In the push to tackle super tax concessions, there seems to be no policy that doesn’t rile someone up.

Some piously complain of the injustice of a system in which the super rich get away without paying a cent of tax, while others throw a tantrum at the mere mention of the ‘t’ word – even something as tentative as Labor’s latest offering.

But the fact remains, super tax concessions are a massive and unsustainable drain on the budget – costing as much as $30 billion a year, and rising.

• Why Frydenberg is wrong about superannuation tax
• Why Labor’s super tax is a gift for the rich
• Six tax hikes sure to upset everyone

So what if, instead of trying to please everyone, the government designed a policy that was carefully designed to upset everyone equally? Something that would hurt the poor proportionally as much as it would hurt the rich?

A possible solution

One potential solution already exists, though it hasn’t had much air time since the issue became such a hot topic earlier this year.

It was put forward last year by Andrew Baker, founder and then-managing partner of Tria Investment Partner, and is about as simple as they come: tax all retirees’ investment earnings at a flat rate of 15 per cent.

The wealthy would echo Joe Hockey’s mantra that you can’t take “their money”; the less wealthy would say it is unfair: and everyone is equally unhappy.

It would also solve the problem, put forward by many commentators, that a threshold tax would be very difficult to implement.

Mr Baker argued along these lines last year, calling Labor’s previous policy of taxing earnings over $100,000 per annum was “ridiculous”.

“It was impossible to implement. It sounded good, but it was just absolutely hopeless.” Labor’s latest policy is to tax investment earnings over $75,000.

Instead, Mr Baker said the best and simplest policy was simply to tax every cent of investment earnings at 15 per cent.

The immediate response to this would be it is regressive – i.e. it forces the rich and poor to solve a problem that, in fairness, should fall on those who can most afford it.

However, it would also stop the wealthy from being able to claim that they were being unfairly targeted for “doing the right thing” and putting money away for their retirement.

To counter the potential unfairness, meanwhile, the increased tax revenue could be used to compensate those at the lower end of the income scale – the same argument that is often used to justify lifting the GST.

Who would suffer, and by how much

The only way to assess the objections is do some modelling, so that’s what we did.

Assuming annual investment earnings of 5 per cent per annum (the same assumption made by Labor’s policy designers), we went through eight different superannuation balances at age 65, and saw exactly how much worse off it would leave the retiree compared to Labor’s plan.

We also took the (very subjective) step of applying a ‘comparative suffering gauge’ measuring the proportional degree of suffering the tax would inflict upon the retirees. The gauge had four settings: negligible, low, medium and high, though as it turned out we didn’t need the high setting.

As the ‘comparative suffering’ scores show, it is the middle tier balances that are hardest hit by the tax, with their balances running out more quickly, and potentially leaving them reliant on the Age Pension for longer.

The question is, does the simplicity and the potentially huge overall boost to tax revenue justify the comparative pain it could cause these retirees – as well as the increased cost to the government in age pension payments?

Here are the results:

BALANCE ONE – $3 million

Labor’s plan: would pay $185,876 in tax, have an annual income of $161,809, and die aged 100 with $816,713 left.
No threshold: would pay $529,429, have an annual income of $149,697, and die aged 100 with $681,482 left.

Tax gain: $343,553 (over 35 years)

Comparative suffering score: NEGLIGIBLE

BALANCE TWO – $1 million

Labor’s plan: would pay $0 in tax, have an annual income of $56,616 and die aged 100 with $291,942 left.
No threshold: would pay $176,476, have an annual income of $49,899, and die aged 100 with $227,160 left.

Tax gain: $176,476 (over 35 years)

Comparative suffering score: LOW

BALANCE THREE – $750,000

Labor’s plan: would pay $0 in tax, have an annual income of $42,462 and die aged 100 with $219,956 left.
No threshold: would pay $132,357, have an annual income of $37,424 and die aged 100 with $170,370 left.

Tax gain: $132,357 (over 35 years)

Comparative suffering score: LOW

BALANCE FOUR – $500,000

Labor’s plan: would pay $0 in tax, have an annual income of $30,000, and run out of money aged 97.
No threshold: would pay $56,505 in tax, have an annual income of $30,000, and run out of money aged 92.

Tax gain: $56,505 (over 27 years)

Comparative suffering score: MEDIUM

BALANCE FIVE – $400,000

Labor’s plan: would pay $0 in tax, have an annual income of $30,000, and run out of money aged 85.
No threshold: would pay $29,187 in tax, have an annual income of $30,000, and run out of money aged 83.

Tax gain: $29,187 (over 20 years)

Comparative suffering score: MEDIUM

BALANCE SIX – $300,000

Labor’s plan: would pay $0 in tax, have an annual income of $30,000, and run out of money aged 78.
No threshold: would pay $13,697 in tax, have an annual income of $30,000, and run out of money aged 77.

Tax gain: $13,697 (over 12 years)

Comparative suffering score: LOW

BALANCE SEVEN – $200,000

Labor’s plan: would pay $0 in tax, have an annual income of $30,000, and run out of money aged 72.
No threshold: would pay $5,072 in tax, have an annual income of $30,000, and run out of money aged 72.

Tax gain: $5,072 (over 7 years)

Comparative suffering score: LOW

BALANCE EIGHT – $100,000

Labor’s plan: would pay $0 in tax, have an annual income of $30,000, and run out of money aged 68.
No threshold: would pay $958 in tax, have an annual income of $30,000, and run out of money aged 68.

Tax gain: $958 (over 3 years)

Comparative suffering score: NEGLIGIBLE