Bragging rights – and wrongs
A significant intervention against free and private choice, based on the idea that government knows best… that is failing workers, is failing taxpayers… it requires drastic surgery.
Despite his description of the Paul Keating-created compulsory superannuation system, Liberal Senator Andrew Bragg reckons it’s a good idea and rather than junking it wants to fix it. That is the burden of Bragg’s new book Bad Egg: How to Fix Super. But having been chastised after proposing, in his maiden speech last July, sensible changes to the Morrison government’s inherited chaotic superannuation policy, he avoids dealing with the current reality that the government and much of its backbench are in serious disagreement not only about the 2019 election promise not to interfere with the existing legislation to increase the compulsory super guarantee levy from 9.5 per cent to 12 per cent starting next year, but also whether the whole system involves an unnecessarily expensive compulsory diversion of funds from other beneficial purposes into an industry that should be scrapped.
The case against raising the levy is overwhelming; a higher levy is a de-facto wage rise (without the economic benefit of stimulating consumption spending in a period of economic downturn) that would be paid by employers at a time when the Covid-19 pandemic has generated both high unemployment and serious financial stress on business. It would cost jobs. This is precisely the opposite of the situation Keating faced in 1993, when the levy was part of the Accord designed to restrain wages growth, a concept reinforced by a Treasury paper that spoke of the need for current consumption expenditure to be deferred in favour of future income in retirement. But right now, when current consumption expenditure needs stimulating, Bragg’s book is silent.
While the 120 pages detail at length (and repeatedly) the basic and overwhelming flaws in the 30-year-old compulsory superannuation system, he ducks the inevitable logic of the book’s mounting evidence of institutional flaws in what is now a $3 trillion monster. The evidence he lists clearly shows that the system fails its stated objectives: almost 70 per cent of retirees would still rely on the aged pension even if the rate rose to 12 per cent, its tax concessions cost more than the saving in the budget cost of pensions, it is ‘frighteningly’ expensive ($32 billion a year in fees and $36 billion in foregone tax revenue), it ‘has been a gravy train for industry and retail super funds to make a motza for unions or financial institutions’, it has not boosted national savings, it disadvantages lower income groups and it is highly politicised; an ‘intricate alliance’ between industry super funds that are ‘on track to become the biggest political donors in Australia’, on top of paying around $11m of superannuees’ funds to the union movement which supports Labor.
Although Bragg quotes a Sydney academic study that ‘Scrapping the super system would massively improve Australia’s economic performance – it’s costly and inefficient, unnecessary and incredibly unfair’, he baulks at the ultimate step needed to clean up this mess – ending compulsion. Unlike New Zealand, where their successful retirement incomes policy involves entirely voluntary superannuation, Bragg’s conclusion is ‘The system ought to be fixed rather than discarded’. He outlines a series of modest suggestions and includes some broad but unexplained reforms like a simple default fund that outsourced investment management instead of the pro-union award-directed current default system.
However, he bravely repeats his sensible maiden speech proposal that, for those on incomes under $50,000 a year, the compulsory levy should be replaced by a voluntary one, enabling workers to opt for more take-home pay now rather than a higher retirement income whenever. This highlights one of the major flaws in a system that self-evidently disadvantages those on lower incomes – particularly women in part-time employment. This has effectively been acknowledged by Keating who conceded ‘It was not introduced as a welfare measure to supplement the incomes of the low paid. It was principally designed for middle Australia, those earning $65k – $130k a year’.
Another reform Bragg favours is extending employees’ current right to divert voluntary superannuation savings to purchase their first home also to allow compulsorily accumulated superannuation balances to be used for the same purpose. ‘In this way, people can decide what is best for them: a first home or a super account’. To support his concern that ‘Super is making home ownership much harder for lower income Australians,’ he quotes studies showing that ‘home ownership is more effective than super in contributing to lifetime welfare of low-income households’ and that renters in retirement suffer significantly more financial distress and poverty than homeowners. The volume of withdrawals from superfunds under the Covid-19 emergency arrangements suggests that many Australians prefer cash now to the prospect of being better-off in retirement.
Compulsory super’s major objective was neither economic nor social; it was directly political. As I outlined here three years ago, there was no cost/benefit analysis and it was opposed by the government’s financial advisor, the Treasury. It was about union power and keeping Kelty on side with the Accord rather than its stated objectives. As Keating told the 1992 ACTU Congress as his government was introducing his compulsory superannuation legislation: ‘You are losing your industrial muscle; I have given you the opportunity to take on financial muscle. You will get that through your superannuation funds.’ This was consistent with the 1981 ALP Special National Conference paper that: ‘We must recognise at this early stage of union involvement in the superannuation issue that control over the funds will provide unions with considerable financial leverage… to be used to advance the cause of Socialism’. At that time, Andrew Bragg who was working in the superannuation industry emailed congratulations on my article, especially the Keating quote. Last week, in the fly-leaf of his Bad Egg book he has kindly hand-written ‘Thanks for the inspiration. You led the way on super’. It seems I haven’t led him quite far enough.
Got something to add? Join the discussion and comment below.
You might disagree with half of it, but you’ll enjoy reading all of it. Try your first 10 weeks for just $10