The payroll tax that dare not speak its name

Hence lifting the SG rate from 9% to 12% in order to increase saving - as the superannuation industry demands, as the Government intends, and as the voters seem to want - is patently worse than lifting the GST rate from 10% to (say) 13.5% for the same purpose. Imagine the political reaction to the latter!

If we must have a tax to finance superannuation contributions, what sort of tax should it be? Friedman again: "In my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago" [interview in the Times Herald (Norristown, PA), Dec.1, 1978],

http://cooperativeindividualism.org/friedman-milton_interview-1978.html.

That's because the land cannot be created or destroyed or moved by the taxpayer, while its value depends not on any activity of the taxpayer, but only on the potential for such activity. Collecting the "tax" doesn't suppress that potential, but rather compels the owner of the land to realize its potential, in order to get income to pay the tax; whereas other taxes reduce economic efficiency, this one enforces economic efficiency.

Indeed, as long as a "tax" on the value of land is kept at a level that doesn't cause the resale price to fall, it is not so much as tax as the withdrawal of an unearned benefit; its effect is to prevent the full privatization of publicly generated increases in the value of the land.

In that case, the "tax" is really the rent on that part of the land value which has not yet been privatized. It is therefore no more distorting than if the government had a stake in the land, just as a private entity - such as a super fund - might have a stake in it.

It follows that if the Commonwealth must intervene to boost retirement incomes, there is no more efficient way to do it than to expand the age pension, and to pay for the expansion by imposing a charge on land values - presumably with an exemption for residential land owned and occupied by persons of pensionable age, in order to avoid churning. All other savings - including superannuation - would be purely voluntary.

When that happens, Wile E. Coyote will catch the Road Runner, Tweety Pie will go down the hatch and James Bond will get lasered in half from the crotch upward.

With more than $1.2 trillion worth of assets under management, and with its very own payroll tax with which to buy up more and more of the asset classes that have traditionally conferred political power, the superannuation industry will soon become, if it has not already become, the most powerful vested interest that has ever existed in this country.

Any attempt to cut off the tax stream will be portrayed by the super funds as an attack on their hardworking members, notwithstanding that the members pay the tax.

Rational but poorly funded arguments against the system will not be able to compete with well-funded, hysterical soundbites in its favour. Compulsory super is here to stay. Indeed, as the clamour for a 12% rate shows, it is here to expand.

So the best we can hope for is that Friedman's "least bad tax" will be used, not to fund the age pension, but to replace the effective payroll tax that funds compulsory super contributions.