Tax on superannuation robs retirees of self-respect by turning them into wards of state, a ploy straight out of the socialist playbook

Sky News AU

8 hours ago

If you earn more than $350 a week and are not yet old enough for retirement, you are classified as a "taxable person" by the Australian government.
The income tax the Australian Taxation Office claws from your pay packet provides services for non-taxable citizens, be they young, old, poor or infirm.
The social compact, in which the nation insures its citizens against misfortune, works well as long as the number of net-contributors and net-recipients remains in balance.
Yet the inescapable fact is that the number of taxpayers relative to the number of non-taxpayers will shrink over the next half century as Australians grow older and fewer future taxpayers are born.
The old-age dependency ratio, which measures the number of people aged 65 and over for every 100 working-age people, is expected to increase from 26.6 per cent to 38.2 per cent by 2062.
This explains why Jim Chalmers is looking to retirement savings rather than income, as he seeks ways to increase government revenue. The $4.4 trillion we have collectively invested in superannuation is too tempting to resist.
The government's plan to extract money from superannuation savings by taxing unrealised gains on investments is partly born out of desperation and partly because taxing and spending are what socialist governments like to do.
The $3 million threshold will fool few. The Treasurer's refusal to link it to inflation means it will eventually apply to most superannuation savers.
Like all forms of taxation, it will transfer wealth from private citizens to the public purse, where it will be spent on the whim of politicians and bureaucrats rather than at the discretion of individuals.
Taxing people's retirement savings is particularly egregious.
Thrifty individuals who forgo spending during their working years to provide for the necessities of old age should be given every incentive to do so.
Every self-funded retiree is one less recipient of public pensions.
Those who accumulate enough capital are more likely to maintain their private health insurance payments and enjoy the added comforts of private aged care homes.
A tax incentive for working-age individuals to save reduces the burden on future generations of taxpayers. When the government pockets that tax, it improves the books in the short term but creates a long-term public liability.
The costs quickly add up. The nominal lifetime cost of paying the average pension is $430,000 for men and $550,000 for women.
When you add to that the average cost of public health in retirement ($140,000 for men, $180,000 for women) and aged care, the case for allowing people to look after themselves becomes clear.
Yet the explicit assumption in Treasury's forecasts is that an expanded welfare state will provide those things.
Treasury's 2023 Intergenerational Report (IGR) frames the ageing population as an inevitable fiscal and economic burden — a "challenge" that will strain public finances, depress productivity, and expand the cost of government services.
In the Treasury's perverse logic, the absence of tax on superannuation savings is branded as an expenditure.
Yet, if we follow this twisted line of thinking and assume that refraining from taxing superannuation is a cost to the state, it must be set against the money the government will save on pension spending.
As the report concedes, while the cost of public pensions is expected to increase by an average of 1.4 per cent of GDP in most OECD countries by the middle of the century, in Australia, it will decrease from 2.3 per cent of GDP in 2022-23 to two per cent in 2062-63.
For this, we must thank the Hawke and Keating Labour governments, who had the foresight to use both carrots and sticks to encourage workers to save for retirement.
Today, 44 per cent of retirees claim the full government pension, while 25 per cent are self-funded.
By 2063, however, those figures are expected to be reversed, as 43 per cent of retirees will be fully self-funded, and only 21 per cent will rely on the state, according to the IGR forecast.
The report misses a fundamental opportunity: to recognise older Australians not as dependants but as contributors.
From the outset, the report assumes that an ageing population means fewer workers, slower economic growth, and ballooning government expenditure on health, aged care and pensions.
It tells us, for example, that government payments for health, aged care, and the NDIS will rise from 6.2 per cent to 10.7 per cent of GDP over the next 40 years.
It forecasts the need to double the size of the care workforce, funded primarily through public outlays.
It fails to explore how those costs might be reduced, or at least better managed, with the right incentives to encourage personal responsibility.
It ignores the potential for Australians of independent means to contribute more directly to their own health and aged care costs if given the freedom and incentive to do so.
There is no meaningful discussion of co-contribution models, private health strategies, or reforms that might allow wealthier retirees to opt out of publicly funded care in favour of private arrangements.
If government policy continues to penalise thrift and reward dependency, we should not be surprised that more Australians turn to the public purse.
The government appears to accept the rise in state dependency as a given. The old are to be cared for, not empowered.
Indeed, this will become a self-fulfilling prophecy if the government discourages people from saving for retirement.
It presents us with a fatalistic vision of a dystopian welfare state, the kind of future Robert Menzies railed against in 1942 Forgotten People radio talk, a world in which an all-powerful State "will nurse us and rear us and maintain us and pension us and bury us".
Menzies's objection to the dependency-driven welfare state was not primarily fiscal or even against the evils of big government.
It was that it robbed individuals of the dignity that comes from paying their way in life and the freedom to strive for something better.
'If the motto is to be 'Eat, drink and be merry, for tomorrow you will die, and if it chances you don't die, the State will look after you; but if you don't eat, drink and be merry and save, we shall take your savings from you', then the whole business of life would become foundation-less,' he said.
If today's Liberal leaders remain true to the principles of their intellectual founder, they will oppose Chalmers' superannuation tax unconditionally.
Taxing paper profits that may never be realised is fundamentally unfair.
Nick Cater is a senior fellow at Menzies Research Centre and a regular contributor to Sky News Australia