As my family and friends will tell you, I’m a pretty laid-back character.
I don’t rile easily, don’t tend to get stressed, and I’m pretty happy to go with the flow.
But man, was I worked up yesterday!
Truth be told, I’m still worked up, today.
And it’s over – wait for it – the Superannuation Guarantee levy.
Funny thing to get angry about, right?
Actually no, I don’t think so.
I think if you’re not angry about it, you don’t yet understand the issue.
So let me explain.
From the time compulsory Super was introduced, the rate has slowly increased.
Originally 3% of your pay, then 6%, it’s slowly climbed to be 9.5% of your wage or salary today.
And it’s supposed to keep going up, maxing out at 12% by 2025.
Two reasons, really, that are interrelated.
First, to give you a comfortable retirement. Despite our best intentions, experience tells us we’re really bad at saving enough money for that purpose (that was the case before Super and remains the case in other countries that don’t have a similarly compulsory scheme).
Second, to relieve the pressure on the federal budget in future, particularly as the population grows and ages.
Seems pretty straightforward, right?
And yet, the government has let it be known they’ll be reconsidering either pausing or scrapping that gradual increase in May’s federal budget.
There’s been no shortage of reasons put forward. Chief among them: the economy needs the money, some people might have higher incomes in retirement, and that workers could better use the money now, say for a house deposit.
If that sounds like a grab bag of ‘hey, let’s throw everything at it, and see if we can make it stick’, you’re on the right track.
Except that those reasons are flimsy at best, in my view.
And just as you can’t cross a chasm in three short jumps, three (or more) weak reasons don’t add up to one good one.
But we’ll get to that.
First, let’s remember why Super is so important.
Before Super, we didn’t save anywhere near enough for retirement.
Hell, even with Super we haven’t learned: a Mozo report from early this year reported that 75% of Australians don’t have enough savings to deal with a family crisis.
What do you reckon the odds area that, if Super increases are scrapped, we save that money voluntarily?
And overseas, where similar schemes aren’t compulsory, most people have way too little saved for the time they stop working.
Super is imperfect, but it’s probably the single best example of a behavioural ‘nudge’ – putting a system in place to help us do what we otherwise couldn’t, or wouldn’t do without it.
Despite our very small population, globally speaking, we have the fourth highest pool of retirement savings in the world.
In short: Super works.
We should protect it with everything we’ve got.
Which makes the attacks on it somewhat bizarre to me.
Well, except for this: The problem is that the aforementioned retirement savings pool has vested interests salivating, seeing it as a big, fat piggy bank they can raid for their own purposes.
Except that it’s not their piggy bank. It’s ours!
(If you’re a cynic, feel free to insert your own comment about politicians and their tendency to freely spend other people’s money.)
But let’s go through the ‘reasons’:
“The economy needs the spending”
The economy always needs the spending! When was the last time you heard the business lobby say “Yeah, look, we have enough economic activity… why don’t you guys save it, instead?”
It starts with “N” and ends with “ever”, right?
Yes, we’re going through a rough patch. Yes, extra spending would be nice. But hey, the government already encouraged people to be poorer in retirement by raiding Super during the depths of COVID-19.
Maybe the government should encourage businesses to pay workers more? Or to pay more tax (on profits – so it wouldn’t impact those making a loss and doing it tough)? Maybe they could lower tax on low-income workers so they can spend more?
No, just Super? I see…
“Some people might have higher incomes in retirement”
You know what I love about this one? All of a sudden, the boffins can see clearly into the future. They know how long we’ll work, how much we’ll earn and what Super’s investment returns will be.
I mean, wow. Can I borrow the crystal ball, please?
It’s also related to another ‘reason’: “Some people might have Super left over when they die, so we’re obviously contributing too much”.
Sure. So let’s penalise the working single mum in a part time job, just in case the lawyer on $200k doesn’t use up all of his Super on cognac and cigars before he dies!
“It could better be used for a house deposit”
This one is a cracker. Now, I’m a big fan of people owning their own homes. It’s an important piece of financial stability. And we should do what we can to make that happen for as many people as possible.
I mean who can argue with that, right?
But isn’t it just slightly interesting that bugger-all else is being done to help home affordability, save for a Mickey Mouse ‘save a little bit extra inside Super’ scheme to help young people buy their first homes?
No comment on negative gearing, capital gains taxes, bank borrowing limits or the structural costs of land and construction. No consideration of debt levels. Just throw more (of our) money at it.
In sum, these are weak reasons all coalescing around a big pot of money, all wanting a share.
Are they legitimate issues?
Yes, in the main.
But the framing is insidious.
Did you notice that the government and the selected vested interests weren’t exactly hot on these topics before?
If we really want to solve for low wages, poor economic growth and/or unaffordable housing, why weren’t other policies already being put in place?
Where’s the industry policy? The trade policy? Education policy?
Why not, for example, raise wages, cut taxes on low-income earners, or add stimulus.
“Oh, we couldn’t possibly do that, because…” is the usual answer.
“But we can raid your retirement, because you might not notice” seems to be okay, though.
Worried about people having too much Super?
Great. Cap it. Tax the income (above a generous tax-free threshold). Tax the balance at the point of inheritance.
“Oh no, we can’t do that. Better to limit the amount being contributed for factory workers, shop assistants and coppers and firies.”
Where are the microeconomic reforms? Where’s the 10-year blueprint for productivity increases? Where’s the trade policy to make sure higher-wage jobs are created in export-oriented industries?
Why are these issues not on the agenda until they see a pot of money they can raid?
Politics is an insidious business.
The spinners know well that we’ll usually swallow whatever rubbish they sell us, as long as they frame it well.
Remember, there’s no inquiry into ‘housing affordability’, ‘appropriate wage levels for low-income earners’, ‘the cost to the budget of tax-free Super incomes for high income earners’ or ‘structural changes to grow the economy’.
If the government and the vested interests cared about those issues, they’d launch those inquiries and give those speeches.
It’s what Hawke, Keating and Howard did.
Instead, they’re starting at the end, seemingly wondering “What could we do with the money that would otherwise be set aside for Australians’ retirement?”
(And, yes, for the record, this isn’t party-political. It’s policy. I’m giving the current Liberal/National government a whack, just as I did Labor on their unfair and short-sighted franking policy at the last election, so this isn’t a partisan issue.)
I’m in a unique position to comment. No, I’m not the foremost expert on any of these policy areas, but I’ve developed expertise in one particular area: investing; which is the very definition of forgoing consumption today, in return for more consumption, later.
I’ve spent my professional life trying to stop people ‘spending now and suffering later’, and yet our government – the mob we should expect to be putting our long term welfare first – is acting more like a credit card company than a responsible financial counsellor.
So here’s the thing: if some of the reasons for raiding Super make sense to you, and have you agreeing with the logic, ask yourself one question: what other policy interventions are available, and why is Super the most appropriate one.
It’s the question that none of those in the ‘raid Super’ camp have addressed.
And that should make us sceptical. And mad as hell.
Please, don’t let them take a huge chunk of your retirement income without a fight.
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