Sunday, July 8, 2012

Sentimentality and Superannuation

I go for a jog twice a week. Partly to keep fit. Partly to contain a (slight) tendency to hyperactivity. And partly because it allows me to clear some knots in my head. Sentimentality and superannuation have little to do with each other but I found my thoughts bobbing between the two whilst on a jog last week.

The Colnago Master just keeps giving. 
Whilst last week allowed some time idle minds to wander, this past week has been busy one. We are puzzle over the (possible) confirmation of the Higgs boson and its implications (the most obvious being a letter to Professor Higgs to prepare his Nobel Prize acceptance speech), the commencement of the carbon tax in Australia (an unavoidable if compromised, pigouvian tax effective from the 1st of July), the changes to the pledge of allegiance by the Australian Girl’s Guides (no more reference to the Queen or God showing that even traditional institutions can accommodate change if it means staunching a fade to irrelevance), watch the ongoing turmoil in North Africa, the first week of a stage race in France, and, of course, the release of the 30th anniversary Colnago Master ( The 2013 edition of the Master will only be available in one of three “art decor” colourways harkening back to them heady days of the 1990s.

In 2013 this simple colourway will be passé (sadly, even Saronni red - PR82 - goes out of fashion).

Try one of these for size (
Granted the Colnago Master has an iconic status in bicycle racing and all that but at USD $3,399 a frameset it’s getting up there with prices asked by custom framebuilders (yes, this particular example is a track frame but you get the idea).

First, superannuation. In Australia, superannuation is taxed at a relatively low rate to encourage people, especially high income earners, to set money aside for a future when they may not be working (in preference to drawing a pension from the government). In the financial year just gone (1 July 2011 to 30 June 2012) money placed into a superannuation fund was taxed at 15%. From this year on it is to be taxed at 30%. Should you be fortunate enough to be in the top income bracket (taxed at 46.5%), and supposing you have coin to spare, it makes sound economic sense to top up your superannuation (to a maximum of $25,000) by the end of each financial year. Especially so for the financial year just gone.
You can also look at superannuation in a different way. The Australian government doesn’t really want to drain its coffers paying out pensions. In the past it took a big incentive (a 31.5% tax benefit) to get the high income earner to put away more money into superannuation. There is still an incentive (a 16.5% tax benefit) to put money away but the financial gain is palpably smaller. Cynics see this as another money grab (along with a mining tax, a carbon tax, and cut-throat means-testing of the private health insurance rebate) brought in by a much maligned Labour government in order to live up to its promise of bringing the budget to surplus by 2013. 
There are problems with this. Most of us never did Economics 101. And, as Daniel Kahneman and others have shown, most of us (even those that went beyond Economics 101 and are immersed in the hard-edged financial industry) don’t think like the rational econs we like to think we are.
My basic understanding of economics is this: coin received for goods and services I provide gets me goods I don’t have and/ or services I can’t do from another entity. And ,even if I can’t see it (especially if I can’t see it), I must remain mindful that coin cannot be in more than one place at any one time (fancy financial instruments may make the illusion possible - until the whole thing comes crashing in on itself). When coin is parked in a home loan drawing down debt (the dirtiest word in the English language since 2008), it can’t also be out there partying or buying shoes.
My other basic understanding is that the utility of coin (in addition to it’s nominal value) is a large part of coin’s appreciation. And the experience of coin utilized in a physical setting easily trumps the fleeting waft of coin utilized in the non-palpable ether. Spending $45 on a carton of beer generally brings more pleasure than parking $45 in a home loan. As I have no imminent plans for retirement, for me at least, superannuation, like a home loan, is coin in its element. It is coin stripped bare of emotion. (Clearly not everyone is lucky enough to be in this situation. There are some, many in some places, under significant mortgage stress and drawing down debt is a very immediate and tangible reality. Debt, caused by whatever reason, becomes palpable when the reality - or sentiment - of coin coming in cannot catch up with the amount of coin going out. And, while I’m at it, let’s not forget there are also those that have nothing at all. Zip. Zero. But that’s a whole different topic.)
The Labour government may be betting that a tax benefit of 16.5% will punch well above it’s emotive weight in a world now wary of distressed pension funds: ie higher income earners will still set aside money for superannuation partly because there is a financial incentive and partly because they feel they can’t rely on a government pension. But, for me at least, the plan (if there is indeed a plan) unravels for a couple of reasons. For a start, with all the hubbub happening in Europe, financial markets are moving like hookers at a swingers party (all over the place and quite agreeable to going down). A 16.5% tax benefit is a slim margin of error for coin that I may never have the privilege of utilizing. As a matter of fact, in such uncertain economic times, I regard a 31.5% tax advantage as an unfavourable margin. That is to say, I think I can get better utility (if not value) of such coin when I place it elsewhere. The other obvious reason is that most people do not feel they have spare money to put away into superannuation simply because they have other tangible realities that coin has to attend to.
Then there’s sentimentality. Thankfully sentimentality is best served with a certain degree of brevity. I purchased a pair of Scarpa hiking boots for $240 whilst working in Townsville in 1997. They have taken me on walks through North Queensland: through mud and through rock-strewn tracks; through overflowing rivers; through leech-infested forests. With them I fell in love with Hinchinbrook Island and the Thorsborne Trail. With them I got lost at night in dense bush on a walk up Mt Bowen. I remember the back-and-forth shouting holding our group together as the blackness and unpredictable terrain deprived us of our other senses. I remember eating Deb (dessicated mash potato) out of the packet and the saliva being sucked out of my cheeks. I remember laughing and sipping port on the top of Mt Bartle Frere under a starry sky. These boots have tramped through trails in Tasmania and New Zealand. They took me on a one month trip through South America. They took me to India through rural villages, a presentation at a National conference, through airports and train stations and through 3rd class train cabins. They have been to India twice. 
They have fallen apart twice. In India they were skilfully stitched together for a paltry 10 rupees. They were good value at $240 and have now reached the end of their life. They get mouldy at the slightest hint of rain. They have no further utility. 
Yesterday I threw them out for the last time. 

Today I pulled them out of the bin.

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