Mainstream Australians are being failed by the political class as the gap between two Australias continues to widen. This failure is exemplified by a superannuation system that siphons money to the financial sector and political class and actively prevents mainstream Australians from achieving the Australian way of life.
The legislated increase of forced super contributions from the current rate of 9.5% to 12% of wages will in many cases work against the financial interests of Australians, both now and in retirement. Forced super contributions come directly at the expense of savings outside of super that can be put towards a house deposit or used to reduce debt. Increasing the compulsory rate will only put the aspiration of homeownership and financial security further out of reach of an increasing proportion of the population.
Homeownership fell from 71% to 66% of households between 1995 and 2018, and is set to get worse if trends among younger generations continue. In the 1980s, 68% of Australians owned their own home in their early 30s. Of those currently in their early 30s, the rate is just 50%.
A 2019 survey by Core Data found that nearly 70% of first home buyers did not fund 100% of their deposit from their personal savings, with a majority relying on family assistance in the form of gifts, guarantees, and loans. Further diminishing the ability to save outside of super will remove the aspiration of homeownership from those unable to rely on family wealth.
As made clear by the recently released Retirement Income Review, those retiring without owning their own home are significantly disadvantaged with retirement income having to cover rental housing and without the option of drawing additional income from their home asset.
Not only is the current system damaging mainstream Australians, but it also fails to make sense from a public finance perspective. According to the review, by 2047 the revenue forgone through superannuation tax concessions will exceed the total cost of the age pension.
Despite the significant failures of superannuation, the current system along with the legislated increase of compulsory contributions to 12% of workers’ wages continues to be pushed by special interests. An artificially inflated financial sector and the political class benefit from the gravy train created by $30 billion of annual superannuation fees. As research from the Institute of Public Affairs released last week shows, the financial sector’s share of national income has continued to grow following a rapid expansion that coincided with the introduction of superannuation in 1992. Before superannuation the financial sector was 2.4% of national income and has since increased to 6.5%.
The wealth transfer from hard-working Australians to the financial sector and political class generated by the superannuation system is part of a broader divide across Australian society. Australia is increasingly being divided into two Australias.
One Australia tends to be employed in the public sector or in white-collar jobs offered by big corporations that find fertile soil in a bloated financial sector. The other Australia is made up of mainstream Australians who own their own businesses or are employed in the private productive economy by small and medium-sized businesses.
It is mainstream Australians that are under stress due to a plethora of failed public policy that undermines the businesses they own and work in and creates barriers to obtaining key parts of the Australian way of life such as homeownership.
Public sector wages continue to rise, funded by taxes from workers with stagnating real wages. Big business continues its takeover of the Australian economy, while small businesses are strangled by red tape, onerous labour laws, and now lockdown and social distancing restrictions that disproportionately harm small business. And those who own their home enjoy increased equity with rising house prices, while an increasing proportion of Australians are priced out of the market due to a failure of public policy on development, taxation, superannuation, and immigration.
If trends continue, the gap between the two Australias will only widened. Public policy must be made to benefit the broader country and not become a tool of the political class that is tightly organised to promote their special interests at the expense of mainstream Australia.
Reforming superannuation towards a system of voluntary contributions would return control to Australians to make financial decisions in their own best interest given their individual circumstances and block off the siphoning that is enriching the political class at the expense of mainstream Australia.
Kurt Wallace is a research fellow at the Institute of Public Affairs. Join as a member at www.ipa.org.au.
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