THE SOAPBOX: Does the Government think we’re stupid?

As a budding novelist, I love to read a good work of fiction, and on many levels, that’s an appropriate way to describe this latest Federal Budget – a fiction, or more precisely, an artifice. By treating the Budget as a work of fiction, I can then enjoy the parliamentary performance as a play on words.

If we’re supposed to take seriously the noble policy announcements behind some of the announced measures then I may become just a touch cynical. For example, the term ‘high income earner’ (and the equally overused ‘working families’) is a tired political catch-cry that deserves the same fate as ‘Aussie battler’ in the era of John Howard – political oblivion.

If I must treat the Budget as a collection of documents based on fact, then I think Australian voters deserve better. I’m writing of course through the lens of retirement incomes policy, and analysing the impact of the 2009/2010 Budget changes on superannuation savers and retirees.

Despite the hype and motherhood statements delivered by Federal Treasurer Wayne Swan, the Federal Budget is not all that it seems. Yes, the Government announced that single Age Pensioners will receive a well-deserved $32.49 per week increase in income, but will they really? I discuss this Budget ‘swifty’, and many other ‘swifties’ in more detail later.

Delivering a Budget in this economic climate is a challenge. Treasurer Swan had to make some tough decisions in a difficult environment, and he is fortunate to have a highly capable Prime Minister (Kevin Rudd) and Deputy PM (Julia Gilliard), and a bevy of intelligent senior ministers, to support him in this endeavour.

Because of this highly capable team I expected more transparency in this year’s Budget announcements. Dressing up some of the policy measures as ‘improving equity in retirement’, and including statements such as ‘…reducing the disproportionate benefits received by higher income earners who can afford to make larger concessional contributions’, but then concealing other important changes, reeks of political opportunism.

Does the Government really think we’re that stupid?

The Government has made some tough but necessary decisions in many areas, but using political spin to sell new policies, is a con and a politically dangerous strategy.

Political Con No 1: $32 per week increase in single Age Pension

Policy: From 20 September 2009, single pensioners can expect to see an extra $64.98 in their fortnightly Age Pension, which is a weekly increase of $32.49. This Age Pension increase is made up of an additional $30 per week in base pension, and an extra $2.49 a week in a new fortnightly ‘Pension Supplement’. Couples are to receive $10.14 (combined) a week.

The Con: Every six months, in March and September, the Age Pension is adjusted in line with cost of living increases or increases in average wages. The Budget document makes no mention of this six-monthly adjustment when it states that the single Age Pension will increase by $32.49 a week from 20 September 2009. Does this mean that our Age Pensioners are going to miss out on the adjustment in September, which means this Budget increase simply soaks up part of this six-monthly increase. If this is the case, couples on the Age Pension have been particularly conned, because the six-month adjustment would probably be around $10 anyway.

Political Con No 2: Halving of concessional (before-tax) contributions caps

Policy: From 1 July 2009, the annual concessional (before-tax) contributions cap of $50,000 is to be halved to $25,000. While the transitional concessional cap for over-50s of $100,000 is to be halved to $50,000, and then revert to $25,000 from 1 July 2012.

The Con: Before the Budget changes were released, the Government had announced that the concessional cap of $50,000 was to be increased to $55,000 from July 2009. If the Government is sincere about only halving the before-tax limit, the concessional cap should really be $27,500 from July 2009.

Political Con No 3: Non-concessional (after-tax) contributions cap remains unchanged

Policy: The Budget papers state: ‘The annual cap on non-concessional contributions is $150,000 per annum for the 2008 09 financial year and will remain at that level in 2009 10. In the future, the cap will be calculated as six times the level of the (indexed) concessional contributions cap.”

The Con: Before the Budget changes were released, the Government had announced that the non-concessional (after-tax) contributions cap was to increase to $165,000 for the 2009/2010 year, and the bring-forward cap was to increase to $495,000 from $450,000. (If you take advantage of the bring-forward rules, then you can make up to three years of non-concessional contributions in one year, representing your non-concessional cap for the current year and following two years.). By stating that the annual non-concessional cap is to remain at $150,000 the Government has effectively cut the cap by $15,000 for the 2009/2010 year, and the bring-forward cap cut by $45,000. This ‘swifty’ was not mentioned anywhere in the Budget documents, and the deception gets worse – see Political Con No 4.

Political Con No 4: Contribution caps will be indexed

Policy: In the future, the non-concessional contributions cap of $150,000 will be calculated as six times the level of the (indexed) concessional contributions cap of $25,000.

The Con: The contributions caps have not been indexed since they were introduced in July 2007, because the indexation rules (based on movements in average wages) require any adjustment to be at least $5,000 before the caps are increased. The first indexation of the caps was to occur from July 2009 (refer to Political Con No 2 and No 3). Australians have now missed out in three ways:

• the Government has conveniently ignored the existing rules denying Australians the deserved adjustments to the indexed caps

• unless the Government alters the $5,000 increment rule, Australians will be waiting many years before the caps are indexed – a $5,000 increment on a $25,000 benefit represents a 20 per cent increase in wages.

• the non-concessional cap only increases when the concessional cap increases, which means Australians will miss out on both caps.

Political Con No 5: Use of statistics about level of salary sacrificing (voluntary concessional contributions) in Australia

Policy: “It is estimated that the changes will impact on less than 2 per cent of those making concessional superannuation contributions.”

The Con: I simply don’t believe this statistic. The Association of Superannuation Funds of Australia says that its research shows the measure will impact on less than 4 per cent of people who salary sacrifice, so the effect of this policy on Australians has already doubled in one sentence. Even so, I don’t believe the 4 per cent statistic either. Quoting these flat statistics fails to put super contributions in the context of the current economic climate:

• In the past two years, voluntary super contributions have plummeted so if they are basing their statistics on recent years they are grossly underestimating the impact of this measure.

• Australians generally increase super contributions later in life, so 4 per cent of a certain segment of the population is massive. For example, DIY super trustees represent about 4 per cent (800,000) of the population but control 30 per cent of Australia’ superannuation wealth. Let’s hope the Government haven’t annoyed a politically significant group of Australians.

Political Con No 6: Reduction in co-contribution

Policy: The Government is temporarily reducing the superannuation co-contribution matching rate from 150 per cent to 100 per cent for contributions made in 2009/2010, 2010/2011, and 2011/2012 years, and then raising the matching rate to 125 per cent from the 2012/2013 years.

The Con: When did individuals earning less than $60,342 become a high-income earner, if that is the rationale for cutting concessions on super contributions? And where does this policy fit into the broader statement of ‘improving equity in retirement’?

I have more inconsistencies arising from the Budget measures on superannuation and retirement, and I could continue writing for a lot longer, but I think you probably already appreciate my point about political transparency.

Related articles:

1. THE SOAPBOX: Sneaky sneaky – no indexation in co-contribution income threshold for 2 years
2. THE SOAPBOX: Show mercy on contributions caps, for votes’ sake
3. THE SOAPBOX: My top 10 super wish list for Australian consumers
4. THE SOAPBOX: Fair go for retirees and super savers
5. Over-50s contributions cap of $50,000 now permanent, for some