Here’s something that should be in the budget but won’t be: an end to the outrageous assault on our wallets that is ever-increasing compulsory superannuation.
I am hearing that it nearly was in next week’s budget, until the government chickened out.
I’ve never been able to see what most people see in boosting compulsory superannuation, although I certainly have been able to see what those who stand to benefit see in it. They are people who work in the finance industry and the trade union movement and the employer organisations that would get an extra $10 billion a year of our wages to play with, if, as scheduled, compulsory contributions climb from 9.5 per cent of our salaries to 12 per cent in the space of a few years.
They would be doing more than playing with our wages. They’d be collecting hundreds of millions of dollars more in fees for doing it, for making essentially the same investment decisions as they are making at the moment.
But think what it would mean for the rest of us, for the vast bulk of the population who (after a five-year phase in period) would have an extra 2.5 per cent of each year’s salary taken from us and put somewhere else. If we were told we were about to get a tax increase of that size (and in essence it would be a tax increase) we would be enraged. All the more so because the phase-in will be brutal.
For more than a decade the compulsory super was stuck at 9 per cent. The Henry Tax Review examined whether that was enough and found that it was. It recommended that compulsory contributions “remain at 9 per cent”.
It was an unwelcome recommendation for a Labor government that had already decided to lift the rate beyond 9 per cent, so it ignored it. Deceitfully, it announced the lift to 12 per cent on the day it released the Henry Review, giving the impression it had endorsed it. Given everything else that was announced that day, including the mining super-profits tax, Henry’s explicit recommendation not to do what the government was determined to do slipped under the radar.
Henry’s thinking was that while locking away an extra 3 per cent of wages would probably increase retirement incomes, it would do it mainly by further impoverishing people who were already hard up.
Well-off Australians already save much more than their compulsory super contributions. Indeed, even excluding housing, most of their assets are held outside super. They’ve no problem cutting back on other savings in order to negate the effect of an increase in compulsory super, just as they have done when it’s been increased in the past.
Less well-off Australians are trapped. Saving little outside super because of more immediate demands, such as rent or mortgages or raising families or putting themselves through university, they are forced to accept less take-home pay than they would have got at the times in their lives when they need it most in return for the promise of more when they were retired and mightn’t need it as much.
And don’t for a moment think those compulsory contributions don’t come from pay. All manner of people tell me they don’t, but they are not the people who know. Bill Shorten put it this way when spruiking the planned increase from 9 to 12 per cent: “What will happen is that superannuation, the increases to superannuation, will be absorbed as part of people's pay rises.” Employers forced to pay more of their employment bill in superannuation will necessarily pay less of it in wage rises.
Which didn’t matter much for the first two increases. The first, from 9 to 9.25 per cent, was small and seems to have cut wage rises from about 3 per cent to 2.75. The second, a year later, was the same size. It seems to have cut wage rises from about 2.4 per cent to 2.2.
But the next increases were to be gargantuan. Labor’s plan doubled them after the first two, lifting the annual jump from 0.25 to 0.5 percentage points, and it was set to do it at a time when wage rises were sliding to an all-time low. Had that next increase of 0.5 points happened it would have cut wage growth from about 2 per cent to an impossibly low 1.5 per cent, sending buying power backwards.
In its first budget the Abbott government baulked and froze the rate at 9.5, later extending the freeze until 2021. It’s that 2021 increase from 9.5 to 10 per cent which will appear in the four years of estimates to be published in Tuesday week’s budget. (It appears in the budget because increases in compulsory super cost the budget money, taking income out of highly taxed wages and putting it into more lightly taxed super funds.)
It’s why Tuesday week was going to be the perfect time to abandon the schedule of increases for good, an opportunity I’m told the budget cabinet has passed up. It might have taken the view that it shouldn’t fix up Labor’s mess for it. If Labor wins the next election, it will have to either wind back its schedule itself or risk sending living standards backwards.
If compulsory super stayed at 9.5 per cent, anyone who wanted to would still be able to put away extra and anyone who couldn’t wouldn’t have to. We could hang onto our money.
In The Age and Sydney Morning Herald