Australian government divisions re-emerge over tax concessions for ultra-wealthy

By Patrick O’Connor
5 April 2013

Prime Minister Julia Gillard’s proposal to wind back a small part of the multi-billion dollar superannuation tax concessions for high income earners has triggered renewed infighting within the Labor government.

Prominent supporters of former prime minister Kevin Rudd have spent the past week condemning Gillard for waging “class warfare”. Simon Crean, himself a former Labor leader, who was the arts minister before being sacked for triggering last month’s leadership spill, made numerous media appearances to demand the government rule out, ahead of the budget in May, any significant tax increases on superannuation investment earnings. He declared that any such move would be “tantamount to taxing people’s retirement surpluses to fund our surplus”.

Crean refused to rule out the possibility he would cross the floor of parliament to vote with the opposition against Gillard. Rudd backer and former government whip Joel Fitzgibbon also spoke out, declaring that those earning $250,000 a year (the top 3 percent of households) were also “struggling” and should not be stripped of any tax concessions.

These statements were hailed in the financial and Murdoch press. The corporate media is waging a furious campaign for the Gillard government to step up its economic restructuring measures and implement more severe austerity spending cuts (see “Corporate elite presses Australian government to accelerate pro-business restructuring”).

The ultra-wealthy in Australia are adamant that the working class and poor must be made to bear the full burden of the worsening economic crisis, and the related problem of the government’s deteriorating budget deficit. Instead of adjustments to tax concessions, and other budgetary accounting mechanisms aimed at boosting revenues, corporate Australia demands a European-style austerity program, featuring the elimination of entire welfare and social service programs. Preparations are being made to maintain the “international competitiveness” of Australian capitalism by driving down the living standards of the working class to the new low-wage benchmarks within the global economy.

Gillard has rushed to pledge her determination to press ahead with this regressive program. The Labor government is a government pursuing class warfare—not against the wealthy, as Simon Crean has alleged, but bitterly opposed to the interests of the working class. Gillard has collaborated with the trade unions to devastate tens of thousands of jobs in the manufacturing sector, while serving as the handmaiden of the major mining conglomerates and of finance capital as a whole.

The Labor government has rushed to quash concerns within ruling circles over changes to superannuation. Treasurer Wayne Swan and superannuation minister Bill Shorten held a press conference today to announce, well before the May budget, the government’s planned adjustments. From 2014, earnings on superannuation annuities of more than $100,000 a year will be taxed at 15 percent, instead of the existing tax-free system. The new measure is expected to apply to those with more than $2 million in superannuation assets, about 16,000 individuals. The tax is forecast to raise just $900 million over the next four years. This is a doubtful prediction, however, given the ability of high-income earners to minimise their tax by shifting income to different forms of low-tax investments.

Moreover, the new measure will not be legislated before the next election, making it unlikely to ever be implemented, given the expected defeat of the Labor government. The opposition Liberal-National coalition has ruled out any changes to the superannuation tax system.

The Labor government has left untouched the central feature of the current system—a highly regressive flat tax of 15 percent on compulsory superannuation contributions. Currently, employers are required to direct 9 percent of workers’ income to a superannuation investment fund (due to rise to 12 percent by the end of the decade). This compulsory contribution is taxed at 15 percent, regardless of the employee’s income. This means that high income earners, those paying the top marginal income tax rate of 45 percent, receive an effective tax concession of 30 percent.

The various superannuation tax concessions are now worth more than $31 billion a year—the same amount that the government spends annually on the aged pension. According to the Australian Council of Social Services, 17 percent of the tax concessions on super contributions went to the wealthiest 5 percent, while nearly half, 47 percent, went to the wealthiest 12 percent.

The superannuation system, established under the Keating Labor government 20 years ago, is aimed at compelling workers to fund their own retirement, eliminating by stealth the previous expectation that a pension would be provided to all retired workers. The real value of the aged pension has been deliberately driven down to below the poverty line, to act as an “incentive” for the superannuation system.

The current Labor government has also ratcheted higher the level of compulsory superannuation contributions (paid for through the suppression of wages) and raised the retirement age, by two years—the first time this had been done since the introduction of the aged pension in 1909.

The enormous pool of superannuation funds, largely tied to the stock market, has provided the Australian banks and financial institutions with a highly profitable source of accessible capital. The trade unions have also capitalised, jointly operating “industry funds”, in collaboration with employers, that funnel workers’ superannuation money toward specific business enterprises and investments in which the union bureaucracy is the effective part-owner.

The furore within the government over the super system underscores the continued divisions wracking the Labor Party, contrary to Gillard’s attempt to declare a new period of stability and unity following the failed leadership challenge. Murdoch’s Australian even published an op-ed on Wednesday by University of Queensland academic Kenneth Wiltshire, speculating on the prospect of Crean and other Labor MPs splitting to form a new “free market” party, modelled on the Liberal Democrats in Britain.

There are zero issues of principle involved in the Labor government’s internal crisis. Every faction defends the interests of the ruling elite, with only tactical differences emerging over how to press ahead with the agenda dictated by finance capital, in the face of overwhelming opposition among working people. The ruthless policies implemented by the Gillard government are seen by corporate Australia as a mere first step, but they have generated such antagonisms within the population that the government appears headed for an unprecedented electoral rout.

The author recommends:

Australia: Labor and the superannuation industry
[14 June 2010]

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