Letter to Respond and Counter Article in the Labor Herald, by Clair March
I am appalled by the malicious, discriminatory tone of the article 5 reasons rich old guys are pillaging your superannuation by Claire Marsh of Hawker Britton, published in the Labor Herald (29 Nov 2015).
Extracted from the article:
“Superannuation is in need of reform to create generational equity
The baby boomers were gifted the opportunity to build their wealth off the back off the most generous government concessions and support enjoyed by any generation in the history of Australia; including free education, a rolled-gold public service superannuation scheme, high income growth, cheap housing, and record low interest rates.
In contrast, Australians now entering the workforce face HECS debt, slower income growth, less generous public superannuation schemes, and significantly higher housing costs. Overall, children of baby boomers are less wealthy, and pay $10,000 more in taxes than their parents did, according to the Grattan Institute.
It’s not fair that older people will become a greater burden on the public purse, yet enjoy tax concessions
As the ageing population peaks and the baby boomer generation begins to retire, their contribution to government revenue declines as their demand on government services across health care, the pension, and aged services increases. Despite entering retirement where they begin to create a greater burden on the public purse, the baby boomers continue to benefit from generous tax cuts, including no tax on super earnings, and tax-free super drawdowns.”
Not only has the author been extremely disparaging towards retirees that she calls baby boomers, her article is seriously factually incorrect, biased, confused and lacking in any logic.
At the outset, she states that the purpose of the article is to address intergeneration inequality in superannuation. However, the paper appears to be about Labor’s plan to increase tax take by lowering the threshold to which tax concessions are available for superannuation contributions and taxing superannuation fund returns in excess of $75,000 at 15%. This is not a policy most people would have a problem with but it certainly has nothing to do with intergenerational inequality in superannuation.
Her first paragraph headed ‘a whole lot of money is going to the wealthiest people’ appears to refer to (a) the 15% tax concession rate applied to additional super contributions which affords a greater saving for those whose income falls in higher tax brackets than for those in lower brackets and (b) concessions on super fund earnings for retired people.
(a)The tax concession on contributions was introduced to motivate people who can to save adequately for retirement. This concession advantages high income earners across generations in saving for retirement over those on low incomes. It has nothing to do with intergenerational inequality.
The only generations that do not benefit from this concession are the baby boomers and those that went before them as this measure was introduced only shortly before they retired. It is people like the author who are likely to be the major the beneficiaries of these concessions.
To restore some equity for low income earners the co-contribution payment needs to be reinstated or a commensurate tax deduction applied if that is possible.
The upper threshold at which this concession cuts out is high at $300,000 and it is also reasonable to lower it, which is what Labor is proposing to do. This latter measure will not improve superannuation for anybody it will just increase the tax take. This could have been said without trying to find someone to demonise.
The earning on super fund earnings are tax free but this concession is of no benefit to the vast majority of retirees who have modest super balances. At current rates of return, the income from their lump sums is unlikely to reach any tax threshold. It would take balances of over a million dollars to come close to the lowest tax threshold. This concession was introduced so that sufficient assets would be preserved for people to be at least partly self-funded for aged-care, as the value of money is often halved every ten years.
These concessions have nothing to do with intergenerational inequality either. If they remain in place they will be available to all following generations.
Labor proposes taxing fund earnings over $75,000.00, to increase tax take, which most people would consider reasonable. Again this could have been said without an illogical and offensive argument that tries to vilify people just because they have grown old.
Defined benefit pensions are paid by partly drawing down some of the money people contributed after tax during their working lives and partly by government top up to a contracted amount.
The money paid in has already been fully taxed. The government pays its contribution with a tax concession, if tax were due, to save the circular exercise of paying money out and recollecting it. This is customary in most western countries.
Any money left in these funds after the person dies reverts to the government. Pensions from these funds are sufficient for people to live as self-funded retirees if they live frugally.
Her second point ‘Superannuation wasn’t meant to build wealth while exploiting tax concessions’ has the entirely false and offensive implication that people who are paying additional money into superannuation are doing something underhanded.
The tax concessions on superannuation contributions were put in place to encourage people who can afford it to save enough money, and if possible, become self-funded retirees. There may have been better ways of doing this but this is the option successive Governments, Labor and Liberal, have given and people availing of it cannot be said to be exploiting anything.
Her statement that, ‘even with the age pension, only 32 per cent of Australians are on track to an Australian Superannuation Funds Association standard for a ‘comfortable’ retirement’ indicates that not a great deal of wealth is being built by these initiatives and surely supports an argument for increasing superannuation contributions and for providing some incentives and support for people on lower incomes to do so.
Superannuation is much more than the ‘Superannuation introduced by Labor to provide income in retirement to supplement the age pension’. Australia’s superannuation schemes were founded in the nineteenth century through deals done with employers by the Labor movement and pre-date the age pension, which only became available after federation, andaim at making as many people as possible self-funded in retirement.
Hundreds of small superannuation schemes existed up to 1992 but were available to only about 50 per cent of the working population, usually Government employees and employees of large Corporations. Contribution rates for these funds were high, up to 30% of after tax income. The benefits accrued were generally sufficient to provide a self-funded, if frugal, retirement for ordinary employees.
The universal compulsory superannuation introduced by Labor in 1992 had a mandatory 3% contribution rate. This was never going to do more than provide a small retirement sum for anyone who did not have other superannuation but it was the beginning of the system we have today which is still inadequate. Unfortunately many employers modified existing schemes to a version of this new scheme which reduce contributions by employers and employees and provide reduced retirement benefits.
If the next generation wants to improve superannuation so that people are at least partly self-funded they need to once again start negotiating through Labor representatives which they have largely stopped doing.
Abusing retired people who have saved considerable amounts of their income for their retirement is as futile as it is nonsensical and offensive.
It is the content and thrust of her third paragraph ‘Superannuation is in need of reform to create generational equity’ that really beggars belief. It is an entirely factually incorrect, malicious rant against baby boomers, (people born between 1946 and the early 1960s) and has little to do with superannuation. According to the author they were gifted the opportunity to build their wealth off the back of the most generous government concessions and support enjoyed by any generation in the history of Australia; including
- free education,
- a rolled-gold public service superannuation scheme,
- high income growth,
- cheap housing, and
- record low interest rates.
Each of these assertions is completely factually incorrect.
1. Free education
Baby boomers did not have free tertiary education. It did not become available until 1975 and it is largely those born after 1960 who benefited from it. People currently over 60, had to pay UPFRONT for their tertiary education unless they were fortunate enough to win scholarships.
In the early 1970s the fees were about $1500 per year at a time when average wages were about $2000. A university degree was for the rich, not the working class. Scholarships were very limited, almost nonexistent for some of the more prestigious occupations and often had to be repaid as a bond on graduation. As a consequence very few baby boomers were able to avail of tertiary education.
Up to the early1980s only about 3% of the population went to University. The majority of baby boomers went to work at age fifteen and any education they received was on the job. They went to work in mines, mills and factories, fields and building sites and built the infrastructure we now take for granted.
Training for banking, nursing and the police force was provided on the job to people who left school at intermediate Certificate level. There were also pathways to accounting and law through on the job cadetships. Even University graduates were in the work force by age 21 unless their courses required five or six years of study. By their years of labour and taxes they have provided the resources and infra structure successive generations enjoy.
The movement of training from the workforce to Tertiary institutions took place in the early 1980s when unemployment rose and there were few positions for school leavers. The baby boomers paid the cost of free tertiary education for increasing numbers of the following generations.
They also supported their children for much longer than previous generations while they obtained tertiary qualifications which gave them greater prestige and higher salaries when they joined the work force than they themselves enjoyed. Many baby boomers are still supporting children doing graduate study well into their retirement.
The change to a HECS system of paying for education when in the work force (Labor 1989) was strongly opposed by baby boomers but the objections were overridden as the participation rate in tertiary education had risen dramatically making it very expensive.
Initial HECS rates were modest and were subsidised by the taxes of the workers of the time, mainly baby boomers. HECS rates rose steeply over the past decade but this increase has been met with little objection from the generation that followed the baby boomers. They opted out of union participation and social protest which weakened the voice of the baby boomers.
s a result there has been a substantial decline in conditions previous generations fought for. However, the fact that HECS does not have to be repaid until a person is earning a reasonable income and can be repaid gradually over many years gives everyone in the opportunity of going to university, something baby boomers did not have. It is up to the next generation to fight to keep HECS rates reasonable.
2 A rolled-gold public service superannuation scheme
There was nothing rolled gold about even the best superannuation schemes for ordinary employees. Most of the people in these schemes, transport workers, teachers, police, nurses and public servants were average wage earners throughout their lives.
They were compulsorily required to contribute up to thirty percent of their income, after tax, over their life time to the schemes which left them with little disposable income. This contribution was to guarantee them a percentage of their income in retirement.
Governments generally failed to make the co-contribution they had guaranteed. When people came to retirement the percentage of income they were entitled to had fallen by about 20% from the original guarantee by a successive reduction of the units to which people became entitled. Most pension systems in Western Europe offer rates of (retirement) payment that are 60% to 80% of previous earnings. In Australia they are around 25% - 30% of average wages.
The superannuation pensions retired people now receive are generally extremely modest, not much above the Aged Pension, and generally below the Australian Superannuation Funds Association standard for a ‘comfortable’ retirement that the writer refers to. As they are only adjusted once a year not twice a year as the Aged Pension is and the rate of the adjustment is less than the full CPI they decline annually relative to Aged pension and average weekly earnings.
Those who had to take their pensions as a lump sum as is the case in some states have lost up to 30% their capital due to pension fund losses in the share market over the past seven years. The returns on their funds have been the lowest in generations, currently about 2%, unlike 12%-18% for previous generations.
There are no tax concessions on their returns. They are so low they fall well below the tax free threshold. The fact that income on fund assets are not taxed in the retirement phase is a measure to try to preserve enough capital so that the person has some funds to pay for aged care.
People who were not eligible to contribute to State or Commonwealth Super schemes had to make their own superannuation savings by whatever means they could, by sheer dent of saving and frugal living and have managed to acquire some assets that will make them at least partly self-funded in retirement.
The advent of general compulsory superannuation allowed them contribute to superannuation schemes and eventually set up self managed funds if they had the money to do so which employees on low wages did not.
3. High income growth
Baby boomers certainly did not have high income growth over a life time. There was a period of growth in the late 70s when the Percentage Wage Increase came in. This benefitted the rich much more than the poor and was start of the wage divide. During the 1980s ‘Age of the Entrepreneurs’ the salaries of bankers and company managers increased disproportionally to those of all other professions and remain elevated.
During the recession of the late 1980s wages stagnated; a large number of people lost their jobs and promotion prospects disappeared. When the recession was over baby boomers were largely considered too old for promotion. Promotion lists were scrapped and a new system introduced that favoured younger employees. Those who had lost their jobs were considered too old for reemployment and many people took work at levels that were well below their skills and previous responsibilities and just eked out a living. People who had left school at sixteen found their professional experience did not count for anything against the demand for tertiary qualifications and they were effectively locked out of their professions. They were usurped by a new generation that was employed at salaries they could only dream of.
4. Cheap housing
People over 60 struggled to buy a family home. They did not have first home buyer grants; before they could get a housing loan they were required to have 10% deposit and until the mid 1980’s the woman’s wage was not considered when applying for a loan. On top of that they paid up to 18% in interest.
The relative cost of a house to wages was not significantly different to what it is now. Take the example of a house purchased in Brisbane in 1977 for $44,000. The male wage at the time was less than $4,000 p.a.
Interest rates were 10.5% later rising to 18%. Today the same house would cost about $500,000, the average wage is $54,000, both wages are counted and interest rates are 5.5%. People lived with second hand furniture, one car, no phone, no take away or restaurant dinners, no holidays etc.
There are fluctuations in the house price cycle but it is acknowledged that average tertiary house prices have risen relative to wages. This is offset by the fact that there are many accessible new estates with modern housing, interest rates are less than half of what they were and the income of both partners is counted towards a home loan.
5. Record low interest rates
This statement suggests that either the author deliberately wishes to mislead her readers or she is has not bothered to check any facts. Any check would have shown that at no time during their working lives did baby boomers have anything like low interest rates let alone record low interest rates. They had record high interest rates relative to those in any other period. Rates went from 10% in the 1970s to 18% in the 1990s.
These were the rates paid by baby boomers for their home loans, while personal loans for cars or furniture were higher still.
The present generation enjoys record low interest rates. However these are disasterous for baby boomers who are trying to live on income from their superannuation savings. The generation before them got returns of up to 18% on their investments. Present retirees get less than 3%. For the writer to make such a patently false statement that could have been easily checked says all there is to say about the quality of the article.
Overall, children of baby boomers are less wealthy, and pay $10,000 more in taxes than their parents did, according to the Grattan Institute.
This statement is arrant nonsense but typical of the irrational statements that emanate from Mr ‘Leaking Tax’ Daley of the Grattan Institute who has been on a fanatical crusade to get tax cuts for high income earners and tax retirees to pay for them.
What is being compared here? With regard to wealth, is it comparing the present wealth of those that are over 60 with that of people who are 35-45 and decrying the fact that additional wealth was accumulated in the twenty year interval? Is it pretending to compare the wealth of baby boomers 20 years ago with that of the present generation? If it did it would not come up with the above statement.
No mention is made of income. It’s as if that is irrelevant; as if the baby boomers have the same income as their children in addition to the envied assets.
The assets such as superannuation lump sums, that baby boomers have, were accumulated to provide them with income for the next 20-30 years and eventually very expensive aged care. They have no source of income other than what they derive from their assets unless they are on the pension. The value of assets is usually halved every ten years which makes it extremely difficult to have sufficient savings to provide for retirement.
In 1970 around $20,000 was considered to be enough money to retire on. The National minimum wage was $40.00per week, a dollar-an-hour. By 1980 it had trebled and it has trebled and trebled again. And it will continue to double and even treble. That’s how inflation works.
The children of baby boomers have incomes that are ten times those of their parents when they were working at the same age and significantly more than they have now. These incomes will double and triple over the twenty or thirty years they continue to work giving them lots of time to acquire assets way in excess of what their parents have. On the other had the assets and the income of the baby boomers will be halved and halved again thought they are likely to run out long before that.
What does it mean to say the children of baby boomers pay $10,000 more in tax than their parents did? Their parents did not earn $10,000p.a. for most of their working lives. Tax rates and tax brackets have been reduced relative those that applied to their parents. If the assertion was that they pay $10,000 more now that would arise from the fact that they have very high incomes and their parents have very low incomes.
This statement seems to have been motivated by malice towards retirees and aimed at what was assumed to be a like-minded audience.
It is not fair that older people will become a greater burden on the purse, yet enjoy tax concessions.
The author must realize that without whatever limited tax concessions the baby boomers have they will be a much greater burden to the purse as fewer will be self-funded and the purse have to pay the cost of their aged care. They have not built the work-houses yet. But they will.
In terms of ‘generational fairness’, this writer fails to see that when the present workers retire they will also have tax concessions to supplement incomes in their final years and will undoubtedly need them given the effort they are making to undermine superannuation. This is called cutting off your nose to spite your face.
What Ms Marsh is advocating here is generational inequality. This rhetoric is not just about robbing the baby boomers and undermining their superannuation it is about undermining superannuation for every generation that is to follow.
It is setting up a framework for generational inequality whereby future generations will have retirement benefits that are inferior to those enjoyed by all previous generations since Federation even those available during the Great Depression.
If it were about reducing intergenerational inequality in superannuation it would have focussed on how people currently in the workforce could better prepare for retirement not on trying to further impoverish those who are already retired.
She would have advocated that the superannuation schemes available to present day employees require greater contributions of their after tax income, as was required of the baby boomers, and that states and governments reintroduce the schemes they had.
Running down retired people’s assets and reducing their pensions will mean that many more people will have to be Government funded for retirement care instead of being self -funded as they now have the possibility of being.
These mounting attacks on older Australians have become unashamedly Fascist. To single out a group of people, assert that they have wealth and privileges that others do not, blame them for the difficulties of the country at large and ask to have measures taken against them amounts to hate speech just as it would if they were singled out by race or religion.
It is sinister behaviour and there has been too much use of it by current political parties as well as by people such as John Grattan and Peter Martin who have an agenda to get tax cuts for high income earners and businesses by taking money off pensioners.
While you cannot make generalisations about any generation as there is as much diversity within generations as there is between them with regards to both assets and attitudes it seems Gen X is allowing too many neo Fascist spokespeople to represent them without challenge.
It would seem that Paul Keating’s parrots have well and truly left the pet shop and are out spruiking policy they don’t understand and a pretty scary bunch of Galas they are.