Hidden agendas in superannuation plan

Issue 

In July 1 the Keating government hopes to have in place a law to make superannuation obligatory for all workers. Employers will have to set aside for superannuation each year a minimum of 3-5% of wages or pay the equivalent as a levy to the government. However, persuaded by arguments against the scheme from the welfare lobby, the Democrats may join with the opposition to block the bill in the Senate. PETER BOYLE argues that there are several hidden agendas in play.

The main argument for the superannuation guarantee levy (SGL) — as presented by federal Treasury officials to a Senate inquiry on superannuation — appears simple enough.

In the first half of the next century, the postwar baby boomers are going to reach pensionable age. The working population will have to support more aged pensioners than ever before — a third of the population — unless provisions are made in advance to secure a reasonable income and associated services for them. In the year 2032, warns the treasury, the average taxpayer will have to pay 34% of her/his income as tax compared to the 24% paid on average today.

Compulsory superannuation, it is claimed, will assure a higher retirement income and relieve the next generation of taxpayers from an extremely onerous burden.

This argument has been questioned by demographers. While the ageing of the baby boomers will increase the proportion of aged dependants in the population, this will be balanced to some extent by a fall in the proportion of youth dependants. According to Australian National University demographer Dr Cristabel Young, by 2021 youth and aged dependants together will account for roughly the same percentage of the population as they did in 1981.

When quizzed about the population figures used in their argument for the SGL, Treasury officials admitted that they had only done some "back of the envelope calculations".

The ageing baby boomers threat has also been discounted by Barry Jones' Commission for the Future. Jones has argued that there is no reason why people over 65 could not be allowed to work if there was a need. Also, greater productivity through technological change should allow the working population to support a greater number of dependants.

The Australian Council of Social Service has argued that superannuation is an inequitable way to make provisions for the ageing baby boomers. ACOSS says that adequate aged pensions can be guaranteed by the federal government making the necessary provisions for future outlays; if necessary, these could be raised by the equivalent of the Medicare levy. Such a system could provide a minimum standard of living for all the aged, and the funds could be raised fairly from across society. ACOSS points out that compulsory super may justify the abrogation of society's duty to look after the aged while guaranteeing only the higher income earners a good retirement income.

The rich have always, for obvious reasons, been in a better position to save for their retirement. Moreover, the tax concessions allowed for superannuation contributions provide the wealthiest with the biggest tax advantage. Like all other tax reductions for the rich, this reduces government revenue and leads to calls for more cuts to pensions and other social services.

Even with compulsory superannuation, low income earners or those (like many women) who may have disruptions to their employment may have a hard time saving enough for even the modest living most pensioners eke out today. According to a spokesperson for the Australian Retired Persons Association, a couple will need at least $300,000 in accumulated superannuation in order enjoy even the basic standard of living allowed a fully pensionable couple. If they have less than this but more than about $60,000, they could end up worse off than a couple on a full pension because the assets test would wipe out some or all of their entitlement to the aged pension.

Why is the ACTU so keen on compulsory superannuation? Is superannuation seen as a gain for workers because employers are compelled to contribute to these funds? If so, the employers are certainly not under this illusion, as an editorial of the Australian Financial Review pointed out on February 20:

"Superannuation is a relatively simple concept, in which part of an employee's reward package is set aside and saved ... It does not matter much whether employees contribute separately from their tax-paid income or whether the whole of the contribution is paid by the employer, the money comes out of the pool earmarked in every company for employee remuneration."

The paper was equally blunt about the government's motivation in pushing compulsory super: "In the main superannuation has been favoured by governments, simply because it relieves government of the responsibility of providing income for the aged".

The fact that compulsory superannuation is a charge on employees in the final instance becomes painfully obvious when ACTU officials trade wage rises for superannuation, as they have done in the last three Accord deals. The proposed SGL legislation is a major part of the current Accord package.

Another argument for the superannuation plan is that it will boost domestic savings, reducing overseas borrowings and hence slowing the growth of foreign debt. (While the debt is cited as a reason to reduce government spending and public services, the Treasury has revealed that half of what is called "Australia's foreign debt" is actually owed overseas by overseas investors in Australian-based corporations. Most of the rest is owed by Australian investors; public debt is very low by international standards.)

There is an elaborate argument about the wonders superannuation will do for "national saving" in Australia Reconstructed — the results of a study of the marvels of managed capitalism in Sweden, Norway, Austria and West Germany in 1986 by several union officials and the Trade Development Council. But given the agreement between the Keating government and the ACTU on continued wage restraint and real reduction in labour costs under the Accord, making superannuation available to all workers may not improve their savings at all; it may simply transfer their savings from bank deposits to superannuation funds.

This change in the form of a large part of savings is the most important hidden agenda. Under the Keating-ACTU plan, the total value of superannuation funds will amount to $600-$700 billion by the end of the century (currently it is about $150 billion). It will be the biggest pool of national savings; unlike most forms of savings, it cannot be touched for years by its nominal owners.

Superannuation holders also have no say in how their savings are used. The funds are placed in the hands of fund managers who invest them as they see fit (subject to some very mild prudential regulations).

The big five corporations which manage most of the super funds are AMP, National Mutual, MLC, BT Australia and Colonial Mutual. These also control most of the deposits on other forms of managed funds. They own a slice of most major corporations and play a key role in the privatisation of the most profitable public assets.

In effect, the SGL plan imposes a tax on all wages and salaries, and transfers the revenue from these taxes into the control of the fund managers. In return the fund managers take some of the pension burden from government in the future. This is the privatisation of the aged pension.

But since super guarantees a good retirement income only to the higher paid, a future government may face the choice of picking up the pieces with a large welfare net or letting thousands of pensioners wallow in poverty. By the year 2032 the SGL might turn out to be one of the biggest privatisation scams ever.