Scott Morrison, Australia’s Treasurer, was interviewed at a conference on 1 September 2017 hosted by The Economist, called “Innovation as Competition: Australia’s Asian Future Summit 2017”. As it was not a prepared speech, there is no official record of his comments, although he gave a talk the previous day at Bloomberg, when some of the issues were similar.
After the interview, I asked him a question on superannuation engagement.
GH: Treasurer, one word we have not heard today at this Innovation Forum is a subject where Australia could claim to be a global leader and that is superannuation. Around the world, our superannuation system is the envy of everyone. Yet we still have an expectation that 80% of Australians by 2040 will draw some form of the age pension, and 90% of people don’t put extra money into super above the Superannuation Guarantee.
My first question, is the Government concerned by the lack of active engagement with superannuation and that people do not realise what their future outcomes are likely to be?
The second part is, even with those people who are engaged, when you reflect on the changes from 1 July, which you argue were driven by the desire to have a more equitable system, they were widely criticised by large parts of the industry and many people.”
Treasurer: “Well, first of all, that 80% figure. That’s true at a gross level, but the componentry changes in the Intergenerational Report show it basically inverts. The proportion we expect to be on the full pension and on the part pension after that period of time flips. The degree that people will rely on the age pension dramatically changes. We will have the same proportion of people on welfare, but the degree of reliance dramatically changes. That is an outcome of the scheme put in place 25 years ago.
There’s nothing wrong with making sure this scheme remains on track. The changes that I introduced this year were all about making the system definitely fairer, but sustainable. Australia has an aging population, and those in retirement age will become larger and larger as a proportion. We all know about the tax paid by those who have paid it all their lives, I acknowledge that, but the proportion of tax they pay after age 65 versus the working age population is obviously a lot, lot, lot less. So, if more and more people are going into a lower tax environment, and going into receiving payments on welfare, then the retirement income changes we made over two budgets were about getting that on a more sustainable footing. Whether it’s changes to the assets test for the pension or changes to the upper limits of our superannuation. That’s why we did it, and I think those changes were sensible.
I realise that for those who were impacted, it wasn’t something they liked, but with the fiscal environment we had and the demographic changes we were facing, I’m not sure what other choice we had. So that was a significant and difficult reform.
In terms of engagement with superannuation, I make these comments in terms of people’s ability to make additional contributions to super. When we went through the super changes, what was quite clear was that the caps and the potential balances people achieve and the limits we put on those were very high. For most income-earning Australians, those caps are stratospheric for them, they are not going to go close. When people are 50 to 55, they become a bit more focussed, that’s why we made some changes post the budget which better reflected giving some flexibility, particularly in those last 10 years before people go into retirement.
It does remain important in our economic system in Australia. I want there to be more choice, more accountability, better governance and my colleague Kelly O’Dwyer has been doing a lot of work in that area as well.
Greater choice. I keep coming back to this point. The strongest markets are those where the customer is the strongest, and that doesn’t matter whether it’s superannuation, telecommunications, utilities, electricity, gas, banking. All of those markets, we want to see the customer liberated. One of the biggest changes we can make which goes into the broader point about technology in this space is consumer data rights. For the Productivity Commission, that is one of the big blocks in productivity over the coming years. That is, giving customers control of their information. That is the building block every fintech, every technology and every company needs to be able to deliver a better service. That will change our economy, and it’s going to change the global economy.”
Graham Hand is Managing Editor of Cuffelinks. This article is paraphrased from a recording.