David Leyonhjelm (NSW, Liberal Democratic Party) Share this | Hansard source

Taxation is a necessary evil rather than some highly principled act. So, if you think you can arrive at a perfectly designed tax system, you will end up disappointed. That said, there are some rules of thumb that should be followed when designing a tax system. One rule of thumb is that it is better to tax consumption rather than income. For those who want the well-off to pay more tax, taxing consumption does the job just as well as taxing income, if not better, and taxing consumption does less damage than taxing income. If there were no tax, we would choose a mix of spending and saving that was in our best interests. Saving is simply deferred spending. If a consumption tax is imposed, we would pay tax on our immediate spending and then we would pay tax on our savings when we eventually used them to boost our consumption. So the imposition of consumption tax would not change our mix of spending and saving by much.

Income tax is different. Apart from taxing wages, it taxes returns to savings, like interest, dividends and capital gains, and because income tax attacks these returns to savings each year it has a compounding effect. Someone who saves for a long time ends up paying far more tax than someone who saves for a short time or not at all. It is natural then for people to react to income tax by saving less and spending more than they would otherwise in their best interests. As a result, people end up worse off under income tax than they would be under a system that raises the same revenue through consumption tax.

Superannuation is a form of saving: it is putting money away for the day when we are retired and no longer working. It is good that people save for their retirement. If nobody did it, the country would be crippled by the cost of supporting millions of retired Australians. In fact, the more people save for their retirement the less a burden there is on those who are still working. The taxes on those still working can be lower, making it easier for them to save for their retirement.

We recognise this in our superannuation system. Taxes on savings in the superannuation system are lower than taxes on wages. But this differentiation is pretty half-hearted, and, with this bill, it will be even more so. Taxes on superannuation contributions and earnings should be zero. If they must be taxed, they should be taxed as lightly as possible. The right time to tax them is when they are used for consumption. But, over the coming three years, we can expect more than $30 billion of taxes to be extracted from superannuation savings. Some of that will be attributable to the bills before us today. They propose to increase superannuation taxes by more than $5 billion over the coming three years. That represents a tax hike of $70 a year, on average, per Australian.

But, obviously, not everyone will pay them. Even if you think these specific tax hikes will not hurt you, what they indicate is that your superannuation savings are not safe. Eventually, your savings will be attacked because we are governed by big-spending parties that think superannuation is a resource to be plundered. These bills impose a $1.6 million cap on the amount that can be transferred to the retirement phase of superannuation, where earnings are tax-free. This means that earnings on amounts over $1.6 million will now be taxed at 15 per cent even after retirement. Getting to $1.6 million will be made a great deal harder. The bills impose marginal tax rates on annual superannuation contributions in excess of $25,000. They also increase the tax rate on a person's annual contributions up to $25,000 if the person's annual income exceeds $250,000. The bills limit annual contributions to superannuation to $100,000 so that earnings on amounts in excess of $100,000 are taxed at marginal tax rates outside of the superannuation system rather than at 15 per cent inside the superannuation system. The bills also remove an income tax deduction that is currently available to superannuation funds when they pay lump sums because of the death of a member. I oppose all these changes because they lift the taxation of superannuation savings towards our excessively high taxation of wages. I also oppose them because they will inevitably lead to more Australians relying on the pension in their retirement.

With the disincentives, building up your superannuation will be harder and saving more than $1.6 million will not be attractive. Instead, there will be increased spending, leaving more people eligible for the pension as they run down their savings. The opposite should occur. We need more people saving for their retirement so that they do not need the pension. We need to send clear signals that there is nothing wrong with saving and aiming for a prosperous retirement. In public policy terms, fewer people on the pension means reduced government expenditure and a greater chance of balancing the budget—and, of course, more funds available for helping the genuinely poor.

But, amidst all this terrible treatment of Australian savers, I will finish my contribution on a high note. Some proposed changes in these bills will slightly offset the tax hikes. One such change is close to my heart because my lobbying made it happen. It is a rule change to allow people to deduct personal contributions to superannuation, even if their wage income exceeds 10 per cent of their income. This change is estimated to save hardworking Australians $850 million over the coming three years. It is the first tax cut the Liberal Democrats can claim some ownership of, and I am proud of it. I applaud this tax cut and the other small tax cuts in these bills, but I condemn the tax hikes. We need any taxes on superannuation to be far less than our excessive taxes on wages so that fewer of us end up dependent on taxpayer funded pensions when we retire. The major parties should keep their grubby paws off our savings.