About the only thing Costello did not mention was their long-term cost. His departmental secretary, Ken Henry was proud of the moves. They were "as good as anything I've seen the department produce in the 20-odd years of my Treasury career," he told his staff. They showed the Treasury shaping "strategic thinking, achieving results, exemplifying drive and integrity, cultivating productive working relationships and communicating with influence". The first of those decisions made super payouts – even lump sums – entirely tax-free for most Australians aged 60 and over. Economist Saul Eslake described it as "one of the worst taxation policy decisions of the past 20 years". It was worse than it looked. Tax-free payouts are quite sensible in theory. After all, withdrawals from bank accounts are tax-free. That is because the income that goes into the account is already taxed, and the interest earned on the money in the account is already taxed. It is the same for super: tax has been paid as the money is earned and as the returns accrue, albeit at concessional rates. But the earnings of super accounts stop being taxed when the retiree begins to take money out. Costello insisted (against the advice of treasury) that this provision stay, meaning that the earnings of retirees who had turned 60 weren't taxed at all, regardless of their size. Low and middle income Australians who continued to work into their 60s continued to pay tax. But high income Australians who didn't need to work paid nothing, if all of their income was channeled through super.

The budget papers had it costing $6.2 billion in its first three years. But they were silent on what would happen beyond that as more and more Australians spent their entire working lives in super and their balances swelled. Back then, only 18 per cent of the population was aged 60 and over. Now the proportion is 20 per cent, on its way to 25 per cent. Costello had opened an ever-widening hole in budget revenue. But at least it would get people off the pension, right? It might have, were it not for the second decision. The pension assets test was to be eased so that instead of losing $3 of fortnightly pension for each $1000 of assets above the threshold, the retiree would lose only $1.50. As before, the family home would not count. It extended the part pension to a new wave of previously excluded wealthy retirees and with it, the much-prized pensioner concession card. So great was the cost, the Abbott government reportedly considered axing the pension extension in its first budget.

Labor's Kim Beazley and then Kevin Rudd backed the changes. Only the Greens said no. When they passed the Senate, the assistant treasurer, Peter Dutton, declared February 27, 2007 "super day". It had ushered in the "the greatest reforms to superannuation in Australia's history". He is right. Couples with a million dollars in assets (plus a family home) now find themselves eligible for some of the pension and the all-important card. So great is the cost, the Abbott government reportedly considered axing the pension extension in its first budget. As it prepares for its second, the Social Security Minister Scott Morrison is seriously considering a proposal from the Council of Social Service to rein it back in. He has reached out to the Greens and the independents for support. Hockey's tax discussion paper has called into question the worth of the zero tax rate on fund earnings for the over 60s, saying it opens up "tax-planning opportunities". Even the Association of Superannuation Funds, as attuned as anyone to the worth of tax concessions, says they go too far for very high earners. It says a small group of 24,000 retires receives average super payouts of $216,000 a year – all tax free. Non-retirees earning a fraction of that income pay tax. "It is appropriate for the community to start questioning whether it should fund growing tax concessions on very high balances," it says. The tide is turning. Hockey will start to clean up Costello's mess in the May budget. He will finish the job after a retirement incomes review later in the year.

Peter Martin is economics editor of The Age. Twitter: @1petermartin.