Ideas@TheCentre – The Centre for Independent Studies

Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

Why have a superannuation system?

Simon Cowan

06 April 2018 | Ideas@TheCentre

Why have a superannuation system at all?

It’s a question never asked during debates over changes to super, including Labor’s recent proposed changes to franking credits — an issue that was almost completely about the taxation of super in retirement — and its plan to pay super to those on Paid Parental Leave.

The point is not necessarily that we should abolish super in its entirety but that it’s far from clear what the major parties believe the purpose of the system should be. As a result, we are constantly tinkering with the super system for short term effects, without assessing the longer term implications.

While there are good reasons to tax savings concessionally — especially long term savings — our system of compulsory super with its ridiculous fees, progressive marginal tax rates, and balance and contribution caps, is far from an ideal, tax-efficient savings vehicle.

One might argue people would under-save for their retirement if super was not compulsory, but this raises nearly as many questions as it provides answers.

First, because super is a fixed percentage of a worker’s salary, it ignores that people’s savings preferences change over time. Saving for a home, or to fund additional expenses around starting a family, may rightly be a higher preference than retirement saving at certain points in a worker’s life. They may choose to save more in later years, though the system doesn’t let them catch up.

Savings preferences also vary by income level. And those on lower incomes would almost certainly be better off taking their super as additional salary, rather than being forcibly deprived of income to save meagre amounts over their working lives. Is a compulsory system really better than the alternative?

Perhaps more importantly, the paternalistic response of making people save for their own good makes little sense given the role of the age pension. Workers would not be made destitute by a lack of superannuation savings, indeed the median super balance for this generation of retirees is zero.

This suggests, other than measures to improve the tax efficiency of savings, government support for pension alternatives only make sense if they cost taxpayers less than the expected value of the age pension they supplement or supplant. It’s past time to assess new changes to super against these tests.

Tax collectors: when did sinners become saints?

Eugenie Joseph

06 April 2018 | Ideas@TheCentre

It is curious that Australians can be so apathetic about high taxation.

Being still in the final stages of Easter’s chocolate haze, perhaps we should be reminded of the vilifying association of the term ‘tax collectors and sinners’ from the Bible.

But some Australians seem to regard modern-day tax collectors — the government and the Australian Taxation Office — as more Robin Hood than Sheriff of Nottingham.

How has this transformation been possible? Undoubtedly, it is partly due to a growing reliance on redistribution through the tax-transfer system — after all, why bite the hand of government that feeds you. But two other factors may also play a role.

First, there are the ATO’s efforts to be seen to target the ‘bad guys’, aka large multinational firms, as well as others (think mining magnates) who don’t easily lend themselves to the sympathies of average Australians.

Not to mention the ATO’s efforts in recent years to improve its public image, with PR strategies including the gimmicky ‘Alex’, the friendly virtual assistant who pops up on their website, pestering to help you. They’re clearly fans of everybody’s least favourite animated paperclip.

Secondly, the tax system is designed to take your money as stealthily as possible. The withholding system means that government takes your money before it hits your bank account; while other taxes — like GST, payroll tax, tariffs and excise — covertly increase retail prices.

Free market economist Milton Friedman understood that governments couldn’t possibly get away with so much taxation if it wasn’t concealed.

So if we want to hold governments to account for high taxes and wasteful churn in the tax-transfer system, we need to be more conscious of the taxes we are actually paying.

The challenge is how to do this. Perhaps we should look to Hong Kong where individuals are responsible for paying tax on their own salaries, instead of their employers. It is surely no coincidence that Hong Kong also has low rates of personal tax.

One thing is for certain: if virtual Alex turned reality and appeared at our front door demanding our money, we would soon revert to the Biblical view of tax collectors.

Voters keeping our democracy alive

Charles Jacobs

06 April 2018 | Ideas@TheCentre

Our two-party system is broken, Australian democracy is in a ‘parlous state, and the populists are marching on Canberra in their droves. Those are the conclusions being drawn after the release of the latest Australian Election Study (AES) data.

While the structural flaws of the two-party system may have emerged, and the jury is still out on whether Pauline Hanson will one day form government, the assertion that the fundamentals of democracy itself are in decay is somewhat problematic.

The term democracy derives from the Greek ‘dēmokratia’ — the rule of the people. The underlying principle of the concept is that citizens participate in the decision-making process of the state; in the Australian case by electing representatives.

While these representatives and the system that constrains them are in need of review, a closer look at the AES survey reveals that Australians are in fact being more proactive when making political decisions.

Take swing voting for example. The number of people who have always voted for the same party has decreased from 72% in 1967 to just 40% in 2016. Split ticket voting — casting a vote for different parties in the House of Representatives and the Senate — has also risen from 12% in 1987 to 19% in 2016.

What this suggests is that constituents are feeling less compelled to adhere to historic family and class voting loyalties, and are more swayed by policy proposals.

This is reinforced by the fact that 59% of poll respondents viewed policy issues as the primary influence on their voting decision, as opposed to 23% who allocated their vote based on party identity alone.

Moreover, 42% of voters made their voting decision during the 2016 election campaign, as opposed to 23% in 2007. Just 35% made up their minds before the election campaign, compared to the 55% in 2007.

These poll results demonstrate that the core fabric of democracy — the demos — is alive and well. People are not mindlessly ticking the same box they have for 30 years. Rather they are increasingly making decisions based on the issues that matter to them.

So, while Australians are becoming increasingly frustrated by the nature of our political system, it would be unfair to say that they are abandoning the precious democratic principles on which our nation is built.