By Jason Chow
The Fitzgerald Report on national savings, submitted to treasurer John Dawkins on June 29, called for further cuts in government expenditure, increased indirect taxes and raising compulsory superannuation to 18% of earnings. In the name of low inflation and reduction of the current account deficit, Dr Vince Fitzgerald has proposed measures that will yield no benefit to working people.
National savings have fallen to historic lows in the current recession (16% of GDP). However, the report finds that there has also been a structural decline in savings, over and above cyclical factors, due to persistent government deficits.
The government is alarmed at the low level of savings because, for the economy to move out of recession, private investment has to pick up. In the absence of a large pool of domestic savings, this will be financed by an increase in foreign debt.
Investment can by financed from private savings of firms and households, public savings from a government budget surplus or foreign borrowings. Increasing foreign indebtedness poses problems of risk in exposure to changes in commodity prices, vulnerability to overseas investor sentiment and weakened trading position.
The Fitzgerald Report proposes ways to increase public and private savings to more "safely" finance a recovery. In addition, it claims the higher savings rate target of 22% of GDP will make possible a non-inflationary upturn.
The government's goal of slashing the budget deficit to 1% of GDP by 1996-7 would stabilise the foreign debt but not reduce it. The report aims to convert the government from a net deficit to a net surplus unit.
Suggestions in the report are increasing efficiency of public enterprises ($3 billion annually to be saved from "efficiency gains" in health and
education at a state level), increasing user pays charges, reconsidering the election promises of income tax cuts, increasing indirect taxes, raising existing tax rates and introducing new taxes like inheritance taxes, while reducing expenditure at all levels of government.
The centrepiece is to increase compulsory superannuation to 18% of earnings regardless of the worker's income level. Contributions of 18% are enough to fully cover a post-retirement income and so provide the basis to phase out old age pensions. As well, the report proposes raising the female retirement age to 65 and increasing the age at which you can get access to your super fund from 55 to 60, reducing the control individuals have over their savings.
The push to increase superannuation, as well as being part of increasing funds for investment, also fits the ALP strategy of providing seeming trade-offs for wage restraint. Further, it is a bait for trade union officials in the era of enterprise bargaining, where their role is increasingly obsolete. Undemocratic unions can become financial intermediaries of industry-based super funds.
In a recession, forced savings of 18% of earnings regardless of ability to pay will obviously have a disproportionate effect on lower income workers. Indeed, voluntary super has been the preserve of higher paid workers because they are the only ones who can afford to contribute.
Historically, the savings rates have increased only in boom periods. Voluntary savings are usually low in recessions as wages are slashed and people have to draw on their savings to survive. In this recession the high level of household indebtedness from the 1980s has meant savings are even more depleted.
The immediate beneficiaries of increased superannuation will be the owners of the super funds, such as banks and other finance companies, and the large firms to whom the funds will be channelled. The majority of the assets which super funds hold are in shares (super funds hold around 30% of total market capitalisation on the Australian Stock Exchange), real estate and foreign assets. In this sense,
superannuation represents wage restraint for workers and increased capital for big business (firms large enough to issue stock) and property speculators.
While the report on the whole was received favourably by business, specific proposals have been criticised. Many favour an outright GST as a means to make savings more attractive than consumption. As well there is considerable debate as to whether increasing compulsory super will actually increase savings or just shift savings away from other forms like bank deposits.
Either way, the solutions to the Australian economy's ills do not lie in freeing more capital for business nor in slashing the public sector and increasing taxes.
These economic "rationalist" propositions assume that such measures will lead to an increase in investment and international competitiveness and that in some way this will trickle down to the rest of society. But as the speculative binge of the '80s showed, unless the public has some control over what the funds are used for, in the current climate they will be used on unproductive takeover activity and asset inflation to make a quick dollar, while unemployment remains over 10%.