Black hole budget will penalise the poor

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Hand stacks coinsBudgets reveal a government's priorities.

On 3 April, Treasurer Wayne Swan and Superannuation Minister Bill Shorten said Labor would no longer give priority to providing over $438,000 a year in government assistance to retirees with an annual tax free income of $1 million from super while an age pensioner gets $21,000. Instead, Labor will not tax the first $100,000 of this retiree's income, and apply a highly concessional rate of 15 per cent to the other $900,000.

The ministers did not say so, but their new priority would assist this retiree with tax concessions worth about $330,000 a year — a little under 16 times the size of the age pension, rather than 20 times as it was previously.

This might seem a strange priority for a Labor government that is trying the stop the budget sliding further into deficit. But Labor won't even introduce the enabling legislation before the September election. As a result, a new Coalition government will almost certainly continue to give this retiree $438,000 a year in budget support.

As it finalises the 14 May Budget, Labor is struggling with a $12 billion write down in anticipated revenue for 2012–13 after Treasury bungled the forecasts. The ensuing deficits will be even bigger because what Labor has committed to spending exceeds even the wildly overblown forecasts for the carbon and mining taxes. The expanding deficit, although still relatively small, can't be justified while normal economic growth is occurring.

Labor could make huge saving by cutting back on government assistance to those who can fend for themselves. But it has chosen to switch large numbers of single parents off the parenting payment of $341.70 a week and onto Newstart (the dole) at $268.90 a week for those with dependent children. Most single parents have part time jobs, yet the government has cut their relatively low payment to give others an incentive to follow suit.

The Business Council of Australia has observed, 'Entrenching people in poverty is not a pathway back into employment.'

The maximum rent assistance for single parents on Newstart is $72 a week. Yet a recent Anglicare survey found that steep rises in rent mean that less than one per cent of rental properties are affordable for singles on social security benefits. Again, this is a matter of priorities.

But no increase in rent assistance is expected in the Budget; nor any change in tax policy to lift the subdued growth in the supply of new residential buildings that is one reason for the decline in housing affordability.

The supply problem is partly due to the way negatively geared investment properties get the same favourable tax treatment regardless of whether they are established or new dwellings.

The latest tax statistics show that taxpayers claimed net losses of almost $8 billion on rental properties in 2010–11. Construction of new dwellings could be boosted (and the deficit reduced) if tax deductions on existing rental properties could only be claimed after rental income exceeded the losses, while losses on new homes could still be offset against other income.

There are many other options for achieving a surplus without harming the economy or basic social safety nets. One of the simplest has strong economic and political advantages. When Swan announced a staged increase in compulsory super contributions from 9 per cent of salaries to 12 per cent, he said it would not go ahead unless fully funded by the mining tax. Given that this funding won't materialise, Swan should scrap the increase.

Politically, letting voters keep an extra 3 per cent of future salary rises would ease cost of living pressures. It would also give them more freedom to allocate their income in ways that best suit them, such as paying off a mortgage, bringing up a family, and covering education and child care expenses.

The Productivity Commission has explained that compulsory super imposes a dead weight cost on the economy by distorting the allocation of resources towards the finance sector. In essence, it is a form of industry protection that artificially inflates the size of this sector at the expense of the rest of the economy.

The 9 to 12 per cent increase also has a heavy budget impact. When fully implemented, Treasury conservatively estimates the additional cost of the associated tax concessions, plus two related measures, will be about $5.5 billion in 2020–21.

Scrapping this increase should be a prelude to reversing the Howard Government's decision to distort the tax system by making all superannuation earnings and payouts tax-free in the drawdown phase after age 60. This creates a savage imposition on the sharply declining proportion of people in the workforce.

Until Labor or the Coalition drops this damaging mistake, hard pushed workers will have to pay for decades to provide government services for retirees who will often be better off financially than a lot of younger people who subsidise them. Rectifying this mistake is not an act of class warfare; merely a standard requirement of responsible budget management. 


Brian Toohey headshotWalkley award winning journalist Brian Toohey is a columnist with the Australian Financial Review


Topic tags: Brian Toohey, Australian Financial Review, Budget 2013, Wayne Swan, Julia Gillard, Bill Shorten


 

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We are currently wasting $2 billion a year to jail and persecute refugees in various prisons all over the Pacific and Äustralia and our brave soldiers are sitting in the camp in Tarin Kowt playing cards at great expense.
Marilyn | 06 May 2013


Brian, good article as usual. But not all rental properties are negatively geared and not being able to claim other expenses unless these exceed rental income would severely disadvantage owners who are not particularly wealthy but are keeping these properties not as investments but for their own retirement.
Sara Dowse | 07 May 2013


Brian Toohey has raised a question that has received little attention over the past six years, that is the Howard governments decision to make all superannuation payments tax free. One result is that I and many other people pay no tax, we do not contribute to Medicare, to any special disaster relief such as the Queensland flood relief levy and we will not contribute to the incoming disability scheme. I believe we should all pay some tax and we should all pay whatever levy's are imposed to assist people in dire straights.
Kevin Vaughan | 07 May 2013


The old-fashioned Australian idea of "a fair go" for all seems to have taken a terrible battering since the 1970s. My own Labor MP, proud to give public voice to what I consider neo-Marxist views on why some doctors don't bulk bill ("They like to work three days a week and then go off to the snowfields" - we are a Brisbane electorate which made that blatant political statement both crass, unfair and ludicrous simultaneously) would, I think, be no slouch at taking any benefit he could get as an MP. He comes to our local medical clinic with his kid and I'm sure he makes certain they follow their policy of bulk billing for the boy. They do bulk bill pensioners; health care card holders & children which further enrages me about his statement. I suspect tax concessions for the wealthy self-funded retirees is because they are not rusted on Labor voters, whilst I suspect most working class pensioners, remembering the days when most Labor politicians had once held real jobs with all that entails, rather than becoming political staffers or union officials straight after finishing university and subsequent selection for a safe seat, all the while enjoying the good life well above the standard of the average taxpayer, continue to vote Labor. I think that foolish. The NDIS and genuine assistance to single parents - it's not just about money but enabling them to give their children the best possible start in life - are both cornerstones of any meaningful national social policy. Labor has certainly failed on single parents. Failed insensitively; alarmingly and showing no social vision there. No "Light on the Hill" but darkness. Hopefully the coming disaster at the forthcoming elections and seeing the Coalition in its true colours will either force Labor back to its roots or lead to the rise of a party more like the one of Curtin; Chifley and Whitlam.
Edward F | 07 May 2013


I fail to understand what makes “single mothers” so much of an sympathy magnet. Most children have a mother and a father and it is the duty of parents to look after them. We can argue as much as we want, but the Government is on the right track to get some more people into the work force. I fail to understand again why working mothers should pay for others to stay at home and play poor. If the Government really want to stop wasting money, it may be time to stop charity to the richest of all industries, I mean the sporting and entertainment industry. We see football players playing a single day a week and earn close to a Million Dollar a year. For example we see 700 Million Dollars wasted in Adelaide to support the Cricket and AFL industries. We see students at Universities having to pay back their fees whilst Millionaire athletes are not required to pay back any of their training fees paid by our tax payers. We see teachers having to pay their tuition fees AND the training fees for our top paid athletes. We may argue that it is important for Australia to remain amongst the top 5 Olympic sporting nations. I argue that it is far more important to have a well educated healthy and prosperous people instead of a few overpaid show ponies. I am sure we could also cut a few hundred Millions from the lucrative people smuggling industries.
Beat Odermatt | 07 May 2013


Brian, please some help for those of us who yearn for a true Light on the Hill. How on earth are we going to vote this year?
Mahdi | 07 May 2013


Matt Odermatt is right about Australia wasting tax-payers' money on sports people and entertainers. I agree it is not important for Australia to be a top sporting nation. But Matt is totally wrong about many single mothers. As a St vincent de Paul Society volunteer i call regularly on many single mothers in one of the poorest districts in Australia, located within Minister Macklin's electorate. Many of these women are clearly UNEMPLOYABLE, a word no politician will ever use. If there were 100 vacancies around the corner from them, and one applied as the only applicant, she would NEVER GET THE JOB! These women are not "sympathy magnets". Rather they are very, very poor. Without adequate support some will starve. To reduce their income to New Start levels is adisgrace and an unjustified punishment for their inadequacy to cope, even if they live rent-free.
Bill Barry | 07 May 2013


I think Beat Odermatt has failed to grasp the issue when he says: "I fail to understand what makes “single mothers” so much of an sympathy magnet. Most children have a mother and a father and it is the duty of parents to look after them." He seems to be projecting his own decency on to some fathers who are either: (1) unknown (2) shot through after a one night stand (3) such abusive bastards their partners just shoot through; make a new life far away and never contact them (4) use all legal means not to pay maintenance. In a civilised society the state has to step in as the supporter of last resort.
Edward F | 07 May 2013


To Bill and Edward.It remains a cheap and easy options to go to the Government to bail out all the “poor”. In all cases there is a father who has to contribute and it is the duty of the mother to provide the name. Everyone is able to work and social conditioning should not be used as an excuse to say that some people are “unemployable”. The Government is being fair to all the hard working tax payers by removing abuse of the goodwill of Australians. The Government is just trying to provide an incentive for more people to get out of the rut of a poverty trap into a workforce. It seems that the charity industry is not helping these people by making poverty traps permanent. Sometimes the greatest kindness may have a hard appearance and the kindest most generous welfare causes the most damage.
Beat Odermatt | 09 May 2013


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