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Steve Bracks: super freeze short-sighted in every way

Shutterstock

Shutterstock

The freeze on the superannuation guarantee for seven years and pushing back its move to 12 per cent until 2025 is staggeringly short-sighted policy.

It will hurt 9 million workers, damage the national savings pool, curtail investment in infrastructure and hoist the problems of an ageing population and a structural budget deficit on future generations of taxpayers.

The short-term political fix cooked up between the federal government and the Palmer United Party to repeal the mining tax is at complete odds with the “end of the age of entitlement” frame that Treasurer Joe Hockey has been at pains to sell.

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The freeze and delay in superannuation levels will have a real impact on individuals.

Take the average member of Cbus Super, of which I am chairman. They are 38, have about $32,000 in super savings and earn $51,000 a year.

The government’s timetable for super guarantee (SG) increases means they will retire with $52,000 less in retirement.

For a younger member, say a 25-year-old with $10,000 in super, earning $51,000 today, the new regime will see them $142,000 worse off in retirement.

Young professionals

Young workers will be worse off in retirement. Photo: Shutterstock

Of course, these figures assume they will work full-time until the age of 65. It does not factor in the demands of physical work in jobs such as those in the construction industry which see many forced to retire early.

Reducing retirement savings can only mean continued and increased reliance on the aged pension or other forms of government assistance – something the government has been telling us is unsustainable given the budget position.

To patch this contradiction in policy, the government argues that freezing and delaying the SG rate will mean more money in workers’ pockets now, which will be taxed at a higher rate than if invested in superannuation under current tax arrangements.

This is real “tell them they’re dreaming” stuff.

A recent Galaxy survey commissioned by Sunsuper found that 77 per cent of businesses plan to keep the money saved from SG increases in their businesses rather than give their employees a pay rise.

Even if you discount the survey findings, are we to believe the government is agitating for a wages breakout to compensate for its poor policy decisions? That’s hardly the policy ground of a conservative government faced with a “budget crisis” and decrying Australia’s high cost of production as an anchor on our global competitiveness.

Nor does the argument recognise that superannuation savings are deferred spending, compounding earnings over time and contributing to a vast pool of savings that supports the economy and then ending up as a larger amount in our pockets in retirement.

Australia’s superannuation pool of savings is now valued at $1.87 trillion. The interim report of the Financial System Inquiry, chaired by David Murray, correctly pointed out that as well as providing positive real returns on investment to increase people’s retirement income, the superannuation sector is a major source of funding for the rest of the economy.

Money superannuation

SG freeze could mean loss of $150B in super. Photo: Shutterstock

Not only has that significant pool of savings made the cost of capital dramatically lower, it also acted as a major backstop for our financial system and sharemarket during the global financial crisis, helping shore up the economy.

Superannuation funds are also investors in long-term assets such as in public infrastructure needed for a growing population.

A further implication of the government and PUP’s deal will be to lessen the amount of what otherwise might have been invested in nation and productivity building infrastructure.

Industry Super Australia estimated that the SG freeze and delay, taken together with the abandonment of the low income-earners’ super contributions payments in 2017 – which was also part of the deal – will mean a loss in national superannuation savings of $150 billion.

The result of a loss in savings of this magnitude could mean a reduction in investment in the country’s infrastructure by superannuation funds of some $15 billion to $20 billion over that time.

That’s not a good outcome for a country with an infrastructure deficit estimated between $300 billion and $700 billion.
Freezing increases in super savings is simply incongruous with a prime minister who wants to be known as the Prime Minister for Infrastructure and a government that seeks to cloak itself in the importance of infrastructure development in lifting our quality of life, productivity and international competitiveness.

Finally, the decision smacks of short-term opportunism and an abrogation of responsibility. We cannot hope to improve retirement incomes to levels required to take the pressure off the public purse and the ageing, taxpaying workforce, if we just keep kicking the can down the street for future generations.

It’s poor policy writ large.

Former Victorian premier, Steve Bracks, is chairman of Cbus Super, which is a part-owner of The New Daily.

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