In the early hours of the morning in Canberra an email goes out from the Prime Minister’s office with the Government’s approved “talking points”. These are effectively a script for politicians to help them respond to the political issues of the day.
I am not a member of the Government so I do not receive these daily prompts but sometimes you get insight into what they contain just by listening.
This week the Government’s Finance Minister was asked repeated questions about the impact of Labor’s decision to increase taxes on superannuation. The Minister mentioned that their changes were “modest” about 100 times. You do not have to wonder what was written in the points for her.
But then the Minister became a little immodest. In response to a question from me, she revealed that in fact 1 in 10 Australians would be subject to Labor’s doubling of superannuation tax rates. The Government had spent a week saying that only 0.5 per cent of Australians would be impacted by their changes. But the whole time they had economic modelling which showed that, in fact, 20 times more than that amount of Australians would be impacted.
The Romans had a word for targeting 1 in 10, decimation. The reason that Labor’s proposed doubling of superannuation would decimate Australian families is because of inflation. The Government is refusing to index its new $3 million threshold to inflation. When you get to the age of retirement $3 million will not be the same as it is today.
Some basic sums make this clear. Take a 30 year old today with a $200,000 superannuation balance. Assuming that person earns $100,000 a year, and makes average returns on their superannuation, this person will have a superannuation balance of more than $3 million by the time they are 62 years old. This is the power of compound interest.
The government seems to think that someone on $100,000 a year is rich. The average full time wage is now $94,000.
This young, average earning Australian now faces a much tougher retirement than before Labor’s tax raid. Say upon retirement at 65 this Australian plans to have their superannuation provide for them for another 20 years. Thanks to Labor’s tax changes they will now have $50,000 a year less to provide for themselves in retirement. Over their lifetime, they will pay $700,000 more in superannuation taxes.
Before the last election the now Prime Minister said that he had “no intention of making any super changes.” That is a clear broken promise.
But worse than breaching trust with voters, the PM has breached people’s trust in the superannuation system.
The Government claims that the 10 per cent figure is in 30 years so we do not have to worry about it. But, hang on, the whole point of superannuation is to save for a period of 30 years, and sometimes longer. If we do not have to worry about what happens in 30 years time why do we put money in superannuation at all?
Those impacted in 30 years time by Labor’s taxes are the young workers of today. They will now have less confidence to invest their money in superannuation. When you put money into superannuation it is locked away for decades, you cannot just take it out. So any suggestion that a Government will increase taxes after you put that money away has a devastating impact on people’s incentives to put money in the first place.
The real damage that the Government has done to confidence in the superannuation system cannot be repaired by another release of daily talking points. Instead, the Government should agree to index its new threshold of $3 million so that young Australians are not unfairly hit.
