Ramblings – abolition of the mining tax, superannuation and the long term

So, the Australian mining tax has finally been repealed. The passage came after the Government struck a deal with the Palmer United Party and was supported by the Day/Leyonhjelm block. I suppose that we can call them a block. They generally vote together. 

The passage is a reminder of the need to stand above the daily turmoil. The Government has been forced to compromise since it doesn’t have ultimate unfettered power, but that has been the case for much of the time since Federation. The Howard Government might still be in power if it had not won control of the Senate and consequently found itself able to push through legislation regardless.

The deal came at the price of what is, effectively, an indefinite  deferral of the increases in deductions of compulsory superannuation that were intended to fund longer term retirement incomes. Labor and the Greens have attacked this quite savagely, as you would expect. However, my simple point here is that the business of government does go on.

You would think listening to some of the comments from the business lobby and others that this was not the case. It’s the same type of criticism and commentary Julia Gillard had to deal with when she depended on the New England independents for survival and passage of legislation. It was silly then and is silly now.

What is really important is the longer term impact of the measures being passed. We tend to lose sight of this in the daily cut and thrust. The mining tax itself was no longer very important beyond its role as a political symbol and election issue.

In simple terms, it was a tax designed to extract a share of super profits in a boom now passed. The problem lay in the way that that the then Government hypothecated hypothetical revenue to specific expenditure proposals. The new Government was committed to the tax’s removal, but the real fight was around the future of the expenditure proposals linked to the tax.

All the Government had to do to avoid a fight on the tax as such was to deal with it and associated expenditure items as separate issues. Repeal the tax; whatever the original arguments, it doesn’t make sense. Tick. Now deal with the associated expenditure in a budget context. Instead, the Government locked itself into a trap of Labor’s making by attempting to deal with both sides of Labor’s equation at the same time.

Now we have the effective ending of the Keating vision of a system in which the Government facilitated a compulsory saving program for future retirement needs. Lord knows, I am not a Keating supporter. I have a visceral dislike of the man based on the symbolic drums he banged, as well as my perception of his arrogance. That vision is largely gone now.

So what have we gained?

The Government has gained some extra tax revenue because, If my understanding is correct, more tax will be paid on incomes. I count retention of the low income super contribution as a plus since it appears (again I stand to be corrected) that this addresses a situation in which the current tax on superannuation is higher than the personal tax rate. The abolition of the mining tax may be a small plus as well since it yielded little revenue and was complex.

I do not count retention of the school kids bonus as a plus. This is just another of those patch work quilt of ad hoc welfare measures that fall in the “it seemed like a good idea at the time” category.  Our welfare system does need rationalising and simplification, if not on the lines proposed by Mr Hockey’s Commission of “Audit”. It also needs a fundamental re-think as to rationale. Keeping the school kids bonus does not help the process, although its real importance is not high.

So what have we lost? Obviously I think that we have lost or at least deferred the chance to build  better retirement support system. However, it seems to me that we have incurred two further costs.

The first is that we are going to be paying more in old age pensions. This sees clear, although I couldn't put a number on it. The second is a further erosion in trust in Government at the most basic personal planning level. I think that’s the biggest long term cost.