Brian’s mother, in Monty Python’s Life of Brian told the gathering followers: “He’s not a messiah; he’s just a naughty boy”.
Perhaps the same thing could be said of Treasurer Peter Costello.
His superannuation changes for the general workforce announced this week are another in a line of Howard-Costello decisions on tax and benefits that favour the wealthy, high-income earning and self-employed, and force the long-suffering middle-income wages slaves to foot the bill.
Income tax is now almost optional for a large proportion of self-employed people, especially those over 50 – the baby boomers.
You hardly need to be a financial genius with a complicated computer program to work out the benefits of a self-employed person borrowing $150,000 on June 29, putting it into super and deducting the whole lot against income. Depending on your income you save up to $47,000 in tax, which alone easily pays for the interest on the loan. Moreover, the super fund will probably earn more than the interest in subsequent years.
The closer someone’s earnings get to $270,000 a year and the closer you are to age 57, the better the deal becomes.
Costello has handed the self-employed boomers a richly undeserved jackpot.
This week’s arrangements are more generous that what was announced in the May Budget.
There has not been too much squealing because the jackpot is disguised, and requires some complicated financial shuffling to get. But remember the squeals when the Government gave largish tax cuts to people on more than $70,000 a year and virtually nothing to those under $50,000. Then we were only talking $50 a week or so. This jackpot is a tax cut of up to $900 a week.
The borrowing plan is easy enough for most self-employed boomers who have built up large amounts of equity in their homes.
It gets worse.
The self-employed who sell their businesses can put up to $1.15 million into a superannuation fund, under the arrangements announced this week.
Immediately this would wipe out $47,000 that would otherwise have been collected in capital-gains tax on the sale. And once the money is in the fund, the earnings are taxed at only 15 per cent and once the person hits 60 the whole lot can be pulled out without paying any further tax.
Again it is a richly undeserved jackpot. Going on recent superannuation fund performances of around 10 per cent, the $1 million earns $100,000, on which these people pay just $15,000 in tax rather than the up to $45,000 they might have paid if the proceeds of the business had been invested elsewhere.
Costello has handed some people a $77,000 tax cut, thank you very much.
Further, it may be that some ordinary property investments may constitute a “business” for the new bonanza.
The Treasury paper suggests these changes (including the bits which were announced in May) will cost between $2.2 billion and $2.6 billion a year, and this includes the cost of elimination of tax on superannuation pay-outs to over 60-year-olds.
Joke. It will not take too many acceptors of Costello’s generous tax cuts for the wealthy self-employed to easily blow out this estimate.
The Treasury paper suggests that the cost of allowing business sale proceeds to go into super will cost less than $100 million. That is just 1300 taxpayers taking the full benefit. I bet the queue is longer than that.
This hand-out to the well-off and self-employed follows a 10-year pattern of the Costello-Howard Government.
The health-insurance rebate is enjoyed more by the well-off. Medicare safety net rebates get paid in greater proportion in well-off postcodes. The spouse superannuation deduction and government superannuation co-payments go disproportionately to the well-off – those people well-off enough to throw a few thousand at their spouse’s (usually wife’s) superannuation.
The cut in the top marginal tax rate helped the well-off.
The GST, as a consumption tax, hits wage earners proportionately higher.
And the first-home buyers scheme was another jackpot for the sons and daughters of the well-off who could afford to contribute to the deposit on their children’s new home.
Meanwhile, at the wage-slave end of the economy the taxman is out in force.
Sure, a wage slave can salary sacrifice for super, but must do it while the wage is being earned, not in a lump sum on June 29. And, in any event, the wage slaves often do not have enough to get by, let alone pour money into super. Their super has been stuck on 9 per cent because Howard and Costello abandoned the Keating Government’s plan to increase it to 12 per cent over time. Of course, this week they increased the super for politicians elected since 2004 from 9 per cent to 15.4 per cent.
Every now and then the Government hands back to wage earners some of the tax taken in bracket creep, but not enough. Wages rise and push people into high tax brackets. It is easy pickings for Government. Wage earners have far few deductions.
Costello has often been seen as a messiah of economic management. To his great credit he has kept the Budget in surplus and paid back Labor’s black hole of debt. That has held interest rates down and has undoubtedly helped the less well off and created jobs.
But the “naughty boy” bit is that he should have done it with more fairness and more openness.
The presentation of the scheme for tax-free superannuation pay-outs for over-60s was a con trick. Most wage slaves would not have had to pay any tax under the old arrangements anyway. The new arrangements really only help those with very large super accounts — $1 million plus.
The lack of openness is really naughty. It was highlighted with the High Court’s decision this week upholding Costello’s refusal to release documents about bracket creep and the first home-buyers scheme.
In the absence of those documents and the unlikelihood of us ever seeing the advice on the superannuation changes, it is fair comment to say that Costello’s Treasurership has been an unrelenting boom for the well-off at the expense of wage-earners.
I would happily receive the Treasury documents to prove me wrong.