Taxation of superannuation continues to be a hot-button policy. But it is treated as an isolated component of the tax debate, rather than from the perspective of a means both of encouraging people to ensure their own future and to provide the savings necessary to ensure the economy grows to allow such future income streams.
Today, David Leyonhjelm pointed out that the government’s latest episode of how to tax this savings vehicle is one step forward and another backwards, while Robert Gottliebsen once again draws attention to the excision from punitive new taxes of one privileged group, the most senior public servants – the very ones who are drawing up the policy proposals.
In this debate, as in so many others, the Grattan Institute continues to serve an invaluable purpose in offering policy prescriptions that provide a useful marker in defining what should not be done. Grattan downplays the importance of superannuation pointing out that it comprises only a small share (15 per cent) of total household savings. It draws upon RBA research which shows that the superannuation requirements have resulted in overall savings being increased by 70-90 per cent of the levels collected. This is just as well since, as the RBA also reports, other household savings are dominated by the investment in the family home, which accounts for 60 per cent of total household wealth, with a mean value per household now approaching $600,000.
There is nothing wrong with savings in housing. Housing is also prominent in US household savings (Table B1), though at under 30 per cent rather less so than in Australia. But housing is fundamentally a consumer durable rather than an income producing investment. Moreover, Australia’s stated value of investment in housing contains a component that is derived solely from a government created scarcity value; this stems from land-use planning that rations the amount of land permitted to be built upon for housing. This adds between $200,000 and $300,000 to the value of the median house. In other words, almost half of the value of the assets that comprise 60 per cent of households’ wealth is created by government regulation.
We can opine at length about the knowledge economy, restructuring and so on but the fact remains that economic growth and therefore income levels is fundamentally driven by savings and investments. China’s break-neck growth rate is funded by domestic savings ratios of around 50 per cent of GDP; Japan in its pre-1980 growth pomp had levels of over 40 per cent whereas the increasingly sclerotic OECD countries have savings ratios of 18-25 per cent. Australia is at the high end of this but much of the national savings is funnelled into housing.
Naturally, the savings work better if there is no “guidance” to their direction by governments. In the main this will direct savings to politically determined and unproductive venues. This is seen in the decision by Peter Costello’s Future Fund to invest in AGL’s renewable energy fund. Commenting on this, Costello said, “We invest in it because of the returns. Those returns happen to be guaranteed by government.”
Government actions and policies will almost inevitably result in such redirections that dilute the return from savings (a rare exception being the Japanese post World War II policy which gave tax relief to household savings in the Post Office saving bank which in turn was incentivised to invest in industry rather than housing).
So. We have a government superannuation policy that is confirming the natural proclivity of governments to steal income irrespective of previous statements, juxtaposed on policies that divert the level of savings into areas of low productivity (like tax favoured renewable energy) and into housing that has its value artificially inflated by government policies.
Such measures will tend to reduce the nation’s return on savings and savings in toto with adverse pressures both on future economic productivity and on the incentive individuals in a welfare state have to save for the future. But few politicians care.