And you thought your superannuation was safe from a government cash grab? Heh. Treasurer Jim Chalmers says otherwise. And the media is having a field day with his comments. Today, I’ll give you my response to his plans to tax and give ‘purpose’ to how your retirement money is invested.
I’ve been warning about precisely this issue for years, of course. And everyone laughed at me. ‘Super is too sensitive to touch’, or ‘It’ll be too politically unpopular’, they said. But the python that is government always squeezes a little tighter. It’s only a question of how fast.
Of course, I had an unfair advantage in seeing what was coming. By following the fate of pension systems in a long list of different countries where I was forced to put money into them, I can spot the trends others miss. The constant encroachment of government on the pension money they created by offering tax incentives is, well, constant once you face it regularly from a list of governments.
Do you remember the changes to super lump sums? They used to be tax free. But now there are a long list of T&Cs if you want to escape paying tax by getting your money out.
That change in Australia allowed me to tell my readers in the UK about how the same change was coming for them. And recently, that’s looking rather likely, with the UK’s Telegraph headline reading: ‘Scrap tax-free pension lump sum to end surge in early retirement, urges Labour-linked think tank’.
In the UK, Former Prime Minister Gordon Brown changed dividend tax policy for pensions, resulting in a tax grab worth hundreds of billions of pounds to the government. I still get reader mail about it years later. And I’m expecting the same thing to happen in Australia, where dividends are unusually tax incentivised.
But let’s focus on the latest news in Australia. Even if what happens overseas is often a good warning sign of what’s coming next.
This bit of Orwellian double-speak from the treasurer had me grinding my teeth:
‘When I think about how best we can use the budget to support Australians towards a better retirement — one fact stands out.
‘Right now, we’re on track to spend more on super tax concessions than the age pension by around 2050.
‘I’m not convinced that’s a sustainable way to get to our destination — good retirement incomes for more Australians, now and into the future.’
Now, I’m sorry to point out the obvious, especially about a ‘fact’, but super tax concessions are not spent money. This is people’s money, which is not taken away by the government.
Welfare and keeping your own money are completely different things. The fact that the treasurer can’t tell the differenced is a little concerning but does explain a lot.
Not that people haven’t paid tax on the money in their super. They pay by way of corporate tax, GST, and plenty more. And not that they won’t pay tax on it again when they try to spend it via GST and other taxes.
But to classify untaxed money as spent money is just absurd. The ‘fact’ is that they’re completely different.
Secondly, why does the greater ‘spending’ on super than the age pension in 2050 mean super is unsustainable?
Wasn’t the whole point of super that it lightened the load on the age pension by encouraging people to take responsibility for their own retirement?
Isn’t the huge super system relative to the age pension a sign that the policy worked rather than failed? It certainly isn’t a sign that the super system is unsustainable.
In fact, how can a retirement savings system be unsustainable? Only by way of lacking funds, if you ask me. Not by being too big.
Perhaps the treasurer means that his budget is unsustainable without a raid on superannuation funds? That would make more sense…
Of course, any such raid would just increase the need for welfare, which is the same thing, remember? So we’re not really getting anywhere by taxing super…
What about this idea of having the government direct how your super is invested? Giving it ‘purpose’, they’re calling it.
Well, David Murray, who led the 2014 financial services inquiry, did a rather good job of pointing out that it’s inappropriate for the government to direct how members’ own property is invested:
‘It is not the government’s property, it is the members’ property, and we believed at the time that is wrong, and I still do. It is not the government’s money to appropriate.
‘If there are good alternative investments, why is there not superannuation money already in them? The trustees and their managers have the wherewithal to identify good investments for their members to make sure they’re diversified and that they work for members.
‘It’s just not the place of the government to direct members’ money. If you distort the members’ asset allocations, you distort returns and that can only be harmful.’
I’d like to add something he missed in his comments.
The proposed change is for superannuation’s purpose to be redefined from ‘income in retirement to substitute or supplement the age pension’ to ‘the objective of super is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way’.
Let’s leave aside that what Jim Chalmers considers to be ‘dignified’ likely differs rather dramatically from what you and I would consider to be dignified.
The trouble is that ‘equitable’ is a matter of judgement. And, somehow, I don’t think it’s you and I who will be doing the judging.
Helpfully, the government has specified that ‘equitable’ includes the following constraint:
‘Superannuation also needs to fit within the broader fiscal strategy.’
If they come up with a completely mad spending policy, superannuation must be reshaped to fund it?
Whose money is it? The government’s or yours?
Well, given the government created and controls the super system with legislation, I’d say it’s your money in the same sense that a deposit at the bank is yours. (It isn’t.) Which has been my point and warning all along.
The super system is a haunted house with a door that slams shut once you’re inside. You can contribute any time you want but can never leave with your money intact.
A big part of Chalmers’ plan is, I suspect, to require you to invest money in government bonds. Which is a financial advisor’s way of saying that you’ll be giving him the money to spend on welfare, warfare, and fanfare after all. Either via tax or government debt (or both).
But it’s worse than that. As the market historian Russell Napier has been warning since before the inflation spurt, we’re entering an age of financial repression.
Just as wages aren’t keeping up with prices, so too are interest rates falling behind inflation. This means that investing in government bonds is a losing proposition…for investors. For governments, it allows them to inflate away their debt.
This policy will be a stealth tax, a transfer of wealth from the investor to the government, and a scam. Which is why you’ll have to be forced to do it. Hence the idea of government directing people’s super into ‘the broader fiscal strategy’.
The only good news is that, by the time the changes are made, it’ll probably be the other party that gets to spend the money. And when Labor discovers what they spend it on, the mistake will dawn on them.
It’ll be an expensive form of entertainment for you and me to watch their faces. But at least it’ll be entertaining.
Until next time,
Editor, The Daily Reckoning Australia Weekend