The introduction to Cuffelinks Newsletter Edition 280 (15 November 2018) says: ‘Both sides of politics are guilty of misrepresenting the retrospective nature of policy changes.’
This is true. However, these days, behavioural psychology holds sway over rational economic assertions (example: ‘expected losses occasion greater pain than the pleasure from identical expected profits’); how other stakeholders respond to policy changes is instructive in shaping policy.
These include consumers, product and service providers, associated advisers, employers, employees, academic and media commentators and their many lobby groups. Have they upheld the principles they flaunt in opposing retrospective changes?
All policies have some retrospective element
To clarify: this is not a discussion on the legality of such proposals. Retrospective rule-making has been a feature of Australian policy, and for reasons fair and foul, this will continue.
Take the latest furore on banning imputation refunds larger than the tax due. We have been here before: Contribution limits, the dreaded Super Surcharge (not at all a ‘tax’ if you recall the government spin), Reasonable Benefit Limits and their latest offshoot balance caps and event-based reporting.
Even those who reluctantly accept the truism that there is no equity, symmetry or justice in taxation – governments tax you because they can and hope in democracies they would get away with it – baulk at the apparent abuse of applying rules to the outcome of their past conduct.
Reality check: all proposals will have an element of deliberate or inadvertent retro effect as they apply to people who were there before the changes. While the ‘flow’ of tax laws changes, the ‘stock’ balance of people to whom they apply carries on from before.
Until Howard and Costello made them refundable in the dying days of their government using the largesse from the mining boom, while also tax-exempting pensions to those aged 60 and above from taxed funds, excess franking credits were lost. Foreign tax credits have had a similar chequered history. Pensioners then got a whopping bonanza in relation to their accumulated balances as they grow in pension phase. The payouts were also exempt for 60+ olds.
Many benefitted from ‘suffering’ retrospective changes
By any measure, they were retrospective changes as those who had arranged their affairs based on current rules got a windfall they could not have dreamt of. Those who now complain of retrospectivity in the Labor proposal ‘suffered’ all the elements they decry. Equity, logic, symmetry and integrity will all mean they should have complained as loudly and clearly as they do now, when, in the light of the pressure on unfunded age pensions as we live longer, adverse changes were mooted.
There was no protest. Thus the bipartisan political hypocrisy Cuffelinks has correctly identified seems to derive from the wider community, perhaps proving politicians (most, anyway) are human too.
A less tongue-in-cheek observation: political parties in opposition opposing the government for its own sake invariably get a Damascus-like conversion on the way to government. Suddenly they realise that the burden of holding the purse-strings entails unpopular retrospective steps that they had railed against. On cue, roles are reversed. The erstwhile government assumes their strident mantle.
The objective reality is that every tax measure – beneficial or adverse to particular groups – has an equal and opposite short-term effect on the faceless taxpayer, discounting exaggerated claims about fuzzy long-term benefits. While stakeholders and their lobbyists clamour to protect their interests, the lobbyist for the taxpayer in the fiscal short term, by default, is the incumbent treasurer. It gets very lonely at the top of national finance.
That they try to spin their way out of seeming contradictions and distract, with a grandfathering here and an exemption there, is just another shared bi-partisan attribute.
Tinkering versus noble reforms
This is similar to those who complain against constant tinkering of rules, especially in super. Like retrospectivity and beauty, tinkering is in the eye of the beholder or wallet-holder. Using a semantic makeover, changes against us are ‘tinkering’, while others are overdue reform, of course. Lobby associations are good at this.
We can reasonably blame the structural mismatch between having to make long-term policy that affects generations on the one hand, and our short-term electoral cycles which oblige many would-be parliamentarians to pander to prevailing populism. One would have to be a true visionary, Machiavellian or plain foolhardy, to attempt otherwise. Death duties, for instance, would tick most boxes in terms of desirable taxation criteria, but the visceral resistance to taxing the inheritors (which is conveniently conflated with ‘taxing their dead’ benefactors) makes it a ‘no go’ area.
The above is not meant to be critical of valid criticisms against the proposed cut. Those who complain of retrospectivity would be more credible had they consistently opposed retrospective measures – good or bad.
What might work, apart from reiterating the Keynesian rationale that we must change our mind whenever circumstances change?
Policymakers can transparently announce the alternatives they had canvassed before settling on the proposed measure, instead of allowing arbitrary and whimsical discrimination to be alleged. Take the wind out of their sails, as it were.
On the other side, for each submission that critiques proposed revenue measures, we should require the antagonists to recommend alternatives that affect their group to the extent of the tax revenue targeted. Otherwise, each will point fingers at others, as generosity begins and ends elsewhere.
There is truth in the aphorism, ‘Uneasy lies the head that wears the crown’, though the crown itself is often tarnished by self-interest. Like the rest of us.
Ramani Venkatramani is an ex-APRA regulator, now the Principal of Ramani Consulting Pty Ltd. He advises on risk, regulation and retirement outcomes and trains global regulators in supra-national core principles of banking, insurance and pensions supervision, crisis pre-emption & remediation.