Superannuation pain must extend to politicians
April 04, 2015
TO turn a biblical principle on its head, politicians need to do unto themselves as they do unto others.
Despite repeated promises not to fiddle with superannuation, our retirement savings aren’t safe from the Federal Government. Treasurer Joe Hockey has a budgetary black hole inherited from the Rudd-Gillard Labor governments. Quite rightly he wants to fix the fiscal mess. Unfortunately, he won’t be able to resist extracting more tax from super. We should only cop that if and when retired parliamentarians give back some of the largesse we bestow upon them.
Until 2004, Australian politicians enjoyed one of the best pension schemes going around. If they served at least nine years in Parliament, they could retire at any age and receive until death 75 per cent of their final salary — with that amount increasing over time in lock-step with future MP pay rises.
Our federal representatives often argue they’re underpaid for the difficult job they perform. But they conveniently forget to mention the huge cost to the taxpayer of funding their privileged retirements.
Thanks to former Labor leader Mark Latham, that overly generous scheme was terminated 11 years ago. As a result, MPs elected since then receive a more conventional (albeit still generous) superannuation allowance similar to that earned by the rest of us.
Yet MPs elected before 2004, such as Tony Abbott, Joe Hockey, Tanya Plibersek and Christine Milne, will prosper lavishly under the old scheme when they retire.
Mr Abbott, once he becomes a former prime minister, won’t just enjoy an indexed pension of about $200,000 per annum. He’ll also receive an office, federally funded staff members and free air travel for the rest of his days. In total, retired PMs each cost taxpayers about $500,000 a year.
Nothing in these political perks is new, of course.
And as the political “Class of pre-2004” shuffles off, over time the overall cost to taxpayers for politicians’ pensions will decline.
Unfortunately for us, what is changing is Canberra’s urgent need for fresh sources of funding. Just about every economic analysis doing the rounds in Treasury shows that thanks to our ageing population, increasing healthcare costs and unsustainable growth in welfare, the federal Budget may never again experience a surplus.
So the choices for Mr Hockey are simple to understand yet politically difficult to enact: collectively we must either cut spending (never popular around election time), increase taxes (ditto) or undertake a combination of the two. For two main reasons, superannuation is a prime target for higher taxation.
First, compared with other forms of income, super is relatively lightly taxed. If you earn less than $300,000 per annum, your super fund only makes contributions to Canberra at the rate of 15 per cent. That compares favourably with both company tax (30 per cent) and the top rate of personal income tax (a whopping 49 per cent).
Second, taxing super doesn’t hit voters in the hip pocket now. Rather we only notice its impact years down the track at retirement. And how many people check the balance of their super fund on a regular basis, let alone worry about whether it’s sufficient for their golden years? Answer: not many.
So if extra revenue is required at a time when votes are precious to an unpopular government, it’s odds-on Mr Hockey will soon unveil a superannuation surcharge for either high-income earners or people with big retirement fund balances — say, those with more than $3m.
Like anyone who’s been forced to live within their means, I wish our federal politicians would pay more attention to cutting spending rather than increasing revenue. Thanks, however, to the obstructive Senate, new taxes are the order of the day.
Wealthy retirees should accept the upcoming superannuation haircut if, and only if, politicians such as Tony Abbott agree to sacrifice some of their generous retirement benefits. Those of us who live in the real world are far more likely to agree with fiscal pain if those imposing it feel the same hurt.
Tony Abbott’s annual payment of $500,000 post-retirement would require a superannuation balance of about $10m to finance. That already makes the PM one of wealthiest retirees-to-be in the country.
And unlike the rest of us whose super fluctuates with the fortunes of the market, Mr Abbott’s pension is guaranteed forever by us taxpayers.
When super funds with more than $3m are slugged for a bit extra, their owners should ask both the Treasurer and PM: “How much are you contributing?”