Increasing the preservation age is a significant change since it would, with currently envisaged changes, increase the preservation age from a minimum of 55 to a minimum of 67 years.

Superannuation is a tax which shifts income from early in a person’s life to later.  The need for this forced savings was once seen to be the existence of a publicly-provided ’Age Pension’ which provided disincentives to save. 

Superannuation is not anything close to an ideal arrangement since, without perfect capital markets, it necessarily distorts an individual’s desired lifetime pattern of savings which might include paying early on for lumpy items like housing and children’s education costs. But like many who initially criticised the idea I have come to accept its reality and learnt to live with it. 

It is outrageous that bureaucrats, who promoted superannuation as forced savings, are now seeking to use the resulting accumulated savings to direct people on their retirement age decisions.

The preservation age for superannuation is already scheduled to shift from 55 to 60 years. The ‘Review proposes increasing this to 67 years. A shift from age 55 to age 67 adds 12 years extra time spent in the workforce for people who, if they commenced work at age 20,  might only seek to work for 35 years in total. Potentially this is an enormous slug and an unwarranted intrusion into the intertemporal work-leisure choices of many.

Some of my friends retired at age 55 and have taken the opportunity to travel or reduce their golf handicap. In some cases this has involved a financial sacifice but they really value their leisure. Other work-aholic types make it clear that they will stop working when their heart stops ticking.  To these people the idea of not working is anathema.

The retirement decision is a personal choice and, if self-funded, one that is of no concern to Canberra bureaucrats irrespective of issues associated with greater longevity and  aging populations.  Meeting future pressures from an expanded class of retirees can partly be met by encouraging them to voluntarily work harder to increase their incomes.  This won’t be met by increasing to 50 cents in the dollar the cutback to pensions when paid work is done that was announced in the recent budget.

People who pay their way should as far as possible be free to choose their lifestyles and when they choose to work or take retirement. This should not be a concern of government.

Turnbull’s point that Rudd’s debt as a fraction of GDP compared to other c0untries was low because the Coalition had wiped-out public debt in Australia was sound.  It is a dramatic turn around.

The response of Labor supporters (and standard Keynesians) will be that the debt is necessary to limit the extent to which the economy will falter now and the Coalition will respond that too much is being spent and being spent on projects with a low rate of return such as the Broadband effort.

I don’t know who is correct here – the right sort of stimulus package will necessarily be a stab in the dark – but Labor needs to be positive in its interpretations and the Coalition, if it wishes to regain office, to be cautionary.  The future course of politics – unless there is a short-term double dissolution of parliament is clearly ‘hope’ versus ‘fear’.  I doubt there will be a double dissolution of parliament – the government can do this if the alcopops legislation is defeated a second time but suspect the double dissolution won’t occur.

I thought Turnbull performed well. He can be a future Prime Minister if the Treasury’s optimistic forecasts turn out to be false and if he sticks to his guns of attacking Labor over debt and deficits.  I think Labor’s popularity will now decline in the polls as people start to take seriously the fears expressed by the Coalition.

I don’t have much of a clue what will happen to the economy over the next 2-3 years and I cannot believe, on the basis of its recent unemployment forecasts, that the Treasury does either.  The real risk is that the Budget is based on over-optimistic forecasts of local and international economic recovery.

This is risky because, at core, Australia’s current economic woes are due to a terms-of-trade shock which slashed the value of our exports. Apart from a decline in share market values we have not had major financial woes.  Longer-term, stimulating the economy will not reverse this fact of life – we are poorer because the rest-of-the-world values our products less.

Longer-term too, unless the world economy recovers strongly, we must accept that we will need to live at lower living standards.  Fiscal actions to try to thwart this decline will only create debt.  The current stimulus can offset the immediate multiplier effects of the decline in export values but problems start if there are persisting delays in the world economic recovery.  Then government will need to raise taxes and cut spending to prevent a debt explosion at precisely the time voices will be calling for further economic stimulation.

The politics are interesting. The Labor Party will become identified in the media as the ‘high debt’ party. If the economy begins to recover in 2010/11 this won’t matter much.  But if the recovery is slower than expected then either the debt/deficits will blow out further or the government will need to savagely cut middle class welfare that was so readily disbursed in the Howard years.  It will then, at best, become a two-term government. Indeed it may have to cut into this welfare heavily even if growth is moderate if long term debt increases if it is not to be seen as an ineffectual government which made things worse.