Saturday 14 March 2015
IGNORE KEATING’S HYPERBOLE: LIBERALS ARE FAR MORE SUPER-FRIENDLY
Labor’s words on superannuation must be
distinguished from its none-too-flash deeds
JOSH FRYDENBERG
LAST week, Paul Keating sprang
back to life. The architect of the
“recession we had to have” ventured into print to viciously attack
the Coalition for its approach to
superannuation.
The Liberals, Keating bellowed,
were intent on “destroying
mandatory savings” as they “hated
national superannuation”, viewing it as “an ideological matter”.
Such hyperbole is more than
mischievous; it is wrong. Successive Coalition governments have
strongly supported superannuation which, in the words of John
Howard, “should be the right of
every Australian”.
It logically follows that the
more people save throughout their
lives, the greater their financial independence and freedom in retirement. This is the epitome of selfreliance — a fundamental Liberal
philosophy.
So, too, the more people save
the less likely they are to require
government support at the end of
their working life via the pension,
thereby fulfilling another great
Liberal philosophy of smaller,
more efficient government.
The rapid recent growth in our
superannuation sector has been
stunning. In 2005, the average balance in super was $26,000, with a
total $762 billion under management.
Today, a decade later, the average balance is more than $52,000,
with $1.9 trillion under management, the fourth largest such pool
of funds in the world.
This increase has been facilitated by attractive tax concessions in
the contributions and earning
phase and a tax-free exit in the
benefits stage, as well as the introduction of compulsory super at
3 per cent in 1992, which subsequently reached 9 per cent a decade later under Howard.
While it is true that those on
higher marginal tax rates generate
a higher concessional benefit because superannuation tax applies
at a flat rate, this must be viewed
against the eligibility of the pension, which is means-tested.
This means test is important,
for what the Intergenerational Report shows is that as more and
more people build their superannuation accounts, not only does
the percentage of retired Australians who actually take the pension begin to fall but, significantly,
the proportion of those on a partpension as opposed to a full pension begins to rise.
In 2015, 70 per cent of eligible
Australians took a pension, of
which 42 per cent were on a full
rate and 28 per cent on a part rate.
This is up from 20 per cent of those
on a part rate in 1992.
But by 2054-55, the numbers
will fall to 67 per cent, of which an
even greater proportion are expected to be on the part pension.
These trends will only accelerate over time, and help ensure that
with an ageing population the
nation can live within its means.
With superannuation providing such a significant dividend for
the economy, governments must
be careful to preserve the tax incentives in this system to the extent that they are meeting their
objective.
This will be the subject of the
upcoming tax white paper.
Unfortunately, however, this is
where Labor, when in government, failed badly.
Who can forget Kevin Rudd’s
emphatic statement in November
2007, just days before being elected, “There will be no change to
the superannuation laws, one jot,
one tittle”?
But once in government, Labor
announced nearly $9bn worth of
taxes and changes to super, including reducing the concessional contribution cap as well as the
government
co-contribution;
pauses to the indexation of the income threshold; applying a 30 per
cent contributions tax on higher
income earners; and increasing
the levy on self-managed super
funds, to name just a few.
It is therefore with some alarm
that those in the community who
care about the future of super
heard the opposition spokesman
on Treasury affairs, Chris Bowen,
say in a speech midweek, “Labor
does believe that the tax treatment of superannuation needs
improving”.
As far as Labor is concerned,
“improving” really means imposing higher taxes.
Labor also continues to complain about the abolition of the
low-income superannuation tax
offset, which is scheduled for 2017,
while not acknowledging that this
was to be funded out of the proceeds from the mining tax, which
failed to materialise.
So, too, with the changes to the
superannuation guarantee, which
will now move from 9.5 per cent to
12 per cent between 2021-25 — a
temporary delay on Labor’s unfunded timetable.
Opposition Leader Bill Shorten
himself admits that “superannuation guarantee increases have
come out of wages”.
Therefore increases have to be
incremental and take into account
the broader impact it has on the
economy.
When it comes to the future
framework for superannuation in
Australia, we have David Murray’s
financial systems inquiry as a useful guide. It was commissioned by
Treasurerr Joe Hockey, and it has
been entertaining to see his
opposite number, Bowen, get on
board.
Again, in his midweek speech,
Bowen described the report as “serious” and “well considered”, with
recommendations requiring “due
regard”.
Fine words indeed. But will
Labor support Murray’s recommendations on the need for greater governance and competition in
the superannuation sector?
At board level, industry funds
have typically operated with an
equal
representation
model
whereby employer and employee
representatives occupy virtually
all the seats at the table.
Murray, conscious of the need
to attract a diversity of expertise
and experience to a board, recommends a majority of independent
directors including an independent chair.
I dare say Bowen is likely to disapprove.
So too with Murray’s proposed
changes to competition, Bowen
and Labor will raise their concerns.
Murray recommends that if employees were given greater choice
over their default fund, then competition would be enhanced and
Labor was quick
to unfairly round
on Hockey for
promoting flexible
use of super
customer fees would come down;
these are sensible suggestions but
may prove to be a bridge too far for
Labor, as it would be required to
put the interests of consumers
above its own vested interests in
the status quo.
When it comes to superannuation, the discerning consumer
and voter needs to go beyond
Keating’s rhetoric and distinguish
between what Labor says and what
Labor does.
Labor was quick to unfairly
round on Hockey when he was
merely promoting an interesting
debate about the flexible use of
superannuation over a person’s
lifespan, a practice that has indeed
found currency in other jurisdictions.
But when one takes a closer
look at Labor’s recent record on
superannuation, it’s not too flash.
Indeed, when it comes to implementing the important recommendations of the Murray review,
it poses for Labor a very big test.
Josh Frydenberg is the federal
Assistant Treasurer.