All the reasons house prices will keep rising until we wake up

Contrary to popular opinion, the cost-of-living crisis will pass. But the housing crisis will go on worsening unless politicians – federal, state and local – try a mighty lot harder than they have been.

The cost of home ownership took off – that is, began rising faster than household incomes – about the time I became a journo 50 years ago, and is still going. Even the (unlikely) achievement of Anthony Albanese’s target of building 1.2 million new homes by 2029 probably wouldn’t do more than slow the rate of worsening affordability for a while.

You’d think there must be some kind of limit to how much harder it becomes to afford a home of your own, but considering how long it’s been running, it’s difficult to see just how it will come to an end.

It’s the advent of the Bank of Mum and Dad that’s making the rise in prices seem self-sustaining. Housing prices keep rising, but this makes the existing home owners wealthier, giving them greater wherewithal to help their kids afford the higher prices, which keeps those prices rising, rather than falling back to a level young people could afford without a special leg-up.

Small problem: we end up with a country divided between those born into the wealthy, home-owning class and those born into the class where generation after generation has never been able to afford to own the home they live in. Is that the Australia we want to live in?

How on earth did we allow housing prices to rise faster than household incomes for the past five decades, with little reason to hope this gap won’t get ever wider?

By allowing the slow but steady decline in the rate of home ownership – which began in the mid-1970s – to be a problem we’d worry about later. Or worse, to be a problem the politicians only pretended to care about.

I call this the Howard Effect. John Howard takes the credit because he’s the polly who most clearly hinted at the political class’s true lack of concern about declining home ownership.

He was always repeating the line that he had yet to meet a home owner who thought rising house prices were a bad thing. Get it? The number of happy home-owning voters far exceeded the number of unhappy young couples unable to join the club.

But the rise of the Bank of Mum and Dad has changed this calculus. It’s proof of home owners’ dawning realisation that rising house prices are a two-edged sword. They’re not a problem only if you don’t give a crap about your kids.

It’s probably housing’s big part in the cost-of-living crisis that’s finally broken the dam of politicians’ disinterest in housing affordability. What is of lasting significance about the Albanese government’s efforts to speed up the rate of home-building is its shift to seeing blockage on the supply side of the housing market as the key to progress.

Until now, those seeking to do something about the decline in home ownership have focused on the way special tax breaks and pension exemptions add unhelpfully to the demand for housing.

But the misguided notion that its plan to reform negative gearing and the capital gains tax discount played a significant part in Labor’s loss of the 2019 federal election put paid to demand-side solutions.

The great strength of Albanese’s plan is its focus on reforming local government planning and zoning restrictions on the supply of medium and high-density housing in our capital cities.

Tax and pension problems are the responsibility of the feds. Planning and zoning restrictions are the responsibility of the states. As ever, the only way for nationwide state-level problems to be fixed is for the feds to take the lead. And, as ever, the only way for the feds to get the states to make changes is to flash the federal chequebook.

The state governments – NSW in particular – are making genuine efforts to overcome the long-standing NIMBY resistance to higher-density housing.

Great. But if you think fixing the density problem will stop housing prices rising faster than household incomes, you’re deluding yourself. Just as fixing negative gearing wasn’t a magic answer, nor is fixing density.

No problem as big and long-lasting as declining home ownership could be anything other than multi-faceted. Yes, we need to fix the supply side. But yes, we need to fix the demand side as well. And there’s more to the supply side than density, just as there’s more to the demand side than negative gearing.

Last week’s report of its Review of Housing Supply Challenges, by the NSW Productivity Commission, should be read by people in all states.

The report says local councils should lift their game in reducing the inordinate delays in accepting development approvals and in reducing unreasonable demands on builders.

I think government agencies are monopolies and, like all monopolies, they rarely resist the temptation to put their own convenience ahead of their customers’ needs.

As federal Treasury’s sermon on the housing challenge in this year’s budget papers also made clear, the NSW report notes that part of the problem is the inadequacy and inflexibility of our housing industry.

It’s simply not capable of expanding to meet the surge in demand for homes – something that, I suspect, doesn’t worry it greatly. It’s content to respond by “rationing by [higher] price”, a mechanism I explained in last week’s column.

But the NSW report says the housing industry simply doesn’t have enough tradespeople to increase its production. Workers have been lost to the major construction projects, thanks to the surge in state government spending on infrastructure.

This is no doubt right, as far as it goes. It’s certainly true that state governments would do better (and cheaper) if they timed their investment spending to fit with the ups and downs of private sector major construction spending.

But I think the ability to meet shortages of skilled workers simply by bringing workers from overseas when you need them has led the industry to neglect training sufficient apprentices to meet future needs.

Neither this report nor Treasury’s budget sermon acknowledges another possible supply-side problem, the one highlighted by the economists’ great alternative thinker on housing, Dr Cameron Murray. He argues that the developers keep house prices rising by limiting the release of land to fit.

When you look at the broader causes of ever-rising house prices, even the Reserve Bank doesn’t escape responsibility. The central bankers have always argued that housing prices are a consequence of the interaction of the demand for housing and its supply, so nothing to do with them.

Again, that’s true as far as it goes. But it sidesteps the more behavioural possibility that whacking interest rates up and down engenders an “irrational” FOMO – fear of missing out – that helps keep house prices rising when rates are falling and even when rates are rising and could rise further.

If so, that’s yet another reason why the economists need to come up with a better way of limiting demand than just screwing young people with big mortgages.

There’s more to ever-rising house prices than has ever crossed the minds of most economists.

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It's time to dig deep - but not deeper than the taxman expects

I have a request to make of all Australian taxpayers: please give more to charity because you’re making me look bad. Like a cheat, in fact. I’ll explain shortly, but first, a self-interested public service announcement. Hurry, hurry, hurry. You have only the rest of this week to make a tax-deductible donation if you want to get some of it back in your next tax refund.

June 30, the biggest day of the year for the nation’s accountants, is fast approaching. It’s also the most important time of year for the nation’s charities. If you’ve ever made a donation to any of them, I bet they sent you a letter in the last few weeks reminding you how good it would be if you did so again ASAP.

But, as we were reminded by a strategically placed story last week, this is likely to be a bad year for charities. Why? Because in a cost-of-living crisis many of us decide that charity begins at home.

According to polling by academics at the University of Queensland, 78 per cent of people have reduced their donations because of the crisis facing their own budgets.

This is particularly bad timing for those charities that help people having trouble affording food and other necessities, such as the Salvos. The demand for their services has jumped for the same reason people are finding it harder to give. (Yes, the Salvos have “reached out” to me lately. And as I did myself in my uniformed youth, they waved a collection box under my nose.)

Perhaps it’s the accountant in me that makes me particularly attracted to donations that are tax-deductible. As everyone soon learns, you can’t make a profit out of tax deductibility. You can only reduce a cost.

But I like it because it lets me send a bit of taxpayers’ money in a direction chosen by me, not the politicians. The pollies mightn’t give a stuff about the wellbeing of refugees and asylum seekers, but I do. And to some small extent, I can make them kick the tin.

Also last week, purely by chance, I’m sure, we were reminded that, though Australians like to think of themselves as generous, we’re actually tighter than people in other English-speaking countries. Even the Kiwis are more giving than we are.

Which brings me to my beef about donations. Now, I’ve long been a defender of the Tax Office. It does an important job in making sure we pay as much tax as we should. One reason I got out of accounting was because I decided the only interesting part of it was giving tax advice, but I didn’t want to spend my life helping the well-off avoid doing their duty to the community.

But a few weeks ago, I got a letter from the Tax Office, via the myGov website, naturally, that was the strangest I’ve ever had from them. And it really pee’d me off.

The standard form letter said they’d happened to notice that my claim for donations was a lot higher than other people’s, and they were just wondering whether I might possibly have made some mistake.

They hoped I knew you could only claim for donations to outfits that had been awarded tax deductibility. And they hoped I knew I shouldn’t be claiming for any donation for which I couldn’t produce a receipt.

If, on reflection, I realised I had made some terrible “mistake”, I was free to amend my return and thereby, they hinted without saying, avoid possible further investigation and penalty.

But, failing that, there was no suggestion I do anything about their veiled accusation, except, presumably, sit there shivering, waiting for the taxman’s knock on the door.

It may be true, as coppers always say, that if you’ve done nothing wrong you’ve got nothing to fear, but that doesn’t stop you resenting an unwarranted insinuation that you’re dishonest.

What gets me is that, knowing my claim was large, I would have happily included a detailed list with my return, but the taxman made no provision for me to do so. Nor, when he sent his accusatory letter, did he invite me to explain or substantiate my claim.

And I get the feeling that the taxman’s algorithm just found an outsized number and dispatched a letter without further consideration. Did he know that I always make a big claim? Did he allow for the likelihood that people on high incomes can afford to be more generous? Did he note that I’d been a tax agent for many years and so didn’t need reminding of the rules?

Well, I know the taxman doesn’t want to be burdened by any extra information from me, but I’ll give him a heads-up anyway. My claim for this financial year won’t be as big as last year’s, but the one for next year will be a whopper. I’m thinking of setting up a charity of my own. All above board, naturally.

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What a way to start Easter - a plan to smash the nest-egg

Most of us are too young to see it, but a big way the federal government affects our lives is through its system of compulsory superannuation. As you get older and retirement becomes a lot less distant, you begin to realise that the rules of super – and successive governments’ tinkering with those rules – will have a significant impact on the up to 30 years of your life after you stop working.

When the age pension was introduced more than a century ago, many men didn’t live long enough to reach the age of eligibility, 65. But our greater prosperity, improvements in public health and advances in medical science have changed all that.

Although the age of pension eligibility – for women as well as men – has been raised to 67, and no doubt will reach 70 one day, our longevity has increased by more, making it possible, particularly for women, to live up to 30 years in retirement.

But the introduction of compulsory super in the early 1990s now means that people retiring after about 2030 will do so with so much super that their eligibility for the age pension will be between limited and non-existent.

Since the introduction of that new system, almost every government has changed it. Why? Because the new compulsory system was bolted onto an old voluntary system of tax concessions that proved to be far too generous to high-income earners and too mean to lower-income earners.

Everyone knows the age pension costs the government a lot of money. What many don’t realise is that the tax concessions attached to super contributions and to the subsequent earnings on those contributions also cost the government a lot in the form of income tax collections forgone.

So, all the super changes since those made by the Howard government in 2007 (which gave well-off Baby Boomers like me a huge free kick) have aimed to reduce super’s cost to the budget by reducing the tax breaks going to high earners.

Take my word, there’ll be many similarly motivated changes to come. Those made last year by Treasurer Jim Chalmers won’t be the last.

One way to limit the budgetary cost of super is to stress that its sole purpose is to provide people with enough money to live comfortably in retirement. What it’s not meant to be used for is letting people maximise their children’s inheritance (thus widening the gap between rich and poor).

Trouble is, the compulsory super system is designed to deliver people a lump sum of money upon their retirement for them to use as they choose. It’s easy to see this lump sum as your nest-egg, the amount you’ve saved over a lifetime of working.

If so, surely it’s up to me and my spouse to decide how much of that sum we choose to spend on living expenses and how much we choose to leave for our kids? I’m sure many people think the right thing to do is to live as much as possible on the interest and other earnings from the lump sum so the principal can be passed on largely intact.

This is where a proposal of two economists from the Australian National University, professors Andrew Podger and Robert Breunig, comes in.

But first, one insight of “behavioural” economics, borrowed from psychology, is that people can react very differently to the same circumstances, depending on how they’re packaged or, as the psychologists say, “framed”. It’s been shown that surgeons much prefer a 90 per cent success rate to a 10 per cent failure rate.

This, of course, is spin doctoring 101. Reminds me of the story about the bloke who invented death insurance. Didn’t sell many policies until he changed the name to life insurance.

Podger and Breunig remembered that, in the days before compulsory super, it was limited mainly to public servants who ended up with a lifetime pension, most of which could be passed on to a surviving spouse. It never occurred to them that super had anything to do with inheritance.

So, if you want to stop people with super payouts using them (and all the tax concessions that contribute so much to their size) as a vehicle for enriching their kids, why not move to a system where people are encouraged to use their lump sum to buy a lifetime pension.

The amount of the pension would be determined by the size of the lump sum. Some people scrimp and save in retirement because they can’t know when they’ll die, and they’re not sure their money will last the distance.

One great attraction of a lifetime pension is that it shifts this “longevity risk” onto the provider of the pension.

In the jargon of high finance, such a pension is called an “annuity”. You can buy annuities today, but most are for fixed periods, and they’re not popular. To make them more attractive, they’d have to be for life, and this would require them to be backed by the government.

Don’t shake your head. It could happen.

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The budget is rent-seekers central

Last week we got a reminder that, among its many functions, the federal budget is the repository of all the successful rent-seeking by the nation’s many business and other special interest groups. Unfortunately, it added to the evidence that the Albanese government knows what it should do to manage the economy better, but lacks the courage to do more than a little.

Rent-seeking involves industries and others lobbying the government for special treatment in the form of grants, tax breaks or regulatory arrangements that make it hard for new businesses to enter their market or protect them from competition in other ways.

Whenever that rent-seeking involves grants or tax concessions it weighs on the budget. Decades of continuous rent-seeking weigh hugely on every year’s budget, limiting the government’s ability to ensure every dollar of taxpayers’ money is spent to great effect in benefiting all Australians.

For example, a big lump of the feds’ spending on education is devoted to achieving the Howard government’s goal of enhancing parents’ choice of which school to send their kids to. When the callithumpians decide to build their own schools, so their children can be educated without contamination by people of other religions, the federal taxpayer coughs up.

That all this spending on choice leaves the great majority of kids attending public schools that aren’t adequately funded is just an unfortunate occurrence, which we may get around to fixing if we ever have any spare dollars looking for a home.

What you certainly couldn’t do is cut back the money you’re giving the callithumpians. They’d kick up the devil of a fuss and start telling their followers not to vote for you.

When rent-seeking leads governments to make grants to special interest groups, the details of this spending are there to be found in the bowels of the budget papers. Where it leads to some activities getting special tax breaks, Treasury attempts to keep track of these “tax expenditures” in an annual statement.

When it comes to extracting rents from governments, few industries or occupations are better at it than the medical specialists. (That’s not true of the GPs, however. Their Medicare rebates were frozen for years, as part of the former Coalition government’s pretence that it could cut taxes while in no way harming the provision of essential public services.)

Some years ago, a Labor government decided to cut back the Medicare rebate for cataract surgery because advances in technology now meant a surgeon could perform far more operations in a day.

The rest of the medical profession knew what a rort it had become but, under the ethical principle of dog doesn’t eat dog – or maybe, honour among thieves – they stood silent while their eye-surgeon brethren fought dirty to protect their swollen incomes.

They pretended the sky was falling, telling their elderly patients the wicked government had left them no alternative to charging them thousands more in out-of-pocket payments. If their elderly patient didn’t think this was fair, perhaps they might like to have a word with their local federal member, saying how terrible it was to have their lovely doctor treated so badly.

Predictably, the government backed off and the rorting continued.

Last week it was the turn of the chemists. Few industries are so heavily regulated by state and federal governments, all with a view to protecting pharmacists’ incomes. There are limits on how many chemists may set up within an area and, in particular, prohibitions on supermarkets having pharmaceutical sections.

Anthony Albanese and his government have made much of the way their introduction of 60-day medicine prescriptions – as recommended by an expert committee – has saved patients money and helped ease the cost-of-living crisis.

But hang on. Surely, that means chemists receiving fewer dispensing fees from the government? This evil must be opposed. Enter a union more powerful than any workers’ union, the Pharmacy Guild. This iniquity will see shortages of medicine and hundreds of chemists closing down across the land, it assured us.

The government fought back, refuting the talk of shortages and revealing figures showing a surge in applications for new pharmacies in the months following the announcement of the prescription change.

It had already promised to plough back into pharmacies the $1.2 billion it expected to save on dispensing fees. But the guild claimed pharmacies’ losses would be $4.5 billion, and last week the guild negotiated a new deal, which would see the government pouring a further $3 billion into pharmacies over five years.

Also last week, we saw the government releasing the report of the aged care taskforce, chaired by Aged Care Minister Anika Wells, calling for the well-off elderly to contribute more to the cost of their own care.

What was the problem? Wells spelled it out in a speech last June: “We must act now. The Baby Boomers are coming … We are going to need a fair and equitable system to meet the needs of Baby Boomers who, with their numbers and determination to solve problems, have shaken every single system they’ve come across.”

The report argued for the present mechanism used to get more from the better-off, the refundable accommodation deposit, to be replaced by a rental-only system.

But it called for the deposit system to be phased out over five years, and postponed the proposed start of the phase-out to 2030. With all its talk of “grandfathering” – applying the changes only to new entrants to the system – it remains to be seen how keen Albo & co are to take on the entitled Baby Boomers.

Finally last week, the Commonwealth Grants Commission’s carve-up of the proceeds from the goods and services tax for the next financial year was announced, bringing a bad shock for NSW and Queensland, and good news for Victoria and the other states and territories.

It was an unwelcome reminder of the separate, but related, special deal then-treasurer Scott Morrison awarded the West Australians in 2018. So great was the uproar from the other states that they were promised more money to ensure the sandgropers’ special deal left the others “no worse off”.

Meaning? That the West Australians’ successful rent-seeking is costing federal taxpayers from other states a bundle in forgone federal spending.

As the independent economist (and proud Tasmanian) Saul Eslake never tires of demonstrating, the Westies had less than zero grounds for arguing that they were getting a bad deal from the carve-up formula.

The grants commission was set up in the 1930s in response to their congenital paranoia that the rest of Australia was having a lend of them. For as long as they were classed as a “mendicant” state cross-subsidised by Victoria and NSW, they were happy.

But from the moment the growth of their mining industry was so great that they were required to join Victoria and NSW in helping maintain the quality of government services in the other states, it suddenly became yet another plot by those “over east” to do them down.

So, here’s the moral of the story for our weak-kneed federal politicians on both sides. Once you give in to rent-seekers, you’re gone. They won’t give up their ill-gotten gains without a massive, vote-losing fight.

Meanwhile, everyone else wonders why, despite the huge sums you’re raising in taxes, the quantity and quality of the services you’re providing is so poor.

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Don't waste sympathy on self-funded retirees ... like me

You probably haven’t noticed, but I never write about self-funded retirees without adding a pejorative adjective – “so-called” or, better, “self-proclaimed”. As worthy causes go, they’re at the top of their own list, but not high on mine.

One day, a reader took me to task: “Why are you so down on self-funded retirees, Ross, when from what I can see, you’ll be one yourself when you retire?”

Ahem, ah, yes, well... Some explaining to do. If self-funded means you’re so well-off you couldn’t possibly meet the means test to be eligible for the age pension then, yes, I’ll be self-funded. One thing I don’t have to look forward to is waiting on the phone for hours for help from those lovely souls at Centrelink.

In my experience, no one ever tells you they’re self-funded without expecting you to give them a medal. While other people have led spendthrift lives and now expect the taxpayer to support them in old age, I worked hard and saved my pennies, and now I’m getting nothing from the government.

What a good citizen I am. If only other people could be as self-sacrificing as I am. And, by the way, while we’re talking money, since it’s a bit of a struggle without the pension, I was wondering if the government could manage to give me a little something by way of appreciation. Say, a special tax offset for seniors, or easier access to a healthcare card?

What gets me about all this is that it’s just the wrong way round. It’s not the supposedly self-funded who are doing the taxpayer a favour, it’s the pensioners who retire without much in the way of super.

Why’s that? Because so much of any superannuation balance comes not from what you saved, but from the accumulated tax breaks you were given. I guess what many people don’t realise is that you get compound interest not just on what you contributed, but also on the concessions you received, year after year.

Many people retire with quite modest superannuation payouts, which do little to reduce their eligibility for the age pension. According to the Association of Superannuation Funds of Australia, the median balance for people aged 60 to 64 is less than $360,000 for men and less than $290,000 for women.

But people who retire with a super balance big enough to extinguish all or most of their pension eligibility will be getting far more help from the government than someone on the full pension. So, for such people to think of themselves as “self-funded” is delusional.

Consider these figures from Brendan Coates of the Grattan Institute. In 2019-20, the average tax break on earnings received by people with at least $1.6 million in super totalled about $60,000 a year. This was nearly three times the value of the single pension.

It’s not well understood that, whereas the age pension costs the government about $55 billion a year, the annual cost of superannuation tax concessions is almost as large – $52 billion. At the rate we’re going, it won’t be many more years before the super concessions exceed the cost of the pension.

Now perhaps, you understand why, at a time when so many demands are being made on the budget, Prime Minister Anthony Albanese and Treasurer Jim Chalmers have decided to make the super tax breaks less generous for the 0.5 per cent of people with a super balance exceeding $3 million.

According to Coates’ calculations, this will free up about $1 billion a year for use in more deserving causes – decent aged care, for instance. Think about it. Balances of more than $3 million – I couldn’t spend that much money before I died if I tried. Especially because, the older you get, the less inclined you are to do things that cost a lot of money. You could be living it up at the George V Hotel in Paris, but you don’t feel like it.

According to Coates, nearly 90 per cent of the tax breaks go to the wealthiest 20 per cent of retirees. So, the critics are right to describe super as it presently stands as a taxpayer-funded inheritance scheme for wealthy Australians.

It’s only natural for people to aspire to leave their offspring well provided for. What’s not natural is for you to expect other, less fortunate taxpayers to contribute to your kids’ greater comfort.

The trouble with super is that it’s arse-about. The people who have the highest incomes, and thus the greatest ability to save, are given the greatest assistance, while the people with the least ability to save are given little or no help.

Oh, perhaps I should have mentioned it. If these appalling Labor people go ahead with lopping the tall poppies of superannuation, they’ll be aiming their scythe directly at me. Please write to the treasurer and say how terribly unfair this would be.

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Treasury's advice now back in favour with the government

The Coalition’s practice of sacking a bunch of government department heads whenever it gets back to office is clearly calculated to discourage bureaucrats from giving frank advice. Fortunately for us, the Albanese government is not as arrogant.

In my experience, weak managers surround themselves with yes-persons, so their brains – and, as they see it, their authority – aren’t challenged.

Strong managers want frank advice from their experts, so they’re less likely to stuff up. They’re confident of their ability to sift through conflicting advice and pick the best way forward.

This Liberal policy of frightening bureaucrats into keeping their opinions to themselves began when they returned to power in 1996 under John Howard. It was repeated when Tony Abbott got back in 2013, sacking then Treasury secretary Dr Martin Parkinson and various other Treasury-related department heads (narrowly missing Treasury’s incumbent, Dr Steven Kennedy).

Their crime, it seemed, was that they actually believed in the Rudd-Gillard government’s policy of using an emissions trading scheme to limit carbon emissions. Guilty as charged. Like almost all economists, Treasury accepted the scientists’ advice on the science, and believed the best tools for fighting climate change were economic instruments such as “putting a price on carbon”. Labor’s Department of Climate Change was staffed manly by Treasury people.

But the Libs’ peak disdain for the public service came under Scott Morrison who, upon attaining the top job, told the bureaucrats he wanted no advice from them, just diligent implementation of the policy decisions made by Cabinet.

What gave this bunch of not-so-super men (and the odd woman) the arrogance to believe they could govern wisely without the bureaucrats’ policy advice? Mainly, their ability to fall back on the small army of taxpayer-funded, but unaccountable ministerial staffers, mainly youngsters with political ambitions and the willingness to interpose themselves between the minister and the department.

These young punks, who think they outrank the most senior public servants, are generally big on politics, but weak on policy. Which, you’d have to say, was the Coalition cabinet’s “revealed preference”.

The apotheosis of this decadence was revealed in evidence to the robo-debt royal commission last week. Advice sought from an outside law firm, which found that the government’s cost-cutting scheme was unlawful, was paid for but not passed up the line to the minister – presumably because the bureaucrats judged it would not be welcome.

But in a little-noticed part of a recent speech by Treasurer Jim Chalmers, he left no doubt that, under Labor, Treasury’s advice would be sought, and used to improve the government’s decisions. What’s more, Treasury’s ability to convey its views to the public would be enhanced.

Chalmers noted that, even after the government had dealt with the inflation challenge, “we will have to manage a budget weighed down by persistent structural spending pressures”. Doing this required new thinking and deeper thinking, he said.

“It requires us rebuilding the evidence base for policymaking. Because, to get better, more-forward-looking economic policies, we need better, more-forward-looking policy foundations.”

Chalmers revealed six ways in which he will be “rebuilding the evidence base for policymaking”. One was “putting Treasury back at the centre of climate modelling again”, to build on “the new approach to climate risks, costs and opportunities” revealed in last month’s budget papers.

Second, Treasury’s annual statement on “tax expenditures” would be made “more accessible, more useful analysis of what tax concessions are costing the budget” and their effect on the distribution of income between high and low earners.

Economists have long believed that such “tax expenditures” are equivalent to actual government spending in their effect on the budget balance, and should be subject to just as much critical reassessment as actual spending.

But the Libs didn’t agree. Since taxes are evil, anything you do to reduce them must be a good thing, even if the concessions go to some (usually higher-earning) taxpayers and not others. They sought to play down the tax expenditure statement – which hugely annoys the interest groups receiving concessions on such things as superannuation savings, and the 50 per cent discount on taxing capital gains – by renaming it the “tax benchmark and variations statement”. Not anymore.

The third, even more significant change will be the appointment of an “evaluator-general” to regularly and publicly examine the effectiveness of government spending programs. Many programs don’t do much to achieve their stated objectives, but ministers and their department heads are notoriously reluctant to have them rigorously examined, for fear of embarrassment.

But, as first proposed by economist Dr Nicholas Gruen, such a person and their agency would have similar powers and independence to those of the much-feared Auditor-General. This should work, provided governments couldn’t do what Morrison did to the Auditor-General: cut his funding.

The appointment of an evaluator-general is official Labor policy, and has been championed by the assistant assistant treasurer, Dr Andrew Leigh, whose outstanding economic expertise is negated by his failure to align with any Labor faction.

No doubt Leigh will be keen for the evaluator to make use of the latest in evidence-based decision-making, randomised controlled trials.

The point is that one thing Treasury (and the Finance department) should be hugely knowledgeable about – but aren’t – is what policies work, and what policies don’t. An evaluator-general will fill this vacuum.

Fourth, Treasury will work with Finance Minister and Minister for Women Katy Gallagher to “ensure gender considerations are at the core of our work”, building on last month’s “gender-responsive budgeting”.

Fifth, Treasury will produce Australia’s first “national wellbeing statement” next year, which will be “a hard-headed way to gauge progress by recognising that a robust and resilient economy relies on robust and resilient people and communities”.

And finally, Chalmers will step up production of the Intergenerational Report from five-yearly to three-yearly, in the middle year of each parliamentary term. He promises the document will be “depoliticised”.

It’s true that former treasurer Joe Hockey trashed this exercise by turning it into a blatant attack on his Labor predecessors. It was hard to take subsequent reports seriously, especially when they imposed an artificial cap on tax collections over the next 40 years, while letting government spending run wild.

We need the report to be a much more balanced assessment of future budgetary challenges, not just a Treasury tract on the supposed evils of runaway government spending. We need more acknowledgement of the possible effects of climate change on the budget over the next 40 years – a start to which was made in last month’s budget.

And it would be nice if the report lived up to its name by having much more to say about intergenerational equity issues and trends, such as the effect of ever-rising house prices, and the longer-term consequences of the way the Howard government kept stacking the odds in favour of the old at the expense of the young, particularly favouring the self-proclaimed “self-funded retirees” (who never mention the huge superannuation tax concessions they’ve been given, nor that many of them also get a part-pension).

So, well done, Jim. With better advice and a better “evidence base”, now all Labor needs is the courage to stand up to a few powerful interest groups, including those industries that get the relevant union to plead their case in the new-look Canberra.

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How to help the well-off: make their taxpayer assistance invisible

There’s a key principle of economics that’s not widely realised. Economists believe anything that looks like a duck and quacks like a duck must be a duck. Q: When is something that isn’t government spending still government spending? A: when it’s a tax break.

A government can impose taxes and spend the proceeds on achieving some objective – say, helping the retired with their living expenses – or it can achieve the same objective by charging those people less tax than they’d otherwise pay.

Whichever way the government chooses to do it, the effect on the budget balance is the same. And the effect on the people the government’s trying to help should be the same.

The only difference is that the two ways of assisting people appear on opposite sides of the budget. One adds to government spending while the other subtracts from government tax revenue. But, reason economists, this is a distinction without a difference. In principle, it doesn’t really matter.

Which is why economists have long sought to highlight the lack of difference between the two ways of assisting particular people or businesses by referring to special tax concessions as “tax expenditures”.

But though there may be no difference between the two in principle, in practice there’s an important difference. Government spending – on the age pension, for instance – is highly visible. It’s “salient” as psychologists and behavioural economists say.

By contrast, tax concessions – such as those applying to income that’s saved in a superannuation scheme, for instance – are much harder to see.

The practical consequence of this big difference in visibility is that actual government spending is examined carefully each year by the bureaucrats and by the Expenditure Review Committee of Cabinet, whereas all the spending on tax concessions tends to be ignored until someone decides to play around with a few of them.

This relative lack of attention paid to our many tax breaks prompted Treasury many years ago to begin estimating the value of the most important of them and publishing an annual Tax Expenditures Statement.

In 2019, however, the statement’s name was changed to the snappier, more enticing and informative Tax Benchmarks and Variations Statement. What a page-turner.

When the latest statement, for 2021, was published a few weeks ago, Dr John Hawkins, of the University of Canberra – in an earlier life, a senior Treasury official – used an article on the universities’ The Conversation website to explain that the name change reflects the truth that the amount of tax the government forgoes by granting a certain tax concession isn’t necessarily the same as the amount of tax it would regain if it abolished the concession.

Why not? Because when you make certain actions “tax-preferred”, people become more likely to take those actions, whereas when those actions cease to be tax-preferred people become less likely to take them.

But there’s another, less-defensible reason for switching to a title that will make tax expenditures even less visible than they already are. In the main, when governments want to help people in the bottom half of the distribution of incomes, they pay them money or buy things for them. But when governments want to help people in the top half of the distribution, they give them tax breaks.

(Hawkins points to one exception to that rule: the exemption of fresh food from the goods and services tax favours the poor over the rich because fresh food accounts for a higher proportion of the spending of the poor.)

If you’re well-off, and so have to pay proportionately more tax to support government spending to help those not doing as well as you are, it suits you for government spending to be highly visible and regularly scrutinised by politicians looking for ways to save money.

Conversely, it suits you for the support you get from the government to come in the form of tax concessions and thus be hidden from the public’s and the politicians’ view.

Hawkins notes that the biggest annual tax expenditures are: $64 billion because private homes are exempt from tax on any capital gain when they’re sold; $23 billion because the earnings on money in superannuation funds are taxed at a concessional rate; $21 billion because contributions to super funds are taxed at a concessional rate; and $12 billion because capital gains are taxed at only half the rate that income from “personal exertion” (work) is taxed.

Last financial year, the top 10 tax expenditures totalled just under $120 billion, which compares with total actual tax collections by the federal government of $460 billion. This year, 2021-22, the cost’s expected to be $150 billion. That increase of almost a quarter is explained mainly by the boom in house prices and share prices.

While tax expenditures primarily benefit the individual taxpayers who receive them, there’s a flow-on benefit to the industries conducting the economic activity that’s getting favourable tax treatment.

One stand-out is the property industry – developers, builders and real estate agents – which sees itself as benefiting from negative gearing and the 50 per cent discount on capital gains tax.

Another stand-out is the superannuation industry. It’s selling a product that’s heavily subsidised by the government – apart from the small fact that the government compels employers to buy its product on behalf of their employees.

The super industry has led claims that Treasury’s estimates of the value of tax expenditures are overstated. But Hawkins notes that its estimates of the revenue gained by canning a tax break don’t differ greatly from its estimates of revenue forgone.

A final “benefit” from the near invisibility of tax expenditures is that it allows recipients to delude themselves – and others – that they’re not dependent on government handouts.

John Roskam, boss of the Institute of Public Affairs, has written to correct my memory of an exchange between us more than a decade ago, as recounted in earlier editions of this column. I had written that the institute was “taxpayer-subsidised”. He wrote denying my claim. I replied that, since its donations were tax-deductible, this amounted to a subsidy from the taxpayer. He objected that I didn’t describe other government-supported organisations in this way.

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How Morrison could reward mothers hit hard by the recession

This recession is different in many ways. One is that it has hit female workers harder than male workers. So a good test of the adequacy of Scott Morrison and Josh Frydenberg’s mini-budget on Thursday will be how much it focuses on the needs of women.

Past recessions have hit men a lot harder than women because they’ve been concentrated in male-dominated industries such as manufacturing and construction. In this coronacession, manufacturing and construction have largely been able to continue working while the lockdown has closed female-dominated service industries such as accommodation and food services, retail, arts and recreation.

Recessions always hit part-time and casual workers harder, and these categories too include more women than men. Similarly, recessions always hit the lower-paid harder, and women are generally paid less than men. The imbalance did reduce a lot in June, however, as some service industries have been able to resume trading.

There’s evidence that a higher proportion of employed women than men have been able to work from home, making it even more likely that, when schools have been closed, women have done more of the home schooling. It’s also likely that some women have chosen to work fewer hours so as to mind kids at home.

But the case for the needs of women being front-of-mind in the government’s budgetary response to the recession rests on more than gender fairness. In recessions, governments use their budgets not just to help those who lose their jobs and to bolster the economy at a time when even those who’ve kept their jobs are limiting their spending, but also to give the economy a positive boost. To get things moving again.

Morrison has already started talking about the need for reforms to the structure of the economy to encourage faster growth in the years ahead. (The unmentionable truth is that, in the months before the arrival of the virus, the economy had lost momentum and was growing only slowly. Ending the recession to return to that status quo is not an exciting prospect.)


If Morrison decides to bring forward either or both of the second and third stages of the tax cuts he promised in last year’s budget (presently legislated to take effect in July 2022 and July 2024), it’s a safe bet he’ll justify that not just as giving the economy an immediate boost but also improving incentives for people to work and invest in coming years.

It’s a nice idea. But it’s a nicer idea from the perspective of a well-paid male. From the perspective of less well-paid females, not so much. When the cuts are fully implemented, the income tax I and others on the top tax rate pay will have been cut by 6 cents in every dollar of earnings. Will this motivate me and other high income-earners to work a lot harder than we already do? Oh gosh yes. Please believe that.

By contrast, the total saving for most women working part-time or in typical jobs done by females will be no more than about 1 cent in the dollar. That will motivate no one.

When well-paid men think about reform, their thoughts go immediately to the enticing idea of paying less income tax. They see the world from their point of view and are quick to tell you that any women earning as much as they do will get the same tax cuts they get. Sorry, gender doesn’t apply to the tax scales.

Except that it does when you add in our means-tested social benefits system. As female tax economists have been trying to tell male econocrats and politicians for ages, the one really significant disincentive to working in our tax-and-transfer system applies to mothers (and the occasional house husband) who want to go from working part-time to working full-time.

Naturally, every extra hour they work is taxed. But because eligibility for the family benefit is based on the combined income of couples, they soon find that each extra dollar of wages cuts back the amount of family benefit.

Professor Miranda Stewart, of the University of Melbourne, calculates that “second earners” wanting to work more days a week face an effective marginal tax rate of roughly 90 cents in the dollar. Add the extra cost of childcare and working more days will often leave mothers actually out of pocket. That doesn’t affect incentives?

If Morrison really wanted to change the structure of the economy in a way that, once the recession was behind us, would encourage faster economic growth, he’d drop his tax cuts for high earners and use this opportunity to remove a barrier to women putting their ever-higher levels of education to work in paid employment.

If that’s all too hard, he could do much good for women simply by making permanent his now-abandoned emergency measure of making childcare free. Too expensive? It would cost a lot less than his tax cuts for high (mainly male) income-earners.

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Higher super: good for fund managers, not for workers

Do you have trouble understanding superannuation? Some government backbenchers are urging Scott Morrison to abandon or at least postpone the plan to phase-up the compulsory employer contribution from 9.5 per cent to 12 per cent of salary over the four years to July 2025. Good idea, or another attempt to cheat the worker?

One new backbencher has proposed that, since many low income-earners have a lot of demands on their budgets, super should be voluntary for everyone earning less than $50,000 a year. Whaddaya reckon?

You could be forgiven for being unsure. Super is complicated. You have to understand how it’s taxed and how it interacts with the age pension and its income and assets tests. I sometimes think that, with super, nothing is as it appears.

Take the notion of “employer contributions”. The government is forcing your boss to contribute to your retirement savings on top of the wage you’re paid. You beaut. Bring it on. The more the better.

Trouble is, economists believe that, in the end, it’s not the boss who pays, it’s the worker. How could that happen? Easy. Every time bosses are compelled to increase the rate of their contribution to their workers’ super, they compensate by granting ordinary pay rises that are smaller than they would have been.

After almost 30 years of playing the compulsory super game, that’s what the figures say has happened.

And ask yourself this: if employers really do foot the bill for their contributions to their employees’ super – if they come out of profits rather than wages – why isn’t business complaining loud and long about the plan to greatly increase those contributions?

Once you accept that employees end up paying for “employer” contributions, the question of whether they should be increased can be restated as: would you be happy for your pay to rise by about 2.5 per cent less than it would have over the four years to July 2025? And, ignoring other developments, stay that much lower every year for the rest of your working life?

The rational answer to that question is yes - provided the eventual improvement in my retirement income is sufficient to compensate me for the loss of the other things I could have done with all that money.

Before we consider answering that, here’s another thing that may not be as it appears. Compulsory super is a creation of Labor (and, if you hadn’t noticed, Paul Keating) and the unions. This was done in the belief that future generations would want more than the pension to live comfortably in retirement. Most people would live on a combination of age pension and super.

The Liberals opposed it from the start, saying they didn’t agree with compelling people to save. The Howard government scuttled Keating’s plan to increase compulsory contributions beyond the original 9 per cent.

Then, in 2013, the new Abbott government intervened to delay Kevin Rudd’s plan to get contributions up to 12 per cent by July 2019 – that is, now.

We’re asked to believe that the backbenchers are revolting because Morrison is refusing to abandon or further delay the already-legislated phase-up to 12 per cent by July 2025. But why would he reverse the Libs’ long-held opposition to compulsory super (which, by the way, delivers billions of dollars into “industry” super funds, in which half the trustees are union officials)?

I don’t believe it. Treasurer Josh Frydenberg is preparing to announce a wide-ranging inquiry into the interaction of super, the age pension and taxation. Since the next increase won’t happen until mid-2021, I think Morrison would simply prefer to announce a further curtailment of Labor’s plans in the context of the government’s response to that inquiry.

But why might an independent inquiry recommend against any further increase in the rate of compulsory contributions? Because, despite all the urging from the finance sector-types who make their high-paid living by taking a small annual bite out of every dollar the government forces us to leave in their care, in an unholy alliance with the union movement, the case for higher contributions is weak.

Recent detailed modelling by Brendan Coates, of the Grattan Institute – a non-aligned think tank that’s done much research into super – has found that the planned increase would leave many workers poorer over their entire lifetimes.

They would sacrifice a significantly increased share of their lifetime wages in exchange for little or no increase in their retirement income. Overall, and measured in today’s dollars, the typical worker would lose a cumulative total of about $30,000 over their lifetime, Coates estimates.

He finds that the lowest-paid 20 per cent of employees would be better off, the middle 50 per cent would be worse off, and the highest-paid 30 per cent would be better off.

Why? Partly because super tax breaks are still a lot greater for high income-earners, but mainly because, for workers in the middle, the operation of the age pension assets test would leave them sacrificing immediate income to increase their super payout, only to have their pension chopped back in consequence.

These results make me doubt the wisdom of making super voluntary for low income-earners. Many people are on low incomes not because they’re poor, but because their career is just getting started. It would work against the push for women to end their careers with more super than they do at present.

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Kiwis go one up and bring happiness to the budget

Like the past, New Zealand is a foreign country. They do things differently there. While we’ve just had a budget promising what seems like the world’s biggest tax cut, the Kiwis have just had what may be the world’s first “wellbeing budget”. Bit of a contrast.

I’ve long believed that all government politicians everywhere, when they’re not simply delivering for their backers, are trying to make voters happy and thus get themselves re-elected. They just differ in how they go about it.

Like governments everywhere, our governments of both colours have seen delivering economic growth - and the jobs and higher material living standards it’s expected to bring - as the chief thing we want of them to make us happier.

To this end they’ve adopted as their chief indicator of success the rate of growth in GDP – gross domestic product – which measures the nation’s production of goods and services during a period.
They’ve largely assumed that the extra income produced by this growth is distributed fairly between us - though, in recent decades, the share going to those near the top has grown a lot faster than the shares of everyone else.

This, presumably, is Australian voters’ “revealed preference”, since we’ve just rejected the party promising to cut various tax breaks going mainly to high income-earners and use the proceeds to increase spending on hospitals, schools and childcare, in favour of the party offering tax cuts worth an immediate saving of $1080 a year to middle income-earners and delayed savings of up to $11,640 a year to those of us on $200,000 and above.

According to the Liberal winners, voters in outer suburbs and the regions turned away from Labor because it would have dashed their “aspirations” to one day be earning two or three times what they’re earning today and so be raking it in from family trusts, negatively geared investments and, above all, refunds of unused franking credits.

But if our aspirations to happiness revolve around more money in general and less tax in particular, our cousins across the dutch aspire to a radically different brand of happiness.

According to their Finance Minister Grant Robertson, in his budget speech, New Zealanders were asking “if we have declared success because we have a relatively high rate of GDP growth, why are the things that we value going backwards - like child wellbeing, a warm, dry home for all, mental health services or rivers and lakes we can swim in?

“The answer to that question was that the things New Zealanders valued were not being sufficiently valued by the government . . . So, today in this first wellbeing budget, we are measuring and focusing on what New Zealanders value – the health of our people and our environment, the strengths of our communities and the prosperity of our nation.

“Success is making New Zealand both a great place to make a living, and a great place to make a life.”

According to the nest of socialists who’ve overrun the NZ Treasury, “there is more to wellbeing than just a healthy economy”. So GDP has been moved from its central place, replaced by Treasury’s “living standards framework”, based on the four sources of capital: natural capital (land, soil, water, plants and animals, minerals and energy resources), human capital (the education, skills and health of the population), social capital (the behavioural norms and institutions that influence the way people live and work together) and human-made capital (factories, offices, equipment, houses and infrastructure).

The living standards framework covers 12 “domains”: income and consumption, and jobs and earnings (which two cover GDP), and “subjective wellbeing” (the $10 term for happiness), plus health, housing, knowledge and skills, the environment, civic engagement and governance, time use, safety and security, cultural identity and social connections.

The wellbeing budget then set out five government priorities: improving mental health, reducing child poverty, addressing inequalities faced by Maori and Pacific island people, thriving in a digital age, and transitioning to a low-emission, sustainable economy.

I’ve often thought this would be the right way for governments to go about increasing “aggregate happiness” – by focusing on reducing the main sources of un-happiness.

To make a start, the budget provides almost $1billion over five years to improve the wellbeing of children, including extra funding for low-income schools, more help for children affected by domestic and sexual violence, and indexing family benefits to wages rather than prices.

The budget’s expensive mental health package includes creation of a new frontline service and funds to help people with mild-to-moderate mental health problems rather than making them wait until their problems worsen. Helping people with addictions is also seen as a health issue.

A “sustainable land-use” package works on the environmental challenges facing agriculture, including excess nutrient flows into iconic lakes and rivers.

Despite all this, the budget sticks to the government’s budget responsibility rules, with surpluses forecast and reduction of public debt. According to Saint Jacinda of Ardern, the wellbeing budget “shows you can be both economically responsible and kind”.

So, those uppity Kiwis think they can walk and chew gum at the same time. Fortunately, we Aussies know not to try.

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Economic reform is stalled until politicians get back our trust

For those who care more about good policy than party politics, there are unpleasant conclusions to be drawn from the federal election. The obvious one is that it was a case of policy overreach leading to failure.

The less obvious one is that decades of misbehaviour by both sides have alienated so many people from the political process and turned election campaigns into such a cesspit of misrepresentation and dishonesty that, henceforth, neither side will be game to propose or implement controversial reforms.

The election was lost by the party proposing to remove a long list of sectional tax breaks and use the proceeds to increase spending on hospitals, schools and childcare, and won by the party that couldn’t agree on any major policies bar a humongous tax cut.

The risks to good economic policy are obvious. Labor concludes only a mug would try to get themselves elected on the back of good policy; the Coalition concludes you don’t need to be promising to do anything much to get re-elected.

Labor’s conclusion could be used to reinforce the political class’s widely held view that controversial reforms should only be pursued once in government, never from opposition.

Trouble is, the Coalition’s conclusion could be used to argue that, if you can get re-elected without any plans to fix things, why take the risk of proposing anything that could be unpopular?

But I think the threat to good policy runs even deeper. It comes from the electorate’s ever-growing disillusionment and alienation from politics and politicians, and from the two main parties in particular.

The vote for a changing array of third parties continued to rise, while the primary vote for both the majors was down – though more so for Labor than the Coalition. Until now, the rise of One Nation and other populist parties of the right has been a much bigger worry for the Coalition than the Greens have been for Labor.

This time, however, many former Labor voters in outer suburban and regional electorates used One Nation and Clive Palmer’s United Australia Party as a bridge to switch their vote to the Liberals.

In numerical terms, that’s why Labor lost. The point for good-policy advocates to note is that, when so many voters tune out of the political debate, but are still required to vote, they tend to make a last-minute choice based not on a well-informed assessment of how they would be affected by the rival parties’ policies, but on superficialities (“that nice Mr Rudd” or “Shorten looks shifty to me”), scare campaigns and negative advertising.

In other words, in a world where switched-off swinging voters aren’t even guided by informed self-interest, the scare campaign is king. To be blunt, the best liars win.

The Libs were convinced that former prime minister Malcolm Turnbull came so close to losing the 2016 election because of the success of Labor’s Mediscare campaign, conducted at the last minute using social media.

My theory is that, this time, the Libs resolved to turn the tables. This time they made much superior use of social media to run bigger scare campaigns about Labor’s “retirement tax” and “housing tax”. That was mere misrepresentation of Labor’s policies (most of which had strong support from economists and econocrats). The anonymous soul who dreamt up the “death tax” was an outright liar.

I think the biggest single reason so many outer-suburban and regional voters turned away from Labor was its opponents’ success (with much help from Palmer’s blanket advertising) in convincing those voters that Labor planned to increase their taxes.

My guess is that the next federal election will either see each side battling to out-scare the other – an orgy of lies - or, more likely, neither side being game to propose any reform of consequence, for fear of having it grossly misrepresented by the other side.

The more the bad behaviour of both sides – the broken promises, the hypocrisy, the spin, the abuse of statistics, the preference for bad-mouthing your opponents rather than explaining your policies – continues, the more both sides will turn from substance to empty populism.

And guess what? The more they do, the more voters will disengage and become more susceptible to lies and superficialities.

From the noises Anthony Albanese has been making, everything Labor did was wrong, and every triumphalist Liberal explanation of why Labor lost is right. The trouble with Labor selecting leaders from its Left faction is that they’re so anxious to prove they’re not left wing (which, these days, they aren't) they end up standing for nothing.

It would be nice if, having worked a miracle and established his authority over the Coalition’s warring tribes, Scott Morrison now turns his mind to fixing at least some of the many bits of the economy that need fixing. We can but hope.

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Generational conflict comes to a polling place near you

The most memorable news photo I’ve seen in ages is one from the first School Strike 4 Climate late last year. It shows a young woman holding a sign: MESS WITH OUR CLIMATE & WE’LL MESS WITH YOUR PENSION.

One minute we oldies are berating the younger generation for their seeming lack of interest in politics (although, having arrived on the scene at a time when our politicians are behaving so badly, who could blame them?), the next we’re criticising them for missing a day of school.

When you remember how many days of uni the baby boomers missed with all their marches against the Vietnam war, the odd day off school hardly signifies. (Not that I’d want to discourage the ageing climate-change deniers from criticising the school-dodgers. When you’re growing up, defying adult authority is a big part of the motivation.)

Whenever I get the chance, I have a simple message for youngsters: you’d better start taking an interest in politics because it’s the people who aren’t watching that the pollies end up screwing.

The truth is our young people are interested in political issues, but that interest is unfashionably idealistic. They really care about fairness to the LGBTI community, climate change and the environment more broadly.

They’re not yet sufficiently old and cynical to have realised that politics has devolved into a self-centred free-for-all, where you jump into the ring to advance and protect your own interests at the expense of those with less muscle.

When last my colleague Jessica Irvine expressed support for Labor’s plan to end the refunding of unused dividend imputation credits to all except those receiving an age pension or part-pension, an angry reader accused her of “continuing to fuel the fire of inter-generational envy”.

Sorry, that argument doesn’t wash. It’s one the well-off and their champions have used for ages. What it’s really saying is, “it’s a sin for you to envy the fruits of my greed”.

When people accuse others of “the politics of envy” or inciting “class warfare”, their true message is: I’m winning, you’re losing, so why won’t you just accept it? Just be nice and stop trying to make things fairer.

(Speaking of sin, when last I supported the reform of imputation credits, a reader accused me of “preaching”. Sorry, when your father spent his life preaching two sermons a Sunday, it’s only to be expected. And I’m old enough to regard being likened to my father as a compliment, not an insult.)

Stripping away the religious overtones, there is, always has been and probably always will be plenty of scope for conflict between the generations. The solution is for the generation presently in power
to put its children’s interests ahead of its own (see climate change above).

Almost all of us do this in our private lives (it’s clear a lot of the well-off retired fighting to retain imputation credits are motivated by maximising their kids’ inheritance, and we’re happy for the bank of mum and dad to help our children into home-ownership), but when it comes to public policy we’re easily seduced by politicians seeking our votes with promises of short-term gain for long-term pain.

Not enough people realise that our system of taxes and benefits is explicitly designed to move money between the generations.

People – mainly younger people - with jobs and no kids pay a lot more in taxes (all taxes) than they get back in benefits (whether in cash or kind, such as education and healthcare), whereas families with kids get back a lot more than they pay. Couples whose kids have grown up but who are still working pay more than they get back, and then the retired get back a lot more than they pay.

Since almost all of us will progress through each of these stages, this money-shifting should pretty much even out over our lives. So, until relatively recently, it’s been seen as fair. It’s the basis for the oldies’ eternal sense of entitlement: “I’ve paid taxes all my life . . .”

But this has changed. As our leading independent think tank, the Grattan Institute, has demonstrated, tax changes over the past two decades have been “hugely generous” to older Australians.

“Older households pay $7500 [a year] less in income tax in real terms today than older households 20 years ago, despite high increases in average incomes,” it found. “Taxes on working-age households have risen over the same period.”

Most of this is explained by changes made by John Howard to benefit the alleged “self-funded retirees” (including making unused imputation credits refundable) and similar changes to superannuation tax breaks made by Peter Costello.

Add in Howard’s more favourable tax treatment of negatively geared property investments, and the young are dead right to believe the tax system has been biased against them and in favour of the better-off old (including me).

They’d also be right to see the looming federal election campaign as a battle between one side seeking to reduce the system’s bias against the young and the other fighting to protect the recently conferred perks of the well-off aged.

But a note to outraged Millennials: Howard is no baby boomer and the intended beneficiaries of his munificence were his own and earlier generations. Only some of the world’s evils were installed by my privileged generation.

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How to keep the news coming

If you thought the Australian Competition and Consumer Commission’s latest report on “digital platforms” was about the debatable ways Google and Facebook treat their users, you’re a victim of the news media’s reluctance to bother their audience with the worrying state of their own finances.

The report was really about the effect of digital disruption on what it calls “news and journalistic content”. So great has the disruption been that the day may come when most newspapers cease to exist.

That wouldn’t be quite so terrible if their companies continued to publish news on the internet. But unless they can find a way to make their digital products adequately profitable, it’s possible even this could cease.

At present we get news from two sources almost wholly funded directly by the federal government, the ABC and SBS. But most of the rest of our news comes from commercial businesses: free-to-air radio and television, plus two or three big former newspaper chains, now producers of what the report calls “print/online news”.

We’re so used to this we don’t see how anomalous it is. At one level, the commercial news media are just selling news to make a profit for their shareholders (who, these days, turn out to be mainly everyone with superannuation).

At another level, however, the news they sell us isn’t an ordinary product like soap or cornflakes. We consume news because we find it interesting – even entertaining – but we also need it to keep us informed about what’s going on in the world: what’s happening overseas, what’s happening in the economy, what’s happening about schools, universities, hospitals, law and order, roads, transport and 100 other areas of government responsibility, and what’s happening in the community.

Knowing about all this is of private benefit to you and me, but the fact that we know it is also of social or public benefit to the community as a whole. Each of us would suffer if we were surrounded by people who knew nothing about what was going on.

And imagine how well governments would perform, and elections would work, if we didn’t have the media telling us what the politicians were up to and holding them to account.

I like to say the commercial media also have a “higher purpose”. Journalism academics speak of “public interest journalism”. Fortunately, such anomalies are well understood by economists, including those at the ACCC. They see that news and journalism have the characteristics of a “public good”.

Another strange thing about commercial journalism is that, historically, its customers paid for it mainly indirectly, via the advertising costs built into the prices of the things they buy. That’s obviously true of free-to-air radio and TV, but it’s been almost as true of newspapers, with subscriptions and the cover price covering only a fraction of production costs.

This, however, is what’s disrupted the production of news. First classified advertising moved online, then display advertising and many former newspaper readers. Now about half of all Australian advertising spending has moved online, with Google and Facebook capturing more than half of it and the news media getting just some.

The legacy media used to sell their news in packages, called newspapers or bulletins. But the internet has “atomised” news, with most people searching for news story by story. About half the people coming to news sites do so via Google and Facebook.

The report says news has the two characteristics of a public good: it’s “non-excludable” (you can’t stop people who don’t pay from getting it) and “non-rivalrous” (me knowing about the budget doesn’t stop you knowing about it, in the way me eating an apple stops you eating it).

Public goods are an instance of “market failure”, in that they’re susceptible to “freeriders” (people who leave it to others to pay) and – significantly, in the commission’s mind – because private providers can’t capture enough profit, there’s a high risk they won’t produce as much of the product as would be in the public’s interest.

Sometimes this means governments take over the production of public goods (as they do with public schools and hospitals) or they subsidise the cost of privately produced public goods (as they do with visits to doctors).

The report explores the possible ways the federal government could subsidise news and journalism to ensure its supply is optimal. One way would be a tax incentive scheme, as is done to support local content for film and television.

Or the government could make grants for journalism projects it wished to encourage. But newspaper companies have long rejected any offer of government assistance that could threaten their independence by being withdrawn should they publish news that offended a government.

A better idea would be for private subscriptions to news services to be made tax deductible, just as are donations to charities and even to politically aligned think tanks.

Canada has already taken up the idea. Since deductibility would go to all news outlets that had signed up to industry codes of journalistic standards, and would go directly to customers rather than businesses, it would be hard for politicians to punish individual news organisations.

It’s an idea that could help secure the future of news and journalism.

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Turnbull changes tune for a lower-taxes election

Q: When is a move to increase tax collections not a move to increase taxes? A: When it’s an “integrity” measure.

The overwhelming purpose of this year’s budget has been to portray the Turnbull government as committed to lower taxes – not like those appalling Labor Party people, who want to whack up taxes everywhere.

Hence Scott Morrison’s seven-year plan to cut personal income tax at a cumulative cost of $144 billion over 10 years.

The government’s determination to push on with cutting the rate of company tax for big business is further proof of its commitment to lower taxes.

Trouble is, Malcolm Turnbull’s true conversion to the Down, Down Taxes Down party is rather recent.

Go back to his previous pre-election budget, in 2016, and he was busy increasing taxes to help pay for his 10-year phase-down in company tax.

If you remember, that budget copied Labor’s plan for four years of huge increases in tobacco excise, introduced the Coalition’s version of Labor’s major cutbacks in super tax concessions to high-income earners, introduced its own version of a tax on multinational tax avoiders and a “tax integrity package” establishing a tax avoidance taskforce.

Turnbull also explored the possibility of doing something to match Labor’s plan to curtail negative gearing, but finally decided that doing nothing would make easier to portray Labor as the high-taxing party.

Coming to last year’s budget, the government stuck with its company tax cuts, but still needed revenue. ScoMo announced a new tax on the five major banks and, from July 2019, an increase in the Medicare levy from 2 to 2.5 per cent of taxable income, to cover the rapidly rising cost of the National Disability Insurance Scheme.

This budget included another tax integrity package, which extended the special reporting requirements on payments to contractors and improved the “integrity” of GST payments on property transactions.

Now this year’s budget. This time a “black economy package” involving “new and enhanced enforcement” and further extension of reporting requirements on payments to contractors.

That’s not to mention a once-off draw-forward of duty on tobacco, “better targeting” of the research and development tax incentive, “ensuring individuals meet their tax obligations” and “better integrity over deductions for personal super contributions”.

All told, these “integrity measures” are expected to raise almost $10 billion over four years – though remember that when the tax man (or Centrelink) estimates that a new crackdown on the crackdown will raise $X billion, we have no way of knowing whether that guess proved to be too high, too low or spot on. Hmmm.

That $10 billion compares with the first-four-year cost of the personal tax cuts of $13.4 billion. But something the media has judged far too conceptual to adequately report is the decision not to go ahead with the 0.5 percentage point increase in the Medicare levy.

Deciding not to do something you hadn’t yet done adds to zilch, doesn’t it? Not if you’ve ever heard of opportunity cost. Nor if you know how budgets are constructed. The change of tune worsens the budget bottom line by $12.8 billion over four years – almost doubling the budgetary cost of the actual tax cuts.

It’s not hard to see why Turnbull lost his enthusiasm for securing the funding of the disability scheme. Bit hard to claim to be the champion of lower taxes when, with the other hand, you’re putting ’em up. (Just as long as the punters don’t notice your third hand adding to the tax system’s “integrity”.)

Equally debatable is ScoMo’s claim to be the scourge of bracket creep. Since the disaster of its first budget cured the government of any real desire to cut government spending, its main strategy for returning the budget to structural surplus has been to sit back and wait for bracket creep to do the job for it.

Had the government been travelling better in the polls that might still be its budget-repair strategy, rather than throwing the switch to fanciful fiscal forecasts.

But with bracket creep pushing up tax bills every year since the last tax cuts in 2012, beware of ScoMo playing a three-card trick: cuts that should be regarded as the partial restoration of past bracket creep being packaged as protection against future creep.

As ScoMo’s three-step, seven-year tax plan now stands, the huge proportion of taxpayers still earning less than $87,000 a year would get a tax cut of $10 a week to compensate them for all the bracket creep they will have suffered during the 16 years to 2028-29.

Don’t get me wrong. I think we should be paying higher taxes to cover the ever-better public services we unceasingly demand. The actions of both sides of politics say they agree with me. It’s just their words you shouldn’t believe.

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We'll get a very clear choice at the election

The federal election campaign could be as soon as August and no later than May. So which side is shaping as better at managing the economy?

Sorry, I won’t be answering that question. If you’re smart enough to choose to read this august organ, you’re smart enough to make up your own mind – which you probably already have.

The partisan or tribal approach to politics – if my side’s proposing it, it’s what I prefer – is a common way of economising on thinking time.

But I’m paid to scrutinise the propositions coming from both sides, so let me offer some pointers to help those who do want a better understanding of the choice available.

The first point is one that will be forgotten from the moment the election’s called: the main instrument used to manage the economy through the ups and downs of the business cycle is interest rates (“monetary policy”).

So the day-to-day management of the economy is done not by the politicians in Canberra, but by the econocrats at the Reserve Bank in Sydney. Neither side has shown the least indication of wanting to change this.

It means that, apart from making decisions affecting the activities of particular industries (the banks, the live meat export trade) or such minor concerns as the natural environment, the elected government’s main means of influencing the broader economy is via its budget: the taxes it raises, the things it chooses to spend on, and the gap – the deficit or surplus – it leaves between the two (“fiscal policy”).

It’s now clear the election campaign will focus on taxes and government spending. Rather than sticking to the usual approach of making itself a small target against an unpopular government by saying “me too” to most of the government’s policies, Labor is making itself a big target, with various policies the Coalition has opposed.

So in this campaign we’ll be given a wider choice than usual, with each side conforming more than usually to their left versus right stereotypes. Labor will be promising to spend more on health and education than the Coalition, offering bigger tax cuts than the Coalition (in the first few years, anyway), and promising to reduce deficit and debt faster than the Coalition.

Against this, Malcolm Turnbull has used the big tax cuts announced in the budget to position the Coalition as the low spending, low taxing side, compared to Labor’s big spending, big taxing alternative.

This glosses over the Coalition’s own record on tax and spending, but there is some truth to the characterisation.

Remember, however, that neither side is promising anything but a temporary fix to bracket creep, because neither side is confident of its ability to contain the growth in government spending. So it’s probably closer to the truth to say that, however much Labor taxes and spends, the Coalition will do a bit less.

But how on earth can Labor promise to spend more, tax less and improve the budget balance faster?

Thankfully, we won’t be hearing much of the “Where’s the money coming from?” cry because Labor has a not-so-secret weapon: it has already announced policies to increase tax collections by reducing negative gearing and the capital gains tax discount, further reducing superannuation tax
concessions, taxing family trusts, ending cash refunds of unused franking credits, raising the top income tax rate by 2 percentage points to 49 per cent, and abandoning the cut in the rate of company tax for big businesses.

These measures should increase taxes by about $30 billion over four years and almost $200 billion over 10 years. They’ve been costed by the Parliamentary Budget Office, so there’s also likely to be less campaign argy-bargy over the costing of promises.

Labor has matched the government’s $530-a-year tax cut for middle and above-middle income-earners and raised it to $928. But it’s still considering whether to match the second step of lifting the 32.5 per cent tax upper bracket limit from $90,000 a year to $120,000 in July 2022. It’s unlikely to match the third step of lifting that limit to $200,000 in July 2024.

This tells us that neither side is particularly generous to genuinely low income-earners, and both have an exaggerated impression of where the middle is.

The big difference between the sides emerges for people earning more than $90,000 a year (which is almost 60 per cent higher than the median income), to whom the Coalition is offering much bigger tax cuts – while Labor would actually raise the tax rate on incomes above $180,000, as well as aiming most of its reductions in tax breaks at high income-earners.

So Labor would make income tax more redistributive, whereas the Coalition would make it less so. If that doesn’t offer voters a real choice, I don’t know what would.

But all is not as clear-cut as it sounds. For a start, both sides are engaged in a tax-cut bidding war while the budget is still in deficit with a rising debt. Both sides are relying on the government’s quite optimistic forecasts and projections in the budget. What if they don’t come to pass?

Also, what politicians promise and what they can get passed by Parliament are two different things. As Phillip Coorey of the Financial Review has revealed, the likely composition of the Senate after the election – fewer, but more conservative cross-benchers - should make it easier for the Coalition than for Labor to get its policies into law.

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Will tax cuts boost the economy? Yes - and no

When politicians seek to win elections by promising tax cuts, they invariably cloak the inducement by claiming it will do wonders for the economy. You’re not accepting a bribe, you’re helping improve things for all of us.

Treasurer Scott Morrison has said that next week’s budget will include cuts in income tax for low and middle income-earners – presumably, to be delivered sometime after the next election. Labor will also be promising tax cuts at the election.

According to Morrison: “Lower taxes will further strengthen our economy to create more jobs.”

But can you believe it? In a narrow, immediate sense, yes.

Particularly at a time when the growth in wages is so weak, low and middle income-earners are likely to spend much of any tax cut that comes their way.

Since the tax cut will be unfunded – that is, it will cause the budget deficit to be higher than otherwise – this increase in consumer spending is likely to add to employment.

But that’s not saying much. If the same increase in the deficit was caused by an increase in government spending, that too would create jobs somewhere in the economy.

So it’s a higher deficit, not lower taxes, that does the trick. It does so at the cost of higher government debt and interest payments, which will have to be paid for later.

As a solution to weak growth in wages, it’s a Band-Aid.

But Morrison’s on about more than just giving the economy a temporary kick-along. He’s arguing that lower taxes make the economy grow better, whereas higher taxes slow it down and cause it to malfunction.

Because, as well as its version of a tax cut, Labor has plans to reduce various tax concessions and so increase tax collections overall, Morrison is arguing that whereas his tax plan would improve the economy’s functioning, Labor’s plan would worsen it.

Now, can you believe that? Well, it makes perfect sense to many big taxpayers. Surely higher taxes discourage people from working as much and from saving as much.

But though it seems obvious, the empirical evidence in support of the theory is surprisingly limited, as the former senior econocrat, Dr Michael Keating, and Professor Stephen Bell, argue in their new book, Fair Share.

They say it’s reasonable to suppose that if taxation is increased beyond a certain limit, it could reduce the rate of economic growth and thereby reduce the government’s capacity to pay for its present activities.

However, they say, “there is little evidence to suggest that most countries are close to the limit after which tax increases would impact negatively on economic growth and be counterproductive”.

If you compare all the developed countries in the Organisation for Economic Co-operation and Development over the last 25 years, you find no simple relationship between the level of taxation and their rate of improvement in productivity.

Despite very big differences in levels of taxation as a percentage of the economy, rates of productivity improvement are similar – suggesting worldwide advances in technology are far more influential that tax levels.

As well, the authors say, taxation’s effect on economic growth depends not just its level, but on the “mix” of different taxes (some are better than others) and also on what you spend the tax revenue on. Spending on education and training, innovation and productive infrastructure could be expected to increase productivity.

Next, if we look more directly at the impact of rates of income tax on willingness to work, the evidence of an adverse effect isn’t strong, they say.

Simple observation reminds us that, in Australia and many other countries, where the top “marginal” tax rate has been cut markedly over the past three or four decades (I used to pay 60¢ in the dollar in the early 1980s), there’s been no noticeable effect on participation in the workforce, nor on the number of hours worked by top people.

Formal economic studies reach similar conclusions. Much US research has found that tax has a weak effect on hours worked by those already in jobs, though the effect on decisions to work is a little stronger.

The US research shows male rates of participation and hours worked are especially insensitive to tax rates, with the strongest effects on married women. This is generally supported by the limited Australian research.

And whereas everyone assumes it's people on the highest marginal tax rate who’ll be most affected, research shows the impact is small. The biggest effect is on mothers deciding when to return to work, or whether to move from part-time to full-time.

Why? Because "secondary earners" (including Mr Mums) have more choice than "primary earners".

As for the effect of tax rates on the desire to save, it too is small. Since different ways of saving are taxed differently (a bank account versus superannuation versus geared investments), the main effect of a tax change is on people’s choice of those different ways.

The main reason popular opinion differs so much from empirical reality is that changes in tax rates have two effects, which work in opposite directions.

Economists call the one everyone focuses on the “substitution effect”. Raising the tax on doing an hour of work makes it less attractive relative to an hour of not working (“leisure”). This creates a monetary incentive to work less (or save less, for that matter).

What people forget is the “income effect”. Raising the tax on a given amount of work means it now yields less income. This creates a monetary incentive to work more so as to stop your income falling. (Or save more to stop your savings growing more slowly.)

Whether the substitution effect is stronger than the income effect is an empirical question – it can’t be answered from theory. The income effect is strong when people have targets for how much they want to earn or to save (for their retirement, say).

We’ll spend coming weeks hearing a lot about the disincentive effects of higher taxes. Much of it will be hot air.

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Now for a budget in cloud cuckoo land

Did you hear the news? It’s a budget miracle. Remember all the worry about debt and deficit? Gone. Not a problem. Disappeared. Or, better word – evaporated.

In recent months, revenue has started pouring into the government’s coffers.

According to Chris Richardson, a leading economist from Deloitte Access Economics, the budget’s “rivers of gold” are flowing again. The improvement in the budget has been “humungous”.

And though this year’s budget is still a week away, Treasurer Scott Morrison isn’t denying it.

This time last year, he was telling us another 0.5 percentage-point increase in the Medicare levy – costing about $425 a year to someone on average earnings – was vital to cover the ever-growing cost of the National Disability Insurance Scheme.

Now, however – and thanks to the unexpected miracle – Morrison tells us it won’t be needed.

And far from putting taxes up, he’s discovered there’s room to put them down. The budget will deliver “tax relief to put more money back in the pockets of middle to lower income Australians to deal with their own household and family budget pressures”.

But please don’t think of ScoMo as Santa. Apparently, these tax cuts won’t be humongous. They’ll be quite modest, but they’ll build up over 10 years.

Whether the next election is held this year or in the first half of next year, next week’s budget is safe to be the last before that election.

And there’s little doubt about the ground on which Malcolm Turnbull hopes to fight it: which would you prefer, the tax-cutting, low-taxing Coalition, or tax-raising, high-taxing Labor?

It’s true – sort of. Labor has announced plans to increase tax collections by clamping down on negative gearing and reducing the discount on capital gains tax, by taxing family trusts as companies, by abolishing cash refunds for unused dividend imputation tax credits and by restoring the Coalition’s budget repair levy of 2 per cent of income exceeding $180,000 a year.

As well, Labor wouldn’t proceed with the Coalition’s plan to cut the rate of company tax for big business.

Gosh. But it’s not that simple. Labor does have plans to raise government spending, but these tax measures leave it plenty of scope to offer its own tax cuts to low and middle income-earners. So it plans to raise the taxes mainly of better-off taxpayers, while cutting tax for everyone else.

The main question is whether Labor will content itself with matching Turnbull’s tax cuts, or up the ante.

If all this is sounding too good to be true, it is. Our problem with deficit and debt hasn’t suddenly gone away. What’s departed is the government’s worry about it.

So we seem about to conduct an election in cloud cuckoo land. Let’s forget our financial troubles and have a tax-cut bidding war. Won’t that be a nice change. (And not to worry, we’ll come back to earth after  the election. Mind the bump.)

It’s true there’s been a significant unexpected improvement in tax collections, but much of that’s likely to be a one-off.

It still leaves the budget in deficit this financial year and the coming one, plus the year after, so we return to a paper-thin surplus in 2020-21, as long promised. We still face the prospect of 12 budget deficits in a row, with the net public debt peaking at a bit less than $365 billion, and an annual interest bill of up to $15 billion.

And don’t get the idea that once we finally get back to surplus we’ll be right, with annual surpluses gradually paying down the debt. In his book, Fair Share, written with Professor Stephen Bell, the former top econocrat Dr Michael Keating reminds us that, on the government’s own projections, the budget is likely to stay in surplus for only a few years before falling back into ever-widening deficit.

Although the present deficit is equivalent to less than 1 per cent of gross domestic product, the projections from the Intergenerational report of 2015 see it rising inexorably to 6 per cent – about $108 billion in today’s dollars - over the following 40 years.

Why? Because government spending is almost certain to continue growing strongly, for several reasons. Because of the ageing of the population – the number of retirees is growing much faster than people of working age. Because our demand for more spending on health and education is unlikely to abate. And because, with all its additional benefits, new medical technology gets ever more costly.

To be sure, the projections assume that, within a few years, total federal tax collections are capped at 23.9 per cent of GDP. Take away that cap and the growth in the deficit would be much more manageable.

But that’s the point. With the public’s unquenchable demand for more health and education – and our refusal to countenance major cuts in spending being the sorry story of the Abbott-Turnbull government – taxes must continue to rise. Unless we want to stay in a world of ever-rising public debt.

Remember that in the weeks ahead. The tax-cut bidding war the two sides are about to stage will be for their benefit, not ours. A terrific party, with a bad hangover, intended to distract us from the harsh truth that what we want has to be paid for, one way or another.

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We have a bad case of misdirected compassion

Why do so many of us – and the media, which so often merely reflect back the opinions of their audience – feel sorrier for those who profess to be poor than for those who really are?

Last week, on the day after the single dole was increased by 50¢ to a luxurious $273 a week ($14,190 a year), Malcolm Turnbull’s henchmen succeeded in persuading Pauline Hanson’s One Nation to let him give the down-and-out part of our one nation another kicking. (Sorry, my Salvo upbringing is showing again.)

You’ve heard the news that homelessness is much more prevalent than we thought. According to the Australian Council of Social Service, the Senate’s passing of the Orwellian Welfare "Reform" Bill will, in its first year, add to homelessness by cutting off payments to more than 80,000 people.

The bill contains 17 measures that will adversely affect the lives of thousands of the unemployed, single parents and women and children escaping violence.

You’ve never seen such a list of pettifogging nastiness, yielding tiny savings to the budget.

The unemployed will no longer be back-paid to the day they lodged their claim, meaning the longer Centrelink takes to process that claim, the longer the jobless go without (or have to go cap-in-hand to outfits like the Salvos) and the more pennies the government saves.

Let’s hope it doesn’t make lengthening processing times a KPI.

Until now, the legislation has protected people who can’t complete and lodge their claim because they’re in hospital, are homeless, are escaping domestic violence, or are victims of natural disaster or fire. Sorry, such pathetic excuses will no longer be accepted.

Fortunately, Hanson was shamed into reneging on a commitment to remove a small, one-off “bereavement allowance”.

So, were the media up in arms over this gratuitous attack on people who are already below the poverty line – this “cash grab”?

No, they hardly seemed to notice. Perhaps they were distracted by the bitter tears they were shedding over the plight of all those poor self-funded retirees whose unused dividend imputation refunds the evil Labor Party is threatening to steal.

I’m sure there must be a few retireds with genuine cause for complaint, but I didn’t see any among those whose cries of pain were taken up by a righteously outraged media.

Perhaps the problem is that most political reporters are too young to know how retirement income works. Let’s look at Australia’s most self-pitying and grasping group, the self-proclaimed “self-funded retirees”.

What they mean by this term is that they don’t get the age pension. What they fail to mention to naive reporters is that they don’t get it because they’re too well-off to meet the means test – notwithstanding the best efforts of their investment advisers to rearrange their affairs so they do.

What’s the main reason they’re too well-off to get the age pension? Too much superannuation savings. That’s why I see red every time I hear them claiming to be “self-funded”.

They’ve convinced themselves they’re fiscal heroes who are saving the government a fortune by not getting the pension. Rather, they’ve scrimped and sacrificed for decades to amass the super savings they have.

But they’re deluding themselves on both counts. They conveniently forget that their contributions to super were taxed at 15 per cent rather than their much higher marginal tax rate, as were the annual earnings on those tax-concession-enhanced contributions.

And, since 2007, thanks to Peter Costello (who spent his time as treasurer planting time-bombs in the budget), they’ve paid no tax on their super withdrawals.

As a result, a proportion of their super balance is attributable not to their frugality, but to decades of annual tax concessions, plus compound interest on those concessions.

The higher the payout, the higher the proportion of it attributable to tax breaks rather than actual saving. For most of those with super balances high enough to exclude them from the pension, those accumulated tax breaks would greatly exceed the budgetary cost of that pension, sometimes several times over (as in my case).

That’s being “self-funded”?

Another thing the media’s bleeding hearts (middle-class division) don’t know is that since withdrawals from super are tax-exempt, the money that allegedly self-funded retirees have to live on far exceeds the modest “taxable income” they tell you about.

When they cry poor, these comfortably-off people with their hand out don’t tell you their goal is to get sufficient assistance from the taxpayer to allow them to avoid dipping into the capital value of the shares and property they want to hand on intact to their offspring – who are, no doubt, just as deserving as they are.

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