Hedge Clippings | Friday, 11 November 2022
Superannuation in the spotlight
Australia's compulsory super system came under fire this week - or, to be more accurate the inequality of the generous taxation treatment it provides those with higher incomes and higher super balances came under attack.
From small beginnings way back in the 1980s, and the love child of Paul Keating and, from memory Bill Kelty (where's Google when you need it?) "Super" has been a super success by all accounts. Unfortunately, it has been tweaked - or raided - over the years, generally by politicians and in particular treasurers who couldn't and can't help themselves, particularly when it comes to other peoples' retirement savings.
Having said that, John Howard was probably an exception, looking after his "battlers" with a generous lump sum contribution, which was great as long as you were one of the battlers able to take advantage of it.
The issue now appears to be that the Super pie has grown to such an extent, and which is forecast to double again in the not too distant future, that the 15% concessional tax rate on contributions, and the tax free rate when in retirement phase, is costing the budget a motza - particularly for those lucky enough, or smart with high balances.
This goes against the grain normally applying to income, wealth, and tax. Normally, unless you're a Kerry Packer, the more one earns, and in many places in the world, the more one is worth, the higher your tax rate.
We would hasten to add that Hedge Clippings is no expert when it comes to Super, as might be deduced from the simple explanation above. However, there are a number of arguments both ways, as well as a number of other flaws in the system which were either not recognised previously, or were possibly kicked down the road for some other government to address.
The concessional tax rates applying to Super undoubtedly favour those better off, but they're not the ones to blame. The politics of envy being what they are however, it is much easier to now make the beneficiaries out to be the villains. They simply applied the rules as they stood at the time to their best advantage.
There would seem to be other issues with Super at the mid to lower end of the scale as well. While accepting the argument that after 40 plus years working and contributing (even if you had no choice and it was your employer doing so) that your lump sum is "yours", surely the majority of it should be paid as a pension or annuity to ensure you don't rely on the welfare system for the remaining 20 plus years you are expected to live for?
Irrespective, the stage has been set for yet another re-work of the overly complicated Super rules come next year's budget. In the meantime, we're just being softened up for it by some well placed PR.
Finally we can't let the subject of politicians and Super pass without taking a swipe at their own pension arrangements down in Canberra. From memory, non contributory, and at 15% plus, with various other perks, that's inequality!
Don't expect that to change in next May's budget papers!
Meanwhile to markets:
Cryptocurrencies were hammered further this week following the failure of FTX, a crypto exchange, reinforcing the danger not only of the coins themselves, but also the added counterparty risk in an unregulated market.
And finally, US markets had their best day on record when inflation came in ahead of expectations. Or could it have been partly the expectation that Donald Trump's "Red Wave" had made not much more than a ripple?
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