Like most unfairness in Australia, this super problem can be traced back to one government

When the new senators take their seats on July 1, Labor will no longer need any of the independent or minor party senators to get its legislation passed. If it gets support from either the Greens or the Coalition, it can get its bills through.

The superannuation changes exemplify what will be a permanent dilemma for the government this term: either cave in to all the demands of the historically uncompromising Greens towards higher tax and a greater government role, or give a bit to the Coalition in the form of lower taxes and less intervention.

The government hopes to make two big superannuation changes: first, an increase from 15 per cent to 30 per cent on the earnings on that portion of a fund that exceeds $3 million and, second, a change in the way superannuation "earnings" are calculated.

The first is relatively uncontroversial. It is fairly well-recognised that the superannuation system is too generous to the already wealthy.

The government could have just increased the tax on high balances and left it at that. But no, the big superannuation funds objected. They said it would be too hard for them to do separate calculations for those few people with big balances.

So, the government responded with a new way of calculating the tax payable on the earnings of funds with large balances.

Instead of the funds paying the tax on earnings and reducing members' balances accordingly, under the new system people with more than $3 million in their fund will be issued with a separate assessment by the Tax Office which they can pay directly or withdraw from their fund to pay it.

And further, the new law changes the way "earnings" are defined.

Instead of doing the equivalent of looking at the increase in the money in the bank, "earnings" will be defined as the increase in the total value of the fund over the period from the beginning of the financial year to the end of the financial year - less contributions.

There are three problems with that. The first is that assets will have to be valued every year. That is fine for shares, but it is much more costly for real property or some chattels, like artwork.

The second is that it will be a tax on unrealised assets. This is bad in principle because if a fund does not have enough liquid assets, it would be forced to sell a major asset, like a farm or a rental property in order to pay the tax.

The third is that the $3 million is not indexed.

These were the arguments of those with large superannuation funds, usually self-managed funds. And the main reason the bill did not go through the Senate before the election.

So, should the government revisit this? Very much so, now that it has won the election. It should go back to first principles and fix the whole mess that superannuation has become.

It has become a tax-minimisation and estate-planning tool rather than a vehicle purely for retirement income. It provides the lion's share of the benefits to the already wealthy.

Its concessions are so generous that before long it is going to cost the budget bottom line more than the aged pension. The scheme was designed by the Keating government to provide dignified retirement for the mass of working people in Australia and to relieve the budget bottom line of some of the burden of income support for the aged.

It is now looking like defeating one of the very purposes for which it was designed. How did this happen?

Well, if you look at any inequity or unfairness in any tax or benefit in Australia you will almost invariably find its genesis in the Howard-Costello government. And so it is here.

In 1999, it introduced the self-managed superannuation scheme. Under it, limitless wealth and assets could be poured into self-managed funds the earnings of which would only be taxed at 15 per cent, instead of the ordinary income-tax rate of up to 47 per cent. Farms, businesses, barristers' chambers, shares, and real property were tipped in to create large tax-minimisation slush funds.

Elaborate schemes were set up for adult children to rent farms and houses from their parents' slushy superannuation funds.

The government says it wants fewer concessions for large funds to give greater fairness. But there is a much better way than what is proposed.

The $3 million is a good starting point. A $3 million balance will deliver an income of more than $200,000. Surely, the taxpayer should not be subsidising in any way retirement incomes above that.

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Rather than reducing the concessions for balances above that, it should abolish them. Superannuation funds should be required to deliver any balance above an indexed $3 million back to the account holder. From there they would pay ordinary income tax on earnings.

Self-managed funds should be phased out by not permitting any more of them. Of course, a lot of people have relied on these arrangements, so in fairness to them some grandfathering might be needed, particularly where ill-liquid assets like farms, businesses and real property are involved.

No more tinkering. Superannuation should be returned to its original purpose - where large funds with lots of members can even out risk and invest in classes of long-term assets not usually available to individuals saving for retirement.

Government concessions should encourage and mandate retirement saving, as now, but not be handed out to people whose superannuation earnings are greater than what would ordinarily attract the top marginal income-tax rate.

Accounts greater than that should never have been allowed to accumulate in the first place.