Congratulations on the 100th edition of Cuffelinks and thank you for asking me to make some observations on the state of the superannuation system.
We have a system that has grown rapidly to a scale considerably larger than the entire market capitalisation of our stock market so it is little wonder that it is never long out of the news or the thoughts of our politicians. Despite our pleadings this is unlikely to change. Rather, we must be vigilant and energetic to ensure we avoid disastrous policy swings and encourage moderate and rational reforms.
Currently some commentators are highly focused on the tax breaks available for super in relation to both its compulsory and voluntary forms and see attacking these as a simple solution to the structural public deficit implied by current spending and taxation projections.
Place super concessions in context
There is undoubtedly a case for some reform, but context is important.
Firstly, the current tax incentives are in fact far less than those applicable up to 1983, well before the system became universal.
Secondly, the various estimates made by Treasury over the years of the amount of tax revenue foregone are somewhat debatable. They assume that, in the absence of these concessions, the system would still have sufficient political support to continue into the future, but with contributions taxed at personal tax rates. In reality, the long term outcome of removal of concessions cannot be known and is not measured by Treasury.
Thirdly, those that lobby for winding back superannuation or its preferred tax treatment often do so on the quite erroneous assumption that governments would direct the savings towards support for welfare recipients and lower-income households. There is little evidence to suggest that this Government would rank the case of the welfare sector ahead of the strident demands of corporate Australia for reduced company tax and a lower marginal tax rate on high income earners.
Superannuation for the average worker and particularly for working women had to be fought for. That much does not change.
It is also true that some estimates of the extent to which tax concessions on super accrue to the rich are misleading because they do not take account of the extent to which this is caused by the fact that a very high proportion of contributions, and especially of voluntary contributions, are made by those who are relatively well off.
Worst public policy was a ‘parting gift to the rich’
Having said all of that however, it is undoubtedly the case that former Treasurer Peter Costello’s parting gift to the rich, massively raising the amount they could contribute to super while simultaneously abolishing any earnings tax on funds held in a superannuation pension environment, must rank as one of the worst pieces of public policy in living memory.
Far better to skew the tax concessions the other way, that is to the low paid who will struggle to build an adequate retirement nest egg and who will make the greatest claim on future public spending on the age pension and associated health care needs.
Funding infrastructure needs
A second area of significant current public focus is the question of funding for infrastructure. While it may have appeared, following a number of public statements by NSW Premier Mike Baird, that there was finally an awareness among politicians for the need to show leadership in creating new infrastructure, even if this meant recycling existing state-owned assets, the recent Queensland election landslide has again cast doubt upon the possibilities of a consensus model.
It is not yet clear whether the Queensland result was triggered by the particular circumstances, such as substantial public sector job losses or perhaps an allergic reaction to excessive Abbotism. What is clear is that we require a new way to reconcile the need for private sector funding for our substantial future infrastructure needs with the justifiable public aversion to a sell-off of assets to (potentially foreign) financial intermediaries and others primarily interested in short term profit and possibly lacking the long term interest in the public benefit to be derived by these assets.
On a number of occasions in recent years I have attempted to advance a model that might be characterised as the ‘mutualisation of infrastructure’ by more directly linking our world class superannuation system to our need for nation building economic, social and environmental infrastructure. The model is most recently set out in my March 2015 paper, ‘Mutualisation of Infrastructure’.
Our super system has evolved to the point where it has the potential to lead this country’s newest and strongest source of comparative advantage, abating our dependence on commodity exports. For example, IFM Investors already has many more offshore clients than Australian clients and manages money not only for leading pension funds, but for some of the world’s largest insurance companies.
Fair system can also be engine of growth
Our system needs reform at the margin to ensure it has credibility from a fairness point of view. But with appropriate nurturing our system can also be an engine of advancement for our nation, solving our needs for infrastructure development, while taking the pressure off the public purse and simultaneously creating a clean and prosperous new sector of world comparative advantage.
Garry Weaven is Chair of IFM Investors, ME Bank and ‘thenewdaily.com’. As ACTU Assistant Secretary in the 1980’s, he played a seminal role in the development of the industry super fund movement.