “obviously we have a huge infrastructure deficit, not just in this country but across our region and it’s important to do what we can to reasonably address that”.

“If it’s possible to have a new multilateral institution with transparency and with good governance arrangements, obviously Australia would support that and I’d hope most other countries would as well,” Mr Abbott said.

“We appreciate that other countries take infrastructure seriously and we want to be a good international citizen when it comes to helping not just our country to be prosperous but helping the world to be prosperous, because a more prosperous world means a more prosperous Australia.”

Mr Hockey, who has been an internal proponent of Australia joining the bank, said Australia had been thinking carefully about the matter and pointed out that nearly 30 countries, including New Zealand, the United Kingdon, Germany, France and Italy had already joined up.

“This is going to operate in our region, in our neighbourhood. There is a lot of merit in it but we want to make sure there are proper governance procedures, that there is transparency, that no one country is able to control the entity,” he said.

“And we have been working with the Chinese government but also I have been speaking to my counterpart fellow finance ministers in Europe and around the world so we can all make sure this works.”

But Mr Hockey said there were no implications for Australia’s alliance with the US by joining.

“Because the United States congress has been dragging its feet on reform of the IMF and the United States understand that this is a bank that is going to be operating in our region, using contractors in our region, we want Australians contractors involved, we want work for Australians out of this bank and because it is operating in our region,” he said.

Labor treasury spokesman Chris Bowen said the imminent decision to join the bank was a late move.

“We said last year that we should be joining this bank, we should have been one of the early adopters. This is a remarkable opportunity for Australia,” he said.

“The government has been at sixes and sevens, leaking against each other from the national security committee of the cabinet, fiddling while other countries joined.”

 

Source : The Canberra Times

Joe Hockey outclassed on Quenstions &Answers, by an economist

March 17, 2015 – 9:01AM

Peter Martin

Treasurer Joe Hockey was upstaged and shirtfronted on Q&A Monday night, but not by a member of the audience or a political opponent.

The man who cut him down to size on questions including negative gearing, tax and infrastructure spending was John Daley, the Melbourne-based research economist who runs the Grattan Institute.

Joe Hockey presses another point as <i>Q&A</i> host Tony Jones looks on.

Joe Hockey presses another point as Q&A host Tony Jones looks on. Photo: ABC

Asked why he hadn’t abolished the tax concession known as negative gearing that rewards property investors for recording tax losses Hockey said it might up rents.

When Bob Hawke did it in the 1980s “you saw a surge in rents and those people who were paying rents are usually – not always, but usually – people that can’t afford in many cases to buy their own homes”.

Daley set him straight.

John Daley, the Melbourne-based research economist who runs the Grattan Institute, confronted Treasurer Joe Hockey on negative gearing, infrastructure spending and increasing taxes to pay for health spending.

John Daley, the Melbourne-based research economist who runs the Grattan Institute, confronted Treasurer Joe Hockey on negative gearing, infrastructure spending and increasing taxes to pay for health spending. Photo: ABC

It was absolutely true that rents went up fast in Sydney, “which might have been there wasn’t a lot of housing being built in Sydney in the couple of years previously”.

“But look beyond Sydney and rents were dead – barely moved in Brisbane, didn’t go up very far in Melbourne, didn’t go up very far in Adelaide. They did go up very fast in Perth which makes you suspect very strongly that the race memory we have of abolish negative gearing, that rents will go up, is a race memory built on Sydney.”

Daley said rents shouldn’t go up because “by definition what happens at the auction is that the investor doesn’t win the auction but someone who wants to live in the house does. Net impact, there is one less renter and there is one less rental property. Net impact on the rental market, zero.”

Joe Hockey goes on the defensive on ABC's <i>Q&A</i>.

Joe Hockey goes on the defensive on ABC’s Q&A. Photo: ABC

Hockey never returned to the question, and neither did his opposite number Chris Bowen who dodged the question on negative gearing by saying Labor wanted a proper discussion about housing affordability.

Then Daley took on Hockey’s claim that he was delivering the biggest infrastructure program in Australian history.

“It certainly hasn’t gone up,” he said. “It’s probably tailed off, at least in as a percentage of GDP.”

Hockey said Daley was wrong. “For a start we put $1.5 billion into WestConnex in Sydney,” he said.

Daley reminded him that the project predated the Abbott government. He said not a single new project approved in Hockey’s first budget had received a green light from Infrastructure Australia.

Hockey deflected the accusation by saying Melbourne’s East West Link had at least been subject to a cost benefit analysis by the Victorian government. He was reminded that the former Victorian government refused to release it in part because the numbers didn’t stack up.

When Hockey said the tax discussion paper wouldn’t consider tax increases, Daley said that was exactly what was needed.

“We as a society have essentially decided to spend quite a lot more money on health. It’s good news, it’s keeping people alive for a lot longer. The bad news is someone’s got to pay for it. We’ve agreed as a society to have an national disability insurance scheme scheme, that’s terrific but somebody’s got to pay for it.”

“So far we’ve had relatively little discussion about the fact that taxes will probably have to go up, and of course no politician wants to talk about that.”

Hockey was outclassed in a way he rarely is in parliament.

 

The Canberra Times

Joe Hockey defamation case: ‘Reasonable actions’ versus ‘malice’ claims

March 17, 2015 – 12:15AM

Louise Hall

Court Repórter

Treasurer Joe Hockey arrives at court on Monday.

Treasurer Joe Hockey arrives at court on Monday. Photo: Dominic Lorrimer

The defamation battle between Joe Hockey and Fairfax Media could go as far as the High Court, with the publisher foreshadowing a potential challenge to the legal protections afforded to media outlets.

In closing submissions to the Federal Court, Fairfax Media’s barrister, Dr Matthew Collins, QC, said recent defamation cases had been “wrongly decided” by NSW appeal courts and the law should evolve to offer greater protections similar to the UK, New Zealand and Canada.

Mr Hockey is suing Fairfax Media for defamation over a series of articles, tweets and posters published by the Herald, The Age and the Canberra Times on May 5, 2014, about the operation of Liberal Party fund-raising body the North Sydney Forum.

He says the articles and related publications – headlined “Treasurer for Sale” by two of the mastheads – defamed him by suggesting he is corrupt and accepted bribes paid to influence his decisions as Treasurer.

Fairfax denies such meanings were conveyed. But if the court disagrees, Fairfax Media says it has a defence of qualified privilege, because the matters are in the public interest, and they acted reasonably in publishing the material.

On the fifth day of the trial, Dr Collins said the key battleground between the parties centred on Fairfax’s claim that its reporters and editors acted reasonably and Mr Hockey’s contention they were “actuated by malice”. Evidence of the latter defeats the defence.

Mr Hockey contends the articles were motivated by “personal spite and ill will” and “payback” by Fairfax for having to publish an apology and correction to an earlier incorrect article.

His barrister, Bruce McClintock, SC, said the defence of qualified privilege is “rarely successful” because newspapers publish “sensational material”.

Mr McClintock said the “Treasurer for Sale” headline, written by Herald editor-in-chief Darren Goodsir, was “intrinsically and inherently malicious” and Mr Goodsir’s state of mind was the “only … state of mind that matters”.

He said it “cannot have been reasonable” for Fairfax editors and journalists to fail to realise the publications would convey Mr Hockey was corrupt.

Justice Richard White also queried whether the questions put to Mr Hockey’s office before the articles set out the “central allegations”.

Dr Collins said Mr Hockey’s malice case was “manifestly hopeless”. He said the public had a legitimate interest in knowing who is donating to political parties.

In written submissions, Dr Collins said the NSW Court of Appeal had erred by ruling the greater protection afforded to those who publish defamatory statements in jurisdictions including the UK does not form part of the common law of Australia.

He acknowledged that a single judge sitting in the Federal Court could not defy the appellate courts so his clients “wish to preserve their position …  in the event of an appeal by the unsuccessful party from the decision of this court.”

The hearing continues.

 

Source : The Canberra Times

Joe Hockey’s intergenerational gift to the wealthy

March 13, 2015 – 11:45PM

Richard Denniss

The Australia Institute executive director

The plan to cut taxes for wealthy Australians is one reason Treasury predicts we will have trouble paying for health and aged care.

Last week's Intergenerational Report was full of confusing and contradictory assumptions about future policy.

Last week’s Intergenerational Report was full of confusing and contradictory assumptions about future policy.Photo: Matt Golding

Tony Abbott’s plan for Australia is to double our population, roll the dice on climate change and invest less in education and research. Marching head first into the future with this plan will worsen existing problems, not fix them. It is strange then that the grand ambition of the Coalition’s Intergenerational Report into our future tax system is to ensure the millionaires of 2055 pay less tax than their counterparts today.

While it is not polite to admit it, the plan to reduce the tax paid by wealthy Australians is one of the main reasons that Treasury predicts we will have so much trouble paying for health and aged care in the future. This is all spelt out in the IGR, albeit in the appendices.

Last week’s Intergenerational Report was full of confusing and contradictory assumptions about future policy, but its approach to the rate at which different policies are indexed tells us much about both the government’s and the Treasury’s “vision” for the future. It’s not pretty, and it’s certainly not fair.

The take-out message of the IGR is that population ageing means our tax base will dwindle at a time when public spending will be rising rapidly. Its authors argue that if we don’t cut spending now we will be swamped by ever-growing debt and deficits.

The problem is that this take-out message is unrelated to the data on which the IGR is based. The IGR actually says our annual average incomes will increase 77 per cent, from $66,400 today to $117,300 in 2054-55 in today’s dollars, and that if the government does nothing but sit on its hands, it will be flooded with revenue.

The executive summary doesn’t focus on the flood of revenue coming our way, though. Instead, it tries to scare us by insisting that our richer, longer, healthier lives are a problem to be addressed. On the other hand, the honesty about revenue projections is buried in an appendix on page 115.

The difference between my interpretation of the IGR’s numbers and the Treasurer’s is all about the rate at which income tax scales are indexed.

Like most developed countries Australia has a progressive tax system. Those who earn more money pay not just a higher amount of tax, but a higher rate of tax. Like most countries, we have thought that such an approach is fair for more than a century. Treasury’s treatment of indexation rejects it.

With a progressive tax system, total personal income tax collections grow faster than the rate of economic growth as people who are lucky enough to get big pay rises inevitably wind up in higher tax brackets. Right now, about 2 per cent of Australians earn more than $180,000 per year and, in turn, face the highest marginal tax rate of 45 per cent (plus levies). But in the next four decades, as inflation-adjusted incomes grow steadily, the number of people in the top tax bracket will steadily grow.

I know, I know, it would be ridiculous to leave the income tax thresholds unchanged for 40 years. That would cause “bracket creep” and “fiscal drag”. Both sides of politics agree this is a bad thing. The question isn’t if we should change things, but how.

Treasury’s answer is to bet that Australians are paying no attention to their assumptions about how they think tax scales should be indexed. It’s a huge bet.

The Intergenerational Report explicitly assumes that in every year between 2020 and 2055 the Parliament will pass legislation to cut tax revenue. In Treasury’s own words, “with no policy change tax collections would have risen much faster than GDP over time, resulting in a tax-to-GDP ratio considerably higher than actually occurred”.

No one is suggesting that the tax-free threshold, or the threshold at which the top tax rate kicks in, should remain unchanged for 40 years. How quickly these thresholds should rise over time is, dare I say it, a fundamental issue of intergenerational equity. Yet despite the significance of the issue, both the Treasurer and Treasury seem deeply reluctant to address it.

If the next 13 parliaments behave in the way Treasury assume then, even after adjusting for inflation, someone earning $500,000 per year will pay a lower average rate of tax than someone earning the same amount today. Why are we scratching our heads over how future generations, paying less tax than today, living in a country with a GDP three times larger than today, will fund their health and aged care?

According to the IGR’s own sums, if Australian governments simply choose to index current income tax thresholds to the rate of inflation, we would collect an extra $150 billion in income tax revenue by 2055. That’s a lot of aged care.

We could choose to impoverish ourselves by indexing the income tax thresholds to higher average wage growth instead of the CPI, but the consequences would be quite surprising and, I suspect, not that popular.

The whole point of a progressive tax system is that people who earn more should pay more tax and there is no reason that this principle should not hold over time as well as at a point in time.

While Treasury’s assumption about the need for real annual reductions in the tax thresholds is the most pernicious, the IGR is based on a wide range of implicit and inequitable assumptions.

Treasury assumes that we will never close the loopholes in our superannuation system.

It assumes we will never manage to get multinationals to pay their fair share of tax.

It assumes that the 50 per cent tax discount in capital gains will remain in perpetuity.

What’s more, Treasury implicitly assumes that if we accidentally collect more tax than we expect from one source we will automatically cut another source of revenue to ensure that the amount of tax we collect never accounts for more than an arbitrary 23.9 per cent of GDP.

Joe Hockey thinks that the age pension and the average rate of tax paid by the wealthy should both decline steadily over time. Given he once gave a speech heaping praise on the (virtually non-existent) welfare safety net in Hong Kong, that the Treasurer’s vision of a perfect society is one where the only good welfare system is an absent welfare system should not be surprising.

But building a case for your vision is different from pretending that there is no alternative. The reason we’re able to forecast such prosperity in the first place is because previous governments invested at critical junctions to achieve that prosperity. Far from being intergenerational theft, government spending was intergenerational investment. The fact that the IGR’s scare campaign has been effective does not mean it has been honest.

Of course, the future may not turn out anything like what Treasury predicts. The current plans to double our population, roll the dice on climate change and invest less in education and research may not pay the dividends that Abbott is expecting. But of all the problems we may face in the coming decades, ensuring future millionaires pay less tax than current ones would have to be one of the smaller ones.

Richard Denniss is executive director of The Australia Institute.

 

The Canberra Time s

Joe Hockey plans to smash a world-class superannuation system

March 10, 2015 – 1:32AM

Paul Keating

The Liberals are always trying to pull the plug out of the bath of Australia’s universal superannuation pool, writes former prime minister Paul Keating.

Federal Treasurer Joe Hockey accused of masking his real intentions as a professed concern for home buyers.

Federal Treasurer Joe Hockey accused of masking his real intentions as a professed concern for home buyers.Photo: Robert Shakespeare

Such growth in the asset base could not happen if people were permitted to take funds for convenience, thereby diminishing the asset pool and its capacity to compound.

This would especially be the case for younger home buyers who would typically have a relatively modest pool of superannuation savings from which to draw.  In fact, any meaningful housing deposit taken from the accumulated savings of younger savers would effectively eliminate or near eliminate the base from which the important compounding would otherwise occur.

Breaking what is now a national consensus on the principle of preservation, where savings cannot be drawn down till age 55, would amount to the wilful destruction of one of the best retirement systems in the world.

Former prime minister Paul Keating says superannuation for the Liberals  is fundamentally an ideological matter.

Former prime minister Paul Keating says superannuation for the Liberals is fundamentally an ideological matter.

This idea is certainly not an innovation and is not responsible enough even to be considered a thought bubble.

The Liberals have always hated national superannuation for the broad workforce.  And mandatory superannuation gets right up their nose.  Their objection to superannuation is ideological.  They would prefer to see broad increments to national wealth in such places as stock markets accumulate only to their top end wealthy constituency.  In other words, superannuation, limited as it used to be before 1985 – for the top end of industry and the public service only.

This is why the Liberals have jammed the shift in superannuation at 9.5 per cent of wages, from the 9 per cent to 12 per cent legislated by the last Labor government.  The very same reason John Howard and Peter Costello destroyed the scheme announced by Ralph Willis in the 1995 budget, taking superannuation contributions to 15 per cent of wages by 2001.

I have never expected the Liberals to believe in much but as a conservative party you would expect them to believe in thrift.  But the Liberal Party of Australia does not even believe in thrift.  It is always trying to pull the plug out of the bath of Australia’s universal superannuation pool.

And Treasurer Hockey’s proposal to let people access their superannuation savings before age 55 is just that – an attempt to pull the plug from the bath to lower the level of compulsory savings.

Whenever you hear the Liberals talk about “choice”, you hear the code word for destroying mandatory savings.  Never having had the wit to put such a retirement scheme together in the first instance, they periodically attempt to do all they can to either jam it or damage it.  And when they do touch it, it is invariably to do the wrong thing – like Peter Costello changing the taxing arrangements to let wealthy people take large lump sums tax free.

Superannuation for them is fundamentally an ideological matter.  Just like Medicare.  The Liberals object to the universality of Medicare and they keep having a go at it, like the recent attempt to require a co-payment to doctors.  They have now dropped off that because the going got too rough for them.  So that having failed, they are back again at super – the other great universal scheme.  But instead of saying they oppose it ideologically, and arguing their case intellectually, the Treasurer will try to reach the same outcome by masking his real intentions as a professed concern for home buyers.  Again, it’s a case of anything that pulls the plug from the bath.

The Treasurer is always speaking of the Australian budgetary balance and the need for remedial medium term policies to deal with the growing level of deficit.  And well he might.  But where would the country be with the Commonwealth budget in growing deficit, without the $1.9 trillion pool of investable superannuation savings?

What would the aged care budget with the baby boom bulge look like without the supplementary income available from superannuation savings?  It would be a horror story.

And where are the Business Council and the employer bodies in this debate?  The vast pool of superannuation savings has dramatically lowered the cost of capital in Australia.  Before 1992, the cost of capital to Australian business was well above the OECD average; today it is well below it.

Superannuation and the associated dividend imputation system has revolutionised capital formation in Australia.  You would think, even if only out of self-interest, these employer and business bodies would speak in favour of the Superannuation Guarantee Charge and savings adequacy.  But you hear little from them.  They are happy to enjoy the largesse but because many still have a Liberal Party ticket burning in their pocket, they remain mute or next to mute, in defence of what is now a world class system and one central to their own prosperity.

Paul Keating is a former prime minister of Australia.

 

The Brisbane Times

Joe Hockey’s super idea not so super, say Paul Keating and industry chiefs

March 10, 2015 – 12:21AM

Former prime minister Paul Keating.

Former prime minister Paul Keating. Photo: Andrew Meares

Treasurer Joe Hockey’s idea that Australians dip into their superannuation to buy a first home has come under attack from a range of interested parties, led most vehemently by the father of the system, former prime minister Paul Keating.

Mr Keating has also warned that if Australians could dip into their super savings at an early age, it would increase pressure on the federal government’s aged care budget by reducing the amount of income that could be drawn from older Australians’ super savings.

“The key to wealth accumulation in retirement savings is compound earnings,” Mr Keating says.

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“I have never expected the Liberals to believe in much but as a conservative party you would expect them to believe in thrift. But the Liberal Party of Australia does not even believe in thrift. It is always trying to pull the plug out of the bath of Australia’s universal superannuation pool.”

Mr Keating’s foray into the debate comes days after the Treasurer raised the prospect of allowing people to dip into their super over the course of their lives, saying perhaps Australians ought to think differently about the way in which super savings can be used if they were going to be living longer.

His suggestion comes off the back of the Abbott government’s Intergenerational Report, released last week, which showed Australians born in 2055 will have an average life expectancy of roughly 95 years, meaning they will likely have to work for much longer in the future.

On the weekend, Mr Hockey said Australians could perhaps dip into their super savings to pay for things such as job retraining, or buying their first home.

On Monday Prime Minister Tony Abbott supported Mr Hockey, saying his suggestion was “a perfectly good and respectable idea” and he hoped Australians keep debating it.

“I can remember back in the early ’90s when I was helping John Hewson to draft the ‘fightback’ statement, putting in a suggestion to this effect,” Mr Abbott said.

“It is something that I am very happy to see further debated but there are obviously some issues around it and let’s fully consider it. At this stage we don’t have any plans to introduce it.”

In an opinion piece , for Fairfax Media published on Tuesday, Mr Keating accuses the Liberal Party of attacking Australia’s super system for ideological reasons, saying “mandatory superannuation gets right up their nose.”

“The Liberals have always hated national superannuation for the broad workforce,” Mr Keating writes.

“Superannuation for them is fundamentally an ideological matter. Just like Medicare, the Liberals object to the universality of Medicare and they keep having a go at it, like the recent attempt to require a co-payment to doctors.

“They have now dropped off that because the going got too rough for them. So that having failed, they are back at it again at super – the other great universal scheme.

“But instead of saying they oppose it ideologically, and arguing their case intellectually, the Treasurer will try to reach the same outcome by masking his real intentions as a professed concern for homebuyers.”

Figures from the Bureau of Statistics show the median value of homes purchased by first home buyers is around $370,000 to $400,000, and the average superannuation balance of 30 to 34 year olds in Australia is roughly $28,000.

Association of Superannuation Funds of Australia says the average super balance increases steadily by age group, up until about age 60, when they start to decrease due to individuals starting to draw down on their savings.

David Whiteley, the chief executive of Industry Super Australia, says a typical $40,000 deposit for a first home would wipe out completely the first nine years of a young adult’s super savings and reduce their retirement savings by $140,000 in current prices – with $100,000 lost in compound interest.

Mr Keating also makes this point in his column.

“Any meaningful housing deposit taken from the accumulated savings of younger savers would effectively eliminate or near eliminate the base from which the important compounding [of earnings] would otherwise occur,” Mr Keating writes.

Saul Eslake, the chief economist of Bank of America Merrill Lynch, says if young adults used their super savings to buy a home they may be compensated later in life by increases in the value of that home, but that could not be guaranteed.

On Monday Shadow Treasurer Chris Bowen slammed Mr Abbott’s support for Mr Hockey, saying Mr Hockey’s idea “will undermine our super system and actually put more pressure on the aged pension system over the next 40 years”.

But Assistant Treasurer Josh Frydenberg dismissed such concerns, saying “the Coalition is the best friend that super ever had.”

“Labor needs to step up and play a productive role in discussing the issues raised in the Intergenerational Report, rather than the negative approach we’ve seen so far from its shadow ministers and now former prime minister Keating,” Mr Frydenberg said.

 

Source : The Canberra Times

Jack Waterford: Our future hijacked by our past

March 6, 2015 – 11:45PM

Jack Waterford

Editor-at-large, The Canberra Times

Tony Abbott and Joe Hockey want to start a conversation about the future, based on the materials in the intergenerational report issued by politicians this week. But the future 40 years forward is one they are trying to hijack, for present political purposes to justify an agenda that will not serve Australian now or tomorrow.

It may well be, as Marx might have said, that those who forget their future are doomed to relive their past.

The Whitlam Government transformed public health insurance, national primary and secondary school policy, access to universities, and a rethinking of the social welfare system. 

The intergenerational report is a political document prepared within the Treasurer’s office rather than in the Treasury, with dire graphs based on data confected for purpose. It presents a dire story of the costs of government spiralling out of control unless prompt and severe medicine is applied, particularly to health, education and social security.

If the medicine, approximately equivalent to the cutbacks proposed by last year’s Budget, is not taken now to stop the trend of ever-increasing public expenditure, we are, it seems, headed for demographic and fiscal decrepitude. Australia, as presently configured, is careening on the highway to Greece, even if, under present, prudent but constrained management as limited by a populist senate, it is at only half the speed it would have been under the previous horrid and hateful Labor regime.

It puts me rather in mind of 1975, 40 years in the past.

The future, then, was often invoked by politicians. Gough Whitlam was not the only man suffering from visions, whose speeches sought to describe a future Australia and to talk of present policies as preparations for it. Whitlam made ample reference to the now, and to the hip pocket, but he was also selling hope as well as charity – to an extent mainstream Australian politicians since have not been able to match.

The Whitlam Government transformed public health insurance, national primary and secondary school policy, access to universities, and a rethinking of the social welfare system. In effect, they doubled the public investment in it, even if their spending never reached 20 per cent of GNP, and involved no public debt.

The future was also in the service of defence. One of the contentious phrases of the day, repeated in consecutive strategic assessments was that there was then no sign of a credible threat to Australian sovereignty over the next 10 years. Our military guardians had access to satellite and other intelligence technology which made it reasonably clear that no nation anywhere near – from China or India down – had the capacity – even the shipping – to invade Australia with a force they could sustain while we were fighting back.

It would take a decade, at least, time to build such a fleet from scratch, longer to have the power to keep it afloat against our defences. Even if we were deceived about political signs of aggressive intent, we would know when attack was possible. Hence one could plan the nation’s defence, including our alliances, not against immediate short-term contingencies, but in a slow and deliberate manner best designed to protect and advance our interests.

The “no threat for 10 years” phrase was political trouble, no matter who said it. Defence lobbyists,  colonels, and oppositions invariably said that it was all too complacent. A threat could arrive at any moment, leaving Australia naked and alone. The solution, inevitably, involved spending a lot more than whatever it was at the moment. And in distorting defence expenditure towards the here and now (particularly in toys and military salaries) and away from major long-term and integrated investment in defence capital, which might not be in service until after it was needed. As it happens, hardly any of the (now obsolete) defence capital, and even fewer of the defence personnel, of 1975 were ever to be in zones of war.

There were any number of sotto voce scenarios of impending military disaster, and a good many involved, (sotto voce) Indonesia.  Or China. South Vietnam had just fallen to the North, and the other countries of Indochina came under communist control, but no one much was talking, any longer, about the domino theory, by which the nations of Asia were doomed, one by one, to fall into the thrall of Russia or China (or both – there were still some who believed that the Sino-Soviet Split, already 15 years old – was a feint designed to trick us). Indonesia has just invaded East Timor, after Australia had signalled that it would make only token protests.

From either end of the 1975 telescope, no one foresaw the Soviet invasion of Afghanistan (which has caused most of the national security trouble in which we are now embroiled). That happened within five years, though nothing Australia did as a result made much difference to anything. We did not foresee the collapse of the Soviet Union, the drifting of continent Australia into the East China Sea, or a further (post Vietnam) series of humiliating  defeats of American, and western, arms and policies within 1000 miles of Jerusalem over the next 40 years, none directly involving the integrity of Israel itself.

In 1975, Australia, and its fiscal calculations, were reeling from the first oil shock of 1973. It was that, rather more than economic indiscipline under Whitlam, which was to have the biggest effect on political and economic ideas. It forced a long and painful economic restructuring. Australia could no longer have a future protected by some economic quarantine fence, not subject to the forces of world markets. But it was not something 1975 politicians, on either side of the fence, yet realised.

1975 had, like now, an army of lobbyists and urgers screaming for abolition of labour market controls, deregulation to save business from the dead hand of government, big cuts to government expenditure, and tax cuts,  incentives and entitlements for  distressed rich people. Without these we were on the road to hell. Just emerging was  a concerted attack on a supposed outbreak of scrounging, fecklessness and unwillingness to work for whatever was offered, and a culture of distrust in what government, even with the best of intentions, could achieve. A good deal of politics began to appeal to mean spirits and resentment of allegedly privileged groupings of poorer people.

In the “real world,”  unskilled labourers were finding it harder to get jobs. But the electric typewriter, the photocopy machine and the facsimile machine were not yet in common use. Big businesses – The Canberra Times locally was one, then – had telex machines.  Ordinary members of the public waited on average about three months to have a landline telephone connected (although the word “landline” was not, then, in use).

Most white collar workers, other than those in shops, were engaged in what one would now call data processing work – work of a type that has now almost entirely disappeared. The personal computer was ages away, the mobile telephone even further; the internet and its potential and the whole array of modern social media had hardly been conceptualised, let alone invented.  Now between a third and a half of the Australian population has no memory of a life before the mobile phone or Google.

In 1975, the structure (and size) of the Australian family,  were in a state of revolution.  More clever, articulate, demanding and well-educated women were entering the workforce and were taking less shit. These were women who, on average, were marrying later than their mothers and older sisters, and who were to have fewer children. Whitlam had a Royal Commission into Relationships to examine the implications.

The rate of family break-up was seeming to increase, but despite what some later said, the first big bulge of divorces and break-ups, regularised under the 1975 Family Law Act, were of the generation older than the Baby Boomers. The new citizenship for women saw demands  for help with childcare, maternity leave, paid parental leave, equal pay, an end to discrimination and fair representation in the high councils of government and business.  It became part of a wider social agenda:  for justice for Aborigines, aged care, pre-schools, dignity for single parents, and equal rights for homosexuals. Hitherto these had been “single issue”, “advocacy” politics; it moved into the mainstream, even of economistic talk.

Verbal commonplaces of 1975 politicians, whether on the left or (particularly) on the right, now seem embarrassing, naive, reactionary or just plain silly. Likewise with the social attitudes of many representative Australians to the rights of blacks in South Africa (or Rhodesia) or Aboriginal land rights.

Whether from the beginning of 1975 (when Bill Hayden as Treasurer began winding back the economy) or at its end (after the adults had returned, thanks to Sir John Kerr) that period saw the beginning of a time when the state of the economy, and the level of government spending, dominated day to day political discourse. At all times over the next 40 years, the slashers and the cutters, the straighteners or, as some would insist, the economisers, were at all stages in the ascendancy.

It is often forgotten that Australian government, under Whitlam, spent only two-thirds as much of the gross domestic product as national government does today.

As it happened, Whitlam did produce intergenerational reports, such as Professor Borrie’s inquiry into population, which still stands up fairly well, unlike a host of exercises in economic prognostication, from the 1967 Vernon Report of economic enquiry. No one in Treasury, for example, anticipated (or advocated) a floating exchange rate in 1983, or any number of other significant economic changes of that era – let alone that many of them would be implemented by Labor governments.

The politicians of 1975 did make a difference, one that matters still. They redoubled 1960s efforts to increase numbers in universities, further education and training. They help stop most Australians leaving school at about age 15 and instead saw most go on, at least, to matriculation.

The key to the transformation of the Australian economy over the past 40 years was the fresh investment and reinvestment in education four decades ago – spending regarded as excessive, reckless and unsustainable by the clerks of the day. The investment in pure education (and pure research) was as profitable and critical as the investment in directly preparing women and men for the labour market. Some of it, in retrospect, could have been managed better; anything at all was at the time fiercely resisted.

Why should it be different 40 years hence?

Even in 1995, one could hardly have predicted much of the technology we take for granted today. We have learned little from a tedious, dismal economics, particularly of the directly political sort, dominated by dogma and unaffected by evidence or experience.

The lesson from looking back is that the best investments one can make in the future, and in future generations, is by intelligent and thoughtful spending now. Investment  in the health, education and happiness of the general population, not least the emerging one. And in the geographic cultural and social environment in which we live.

It’s the people and the land who are this nation’s great capital asset, and they are assets we are letting depreciate.

If we cannot afford our present (if needs be by richer and more benefited Australians reaching deeper into their wallets) we won’t deserve our future. The biggest reproach on modern politicians is that there is a serious prospect that the younger generation of 2155 may be materially worse off than their parents and grandparents.

 

Source : The Canberra Times