Wry & Dry

Budget: 3/10

A forest of trees has given its life to the paper upon which the analysis of the budget has been printed.  So W&D will confine himself to two areas of concern

1. Superannuation - a farce in two parts

Whatever they're smoking in Canberra must be high quality stuff.


Artist's impression of the government budget superannuation review task force

W&D will ignore, for this week, the facts that (a) Australians voted for a government in 2013 that vowed not to make any changes to superannuation and that government is still the government; and (b) it is bad policy to make retrospective changes.

More specifically, two appalling decisions compromise what otherwise seems reasonable superannuation changes. But those two shockers will keep an army of accountants and financial advisers in clover for many years.

Firstly, the lifetime limit (backdated to 2007!) of non-concessional superannuation contributions of $500,000 is administratively unworkable, penalises those who haven't had the chance to make decent contributions until later in their working life and, when considered in conjunction with the new $1.6m limit on tax-free pension accounts, is actually going to cost tax revenue.

What were those bozos thinking?

W&D predicts that the government will be forced to change this policy. It is farcical.

Secondly, the lowering of the concessional contribution limit to $25,000 p.a. is not going to allow people to save enough in superannuation upon which to retire adequately. And certainly to never be able to reach the $1.6m tax-free pension limit. This is because most people make most of their superannuation contributions in the short period after their mid-50s. 

In fact, assuming SGC contributions on, say, $80,000 real average salary up to age 50, 4% net real rate of return and the $25,000 concessional contribution limit, by age 60 a person will have a superannuation fund balance of about $675,000 in today's dollars.

Which, depending on individual circumstances, means he/ she may go on the aged pension.

Go figure.

Readers (and W&D) are wondering why the seemingly intelligent Scott Morrison and Kelly O'Dwyer allowed such absurd, counter-productive, de-motivating, expensive, invidious and insidious policies to creep into government policy.

"Treasurer Morrison then realised what had happened with his superannuation changes."

2. Debt

Yes, yes, debt of 20% of GDP (or whatever figure it has been fudged to be) is sort of manageable.  And the spenders will always say, "but it's not as high as [insert a convenient OECD country here]".    

That is not the point.  Those countries don't have a tiny population in a mono-economy (resources) with which it is difficult to trade.

Debt to GDP

Remembering the line: "Socialism is fine until you run out of other peoples' money" [2], the government has failed to curb its addiction to spending.  Like any addiction, it's not a problem at the start, but then it becomes hard to control.  And then the pain of remediation is great.  W&D would suggest that it is better to take a small amount of pain early, than an insufferable amount later.  But more on Greece, later.

And then there is the social cost of the peoples coming to rely more and more on government and less and less on themselves.  Not a good harbinger of prosperity.

Perhaps an alphabetical embarrassment might help.  That is, a credit downgrade from AAA (as warned by Moody's yesterday).