The Treasury’s current Retirement Income Review should have one figure firmly in mind. It is 15.4 per cent.
All Australians should be as concerned about this “review” as they are concerned about the quality of their mattresses. We spend a third of our lives asleep and almost a third of our lives in retirement. So we better not fall asleep while this review is used to degrade the superannuation entitlements of the bulk of Australians.
The system needs some changes, but not in the way that big business, Coalition MPs and right-wing think tanks are suggesting. They want to trash the present system and either cut employer contributions or at least not increase them from the present 9.5 per cent of income to 12 per cent over the next three years as is presently legislated.
So let’s come back to the 15.4 per cent. This is the percentage of income that the employers of federal members of Parliament (we the taxpayers) pay into the MPs’ nominated superannuation funds.
So I would like to see a one-line extra recommendation appear in whatever the review panel recommends. Namely, that whatever the panel sees as sustainable, in the national interest, equitable and economically sound for the mass of Australian workers be also applied to the superannuation scheme of federal members of Parliament.
So if the panel decides the economy (read selfish big business) cannot afford more than the present 9.5 per cent superannuation contribution then it must follow that the employers (we the voters) of federal MPs cannot afford more than 9.5 per cent, and that the superannuation contribution for federal MPs should be cut accordingly.
In an environment where people are showing increasing distrust in government and an increasing view that politicians are in it for themselves, politicians should be protected from charges of hypocrisy and be content with the same level of employer superannuation contribution as everyone else.
And they should not even think about repealing the legislated increases in superannuation to 12 per cent for the mass of employees without reducing their own benefits to the same level. To do so would leave them open to charges or rank, snout-troughing hypocrisy.
So let’s look at it another way. 15.4 per cent is a good figure. In 2004 Opposition Leader Mark Latham announced that he would slash MPs’ superannuation entitlements, which at that stage were massive – lifetime pensions of 50 per cent of salary for an MP who had served for 8 years plus 1.5 per cent more for every year of service thereafter. So Prime Minister John Howard had to match Latham’s plan. The gravy train was reduced to a gravy boat, but still a bountiful 15.4 per cent of salary while the masses were getting 9 per cent, now 9.5 percent.
And bear in mind it was our elected representatives who, after due consideration, thought that an employer contribution of 15.4 per cent was a reasonable, equitable and sustainable percentage. So surely they should think the same of a 15.4 per cent contribution for everyone else.
Most economists and right-wing think tanks absolutely hate the compulsory superannuation contribution from employers. But their arguments against it are dishonest. If they were honest they would say we do not like paying super to employees because we would rather stuff the money into our own pockets.
Rather, they say, employees should not be forced to have 9.5 per cent of their wages put in to super. They should have it now when they need it to help buy a house etc etc. Rubbish. If employers were not forced by law to make that contribution, it would not go into workers’ pockets. The employer would keep as much of it as they could get away with.
And even if employers were saints and if super contributions were cancelled and they paid all of it into the workers’ pay packets, we know the result. The average worker would not put anything in to superannuation. It would all be spent on consumer rubbish today. No one would save for tomorrow. That is what happened before compulsory super and that is what would happen if it were abolished.
The critical thing, though, is to make the tax arrangements on superannuation earnings fairer. With the present flat tax of 15 percent, the vast bulk of the total tax concessions goes to people on higher incomes who would otherwise have their earnings taxed at more than 40 per cent.
High-income people usually have higher balances so gain bigger benefits.
The tax on superannuation earnings should be made progressive, but not based on income, but rather based on the balance of the person’s superannuation account or accounts. Say, zero on balances up to $100,000, 15 per cent up to $750,000, 30 per cent up $1.5 million and 40 per cent thereafter. Or it could be more gradually stepped.
The importance of a progressive rate based on the balance is that it is fairer to people with low balances, especially women who have often been out of the workforce caring for children.
The other reason to increase the rate to at least 12 per cent, if not to the MPs’ rate of 15.4 per cent, is the great boost it has given the Australian economy.
Since the scheme started in 1992 Australians have accumulated nearly $3 trillion ($3,000 billion) in their funds.
Since then, Australia’s net foreign liabilities have been steadily falling as the funds have grown and invested more at home displacing foreign money or invested overseas. For first time in modern history Australians own more in foreign shares than foreigners own in Australian shares. That would simply not have happened without the scheme. Foreigners would have bought even more of the farm than they have.
Lastly, the scheme addressed an historic wrong in Australian society when until 1992 only professionals and high-income earners got decent retirement benefits and the workers were thrown on to the age pension to eke out their time living hand to mouth.
It would be a major injustice to slow, halt or reverse the amounts paid in the compulsory scheme. To halt it at 9 per cent would in effect give retiring workers just enough to disqualify them from the aged pension and little more – not correcting the historic wrong and not providing decent retirement income for all.
I am going to make a submission to the inquiry along these lines because my guess is that most submissions will be made by self-serving employers and the finance industry conspiring against the interests of the bulk of ordinary Australians, like they always do. Ordinary Australians should become more noisy.
This article first appeared in The Canberra Times and other Australian media on 7 December 2019.