Albo’s super dance: one step forward, one backward, one to the side

It was Jim Chalmers’ pension reform, but the reform we have is Anthony Albanese’s reform. Michael Pascoe he thinks this epitomizes the risk-averse incrementalism of the Albanian Government.

If anyone still held out hope for significant economic reform that would improve Australia’s outlook and realize this country’s enormous potential, that hope was dashed on Monday when Chancellor Chalmers announced Prime Minister Albanese’s pension reform.

One step forward, one step back, aside.

Okay, maybe that was a bit harsh. Try a step and a half shuffle forward, back and sideways.

The end result is little more than a fiddle around the edges of our mighty retirement resource, cutting out some of the massive inequality of a retirement plan that devotes its greatest generosity to the wealthy who don’t need more help to get richer.

The step forward is to reduce the tax on unrealized gains.

The effect of grabbing a slice of unrealized gains was quite attractive on an equity basis. actual wealth tax. I have no sympathy for the bleating of people who use super as a wealth preservation strategy for a large entity, against the rules of super. (Point to the alleged farmer.) But in principle this was wrong. The ends were not good enough to justify the means.

Taking shelter in the super lobby

Backing down would mean bowing to the lobby demanding that the $3 million threshold be indexed for a partial reduction in the overly generous pension tax credit. This means that it will only be a small number of people who will get big tax cuts to a very good level.

We don’t index income tax, so what would be so valuable about a super tax cut for the rich, especially when it would remain such a good deal anyway?

If it is to be indexed, the Greens’ call for a $2 million starting point makes more sense. The pain/pleasure point of the extra tax left without indexation was reached in time and adjusted at that time, as with other taxes.

A half-change to offset this decline is to reintroduce a higher rate (40 per cent) on the earnings of individuals’ super funds holding more than $10 million.

Better than a Caribbean tax haven

The generosity of a retirement plan was never designed to cover someone with so much stashed away in a tax haven. (And make no mistake, our pension system is the best tax haven for the rich, better than anything on offer in the Caribbean.)

And then there’s the step aside, a small increase in the LISTO, aka the Low Income Super Tax Offset. This was blandly reported as a good government would increase the offset from the maximum of $500 to $810 and raise the upper taxable income limit to $45,000 to achieve this so that low-income individuals do not pay a higher tax rate on their super contributions than their marginal income dollars.

This is about super contributions. The profits from these inadequate super funds are a shame. They are taxed at 15 percent; This is the same rate as those with $3 million.

What all this means is that we perpetuate unequal taxation incentives to lock up money in retirement.

Incremental Albo

For someone with taxable income of $200,000 a year, there is a 30 percent reduction in tax paid on retirement contributions and earnings compared to their ordinary income. For average workers, this is a 15 percent tax cut. For some lower-income workers, this isn’t a break at all, and some super earnings are taxed more than savings outside of retirement.

And that’s before we get to the truly ridiculous part of how seriously rich people in the “retirement” phase pay no tax on their super savings.

Could the government have actually tried to correct the Howard/Costello distortion? No, it’s very difficult. There would be bad press.

A rational universal deduction of 15 percent over the individual’s marginal tax rate would be fair to everyone. However, this will take much more time than Albo indicates.

So we perpetuate an unfair system that favors the rich. This will surprise no one.

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