Keep raiding our super and you’ll only create a smaller, meaner country

Rumours are swirling that the government may reconsider its superannuation tax changes that will hit those with balances above $3 million with new taxes, including taxing unrealised capital gains.

Abandoning this policy change would be the right call: the supporting rationale for it is weak and largely incoherent.

Yet these changes, and other tax rumours doing the rounds — including perennial favourites like the need to reform the capital gains tax discount or ‘close loopholes’ — indicate the government does not appreciate scale of the economic and other challenges facing Australia.

The country faces genuine, serious economic policy problems. The budget is in serious structural deficit. Productivity has stalled. Our tax system heavily taxes productive income earners; especially those on average or above incomes, and companies. Spending is increasingly growing, with depressingly little to show for it.

The ideas being floated (either by government or those hoping the government will be dragged along) to supposedly address these issues are manifestly inadequate.

These ideas are like tax thought bubbles floating around the public square. Much like soap bubbles, once popped they leave almost no trace of their existence.

Worse still, most of the ‘reforms’ being floated are also bad policy ideas.

Labor has taken some of the changes to recent elections, such as restrictions on negative gearing and capital gains tax increases, but the public has decisively rejected them.

And the public was right to rebuff them: they cannot solve the problem of housing affordability that they were proposed to address.

Of course, as we saw with the 20-year saga of the GST, should the government persist with these tax changes it may be possible to wear down the public to the point where it accepts them.

At least the GST was a sound reform. But imagine wasting the political capital of a generation to tweak deductions for negative gearing only to watch house prices continue to rise almost unabated.

Nor can these changes be considered good tax policy.

Despite the claims of the big-government left, the problem with our tax system is not that high income earners are paying too little tax. The problem is that these workers are shouldering almost the entire burden of a tax system that is growing faster than the economy, yet still lagging behind the growth in spending.

At the federal level, tax receipts as a percentage of GDP rose by more than 3% between 2013-14 and 2023-24, and are projected to remain in the mid 25% range for the rest of the decade. Last time receipts were this high (at the high of the mining boom in the mid-2000s) the budget was massively in surplus. Now it is equally massively in deficit.

These aren’t even the only substantial problems that the government is facing. The intergenerational challenges are real too; although again they have been marshalled as evidence of the need for a short term raid on the wealth of older generations.

It is hard to imagine that any serious and long-lasting benefit can come from the policy equivalent of marching into granny’s house and looting her jewellery at gunpoint. Yet here we are.

Moreover, just this week the government highlighted the challenges in the energy space, yet it persists with the pipedream that Australia will somehow become a green energy ‘superpower’ through taxpayers’ subsidies and industry protectionism.

Structural challenges require structural reforms, ie: the level of change that was implemented in the 1980s and 90s, which set up the decades following as a golden age of prosperity for the country.

Yet despite the scale of the challenges confronting us, the public remains remarkably complacent, seemingly unwilling to accept even minor changes to the status quo.

In large part, this is because of the failure of policymakers and institutions to convey the need for reform in a way that is honest and accessible to the public.

The groundwork needed to support structural change of this calibre is substantial. The ideas implemented in the 80s were the patient labour of decades. It is hard to see where the next generation of change will come from.

However, opportunities remain to make substantial gains. Housing reform, education reform, streamlining regulatory processes and even technological advances like AI, are all areas where reforms can provide significant benefit.

We need a mindset shift similar in magnitude to the one that drove the changes in the 80s. We went from a closed and inward-looking society to one open to new ideas and people.But over time, we have reverted to a country seeking the protection of the government.

A classic example is the impulse to suppress and regulate technology like AI. History is littered with examples of attempts to shut out technological advance in favour of protecting jobs.

It doesn’t work. The jobs are lost, but always replaced by more and better jobs.

Meaning we must either embrace the positives of change early, or accept being run over by them later.

In this light it’s easy to see why the government’s supposedly ‘modest’ reforms to superannuation taxation have caused so much disquiet in the public square.

Instead of positioning super in terms of opportunity — for a better retirement, more freedom through personal savings or even bolder options of lifetime income smoothing — this proposal approaches it through the lens of threat: people scamming the system for their personal benefit.

This approach will create a smaller, meaner Australia, one lesscapable of addressing the big challenges confronting us in the 21st century.

Simon Cowan is Research Director at the Centre for Independent Studies.