In fair treatment of assets both parties are dreaming

POPULIST politics works against serious fiscal policy debate.

ACCEPTED wisdom says that the great suburban castle is sacrosanct. We knew this, of course, even yesterday when we pointed out the inequity of people receiving aged pensions while living in houses that lock up millions of dollars in tax-free wealth. And true to form, politicians from both the major parties couldn’t get out quickly enough to tell us we were dreaming. “Let me make it perfectly clear,” said Social Services Minister Scott Morrison, “the government is not considering including the family home in the assets test for the age pension.” Feel the serenity? Labor felt an irresistible political opportunity. “Labor will fight to stop the LNP putting their hands on the family homes of pensioners in Australia,” said Bill Shorten. “The Liberal National government in Canberra is addicted to unfairness.” So goes what passes for a fairness debate in this country of the fair go; where both sides of politics will run for cover before suggesting someone pottering around in a $3 million house ought to draw down some of that value before putting their hand out for taxpayer assistance.

The aged pension is the largest federal spending program, making up about 10 per cent of expenditure and running at $40 billion annually — that’s a Rudd government stimulus package or a National Broadband Network each and every year. With the population ageing and the budget in structural deficit the burden will become increasingly onerous. And we can’t say we weren’t warned. Back in 1991, while plotting from the backbench before seizing the prime ministership, former Labor treasurer Paul Keating put the flesh on the bones of his retirement income policy. “When my generation begins to retire after the year 2010,” he told parliament, “you will be the taxpayers who will have to provide for us. And let me tell you, my generation does not have the frugal habits of our parents, who remembered the Depression. We have lived well. And there are also a lot of us. We will want to retire in the style to which we have become accustomed. If you have to carry us, you will know it.” His dream of universal superannuation has been implemented, up to a point, but the proportion of income channelled into super — gradually topped up through award decisions, in lieu of tax cuts and through mandated employer contributions — has not been sufficient to diminish reliance on the pension.

Mr Keating aimed to change superannuation from “an income tax avoidance scheme for the affluent” to a fair “retirement income arrangement” for most Australians. The ultimate goal was to “replace more of the increasingly onerous tax burden of age pensions with privately funded annuity incomes” that would provide higher retirement incomes than the pension.

There is much to do in this area, including increasing contributions and improving flexibility. But the system will never be fair unless the assets and income tests ensure the wealthy are not dipping into the age pension funds that should be quarantined to provide the best possible retirement incomes to those who need it most. Our exclusive reporting yesterday of National Centre for Social and Economic Modelling research showed 260,000 households with a net worth of more than $3m are receiving annual welfare payments of $800m. There are probably many words you could use to describe this allocation of resources but fair is not one of them. Labor’s own Henry tax review detailed useful reforms in this area that could ensure a fair and equitable treatment of assets.

Controlling expenditure and introducing true fairness into the exchange between tax and payments make up one significant part of the economic challenge, but another major component must be generating growth. On Monday night, when host Tony Jones eventually allowed the discussion to move on to our pre-eminent policy dilemma, Malcolm Turnbull made a good fist of explaining this imperative to ABC television’s Q&A audience. “Everything we do has to be designed to ensure that our prosperity is secure, and that is by being more productive, more innovative, smarter, faster, leaner,” he said. “That is what this budget repair thing is all about — it’s not just about, you know, austerity, it’s not just about paying off debt — it’s about making us a stronger, healthier economy for a better future for all of us.”

That was a broadbrush prescription but it at least sets out the objective. If Tony Abbott and Joe Hockey are to have more success with their second budget they will need to conscript support from the public and the private sector. They will do this more readily if they adopt a positive economic narrative backed up by policy decisions that seek to foster growth. Workplace relations, federalism, taxation and the elimination of red and green tape can all play their role. We have heard some talk but need to see more action. With a low dollar, low fuel prices and buoyancy maintained in equities and the real estate market, now is a good time to shake investment loose and generate growth. Just as a job is the greatest form of welfare available, growth can provide the quickest route to fairness.