There’ll be all sorts of caterwauling when, in Tuesday’s federal budget, the high-income earners’ superannuation tax lurk will be severely dented to the tune of a couple of billion dollars or so. The objectors, many being life-long conservative voters, will declare that they will never vote Liberal again. They will assert that a Liberal government has once again abandoned its principles in order to solve its budgetary problems by adopting the socialist stunt of penalising success and the thrifty in order to reward failure and the indolent. The financial planning industry is already up in arms, lamenting that clients are losing confidence in super as a savings measure because of repeated governmental changes and that more are looking to diminish their assessable assets by paying off debts, spending on an exempt home and gifting to family, in order to qualify for pension payments.

But super is not an open-ended savings measure; the hostile rhetoric is irrelevant and the time for political games has passed. Only a year ago Joe Hockey proclaimed that ‘Only Labor wants to increase tax on super’, but now his successor as Treasurer, Scott Morrison, will on Tuesday set even tougher high-income superannuation constraints than Labor’s stated policy. Removing a tax concession that has been misused in terms of its clear purpose should have been done years ago; it is only possible now because there is a political consensus allied to a sense of fiscal reality. The issue now is whether the debt-hobbled economy will be able to afford to meet a fast-rising pensions bill that is already the budget’s biggest single item. As in most instances when governments interfere in the market place for social engineering purposes, the unintended consequences emerging from super tax concessions are now threatening the future capacity of governments to meet their obligation to provide an adequate (without defining it) basic pension, let alone to supplement retirement savings with part-pensions. This is even though Australians’ super assets are projected to soar from more than $2 trillion to $9 trillion in the next 24 years – with self-managed funds, where the big incomes tend to gather, leading the way. The problem is that an increasing amount of the huge cost of the tax incentives, which are supposed to bring the government the offsetting benefit of a reduced pensions bill, simply don’t do so. For many incomes over $180,000, reducing a 45 per cent tax rate to 15 or even 30 per cent through super contributions, simply results in accumulating more wealth at levels far above the entitlement to a pension, and saving the government nothing whatsoever.

There is nothing philosophically impure about correcting the distortion that has turned the superannuation system into a tax scheme for ‘unlimited wealth accumulation and estate planning’ far beyond retirement requirements. The tax incentives were specifically aimed at funding retirement, full stop. But super has been a monumental policy failure. It has needed radical reform ever since the Keating government’s introduction of compulsory employer-paid universal superannuation in 1992. Instead, it has only been messed about with as governments have applied short-term ‘fixes’ to arrangements involving Australians’ long-term retirement plans. If the basic objectives of ‘self-provision’ were not only to ‘permit a higher standard of living in retirement’, but also to ease the budgetary burden on government and so ‘enable future governments to improve the retirement conditions’ of pensioners, then the failure is self-evident; after 24 years, 80 per cent of Australians still qualify for a government-funded pension on retirement. And this is despite the multi-billions of dollars burden on other taxpayers.

There are plenty of other major problems with super that must also be fixed. The fees that the industry’s many captive employee members are obliged to pay are still far too high compared with overseas, its regulatory system is a shambles, its governance arrangements are of concern, particularly for union-controlled industry funds, and the default membership system is a farce. But the key problem is that for most workers, their super nest-egg will never be adequate and they will still have to depend on the pension to make ends meet. And that is the government’s worsening problem.