Modern Australian

Frydenberg should call a no-holds-barred inquiry into superannuation now, because Labor won't

  • Written by Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

The Coalition is running out of time to do worthwhile things.

Facing overwhelming odds of defeat in the election due within weeks, one of its last throws of the dice should be to do something Labor would never do, but which is urgently needed and would set us on the right course for the future.

It’d also cause some trouble for Labor along the way.

It is to launch a full-blown inquiry into the superannuation system Labor has lumbered us with.

Frydenberg should call a no-holds-barred inquiry into superannuation now, because Labor won't Source: Australian Tax Office It’s urgent because compulsory super contributions are scheduled to climb from the current 9.5% of salary to 12%, beginning with an increase of 0.5% in July 2021, followed by an extra 0.5% in 2022, 2023, 2024 and 2025. If that seems rapid, and painful, it is because it is due to happen at twice the rate it has been. Under the schedule imposed by Labor when it was last in office compulsory contributions were to climb by 0.25% of salary in each of 2013 and 2014 and then at twice the rate, by 0.5%, in each of the five years after that. Compulsory super is set to jump.. The Coalition hit pause after 2014 just before the rate accelerated, postponing the series of five much bigger increases until 2022, when it might have hoped that wage growth would be robust enough to cope with it, or when it would have been someone else’s problem. Labor says it will stick to that schedule, presumably regardless of wage growth or other economic conditions or the need for extra super contributions at the time. Asked, ahead of the release of the Productivity Commission’s report on how to make super funds more efficient, whether Labor would reconsider the schedule if the Commission found other ways to boost retirement incomes, Labor Treasury spokesman Chris Bowen said it would not. It’s almost as if – to Labor – lifting compulsory super contributions has the status of a holy writ; perhaps because it would “complete the work” of Labor elder statesman Paul Keating who introduced compulsory super, or perhaps because so many union officials are tied up with the running of the funds that would benefit from the schedule of increases. In the event the Productivity Commission report released on January 10 found ways to massively lift retirement incomes without lifting super contributions. …whether we need it or not It found unintended multiple accounts and the defaulting of new workers into entrenched underperforming funds were costing members an astonishing A$3.8 billion per year. Weeding out the chronic underperformers, clamping down on unwanted multiple accounts and insurance policies, and letting workers choose funds from a short menu of good ones and stay in them for life would give the typical worker entering the workforce an extra A$533,000 in retirement. Even a typical worker aged 55 today would get an extra A$79,000 in retirement. What the Commission’s report couldn’t say, but stongly implied, was that if the Commission’s recommendations were adopted an increase in costly compulsory contributions might not be necessary. Its terms of reference limited it to assessing the “efficiency and competitiveness” of what happened to the contributions that were collected. Henry was unconvinced Another inquiry – less hamstrung – was the Henry Tax Review. It found no need to increase contributions. Labor treasurer Wayne Swan dishonoured its findings by announcing the proposed increase in contributions on May 2, 2010, the day he released its report. But super wasn’t the main focus of the Henry Review. In the 25 year history of compulsory super, there has never been an inquiry into what the rate should be and what the system has achieved. It’s as if governments of both types have been keen to govern blindly. So in January the Productivity Commission tentatively ventured beyond its brief, in a recommendation Treasurer Josh Frydenberg has promised to respond to before the election. It is Recommendation 30, for an independent inquiry into the entire system. Frydenberg should call a no-holds-barred inquiry into superannuation now, because Labor won't The independent inquiry would determine whether or not the system we’ve had for the past 25 years has boosted national or even private savings rates, as well as who it has hurt and who it has helped. They are the type of questions you would think a government would want to answer before lifting compulsory contributions further from 9.5% of salary to 12%. Frydenberg could show leadership… Indeed, Recommendation 30 explicitly asks that the inquiry “be completed in advance of any increase in the superannuation guarantee rate”. It is possible to guess what the inquiry would find: that almost all increases in employers’ compulsory super contributions come out of what would have been wages, depressing workers take home pay, a finding that will not be seriously disputed that the system hasn’t boosted national savings - the increase in private savings has been offset by the decrease in government savings brought about by the use of the super tax concessions that the increase in private savings has come almost entirely from the middle to low earners who have been unable to escape the impact of the levy, because they have had no other savings they could cut. They are the people who could least afford to save more at the time they were forced to the tax benefits have gone overwhelming to the high earners who are saving no more than they would have without them, and without compulsion In sum, the inquiry is likely to find that the system is regressive and cruel. Or perhaps not. We won’t know until it is held. It ought to be conducted by an expert panel whose members are highly respected and who will amass evidence the next government won’t be able to ignore. …ensuring Labor does more than look after mates Frydenberg ought to appoint the panel now, or within weeks, so that an incoming Labor government can’t dismantle it. It would be one of his most important legacies. And would give him something to press the next government about should he be in opposition. In time an incoming Labor government might thank him. At present, without the scheduled increases in compulsory super, wage growth is just 2.3%. With the scheduled increases of 0.5 percentage points per year, wage growth might fall below the rate of inflation, for five consecutive years. No sensible treasurer would allow that happen. By doing what’s right, Frydenberg might be giving Bowen an out. Read more: Productivity Commission finds super a bad deal. And yes, it comes out of wages

Authors: Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

Read more http://theconversation.com/frydenberg-should-call-a-no-holds-barred-inquiry-into-superannuation-now-because-labor-wont-114079

NEWS

Four laws that need urgent reform to protect both national security and press freedom

Wes Mountain/The Conversation, CC BY-NDIn a perfect world, Australia would introduce constitutional protections for freedom of the press. But since the chances of that are next to zero, it might...

Playing games? It's a serious way to win community backing for change

How would you and your neighbours triple the number of households in your street block in order to keep your cherished suburb thriving and do your bit to tackle urban...

Netflix is opening its first Australian HQ. What does this mean for the local screen industry?

Charlotte Best in the Australian Netflix original drama Tidelands (2018). Research last year found that only around 1% of the Netflix Australia catalogue was Australian content. Hoodlum Entertainment Netflix officially...

50 years after Australia's historic 'equal pay' decision, the legacy of 'women's work' remains

June 19, 2019 is the 50th anniversary of Australia’s industrial relations system endorsing the principle of “equal pay for equal work”. Yet, five decades on, a gender pay gap remains.The...

The three things universities must do to survive disruption

More people are learning what they want, wherever they want.Wes Mountain, The Conversation, CC BY-NDThis essay is part of a series of articles on the future of education.The nature of...

Sport is full of conspiracy theories – Chris Froome’s horrific cycling crash is just the latest example

The recent crash of four-time Tour de France winner Chris Froome put his attempt for a record-equalling 5th title on hold. (The 2019 Tour de France starts on July 6.)...

What do Aboriginal Australians want from their aged care system? Community connection is number one

The Aged Care Royal Commission is currently looking at aged care for Indigenous Australians. From shutterstock.comThe Australian Aboriginal and Torres Strait Islander population is ageing at a much faster rate...

Setka gets backing from group of unions as split deepens

Several unions made a concerted strong stand of support for John Setka on Tuesday, as the executive of the Construction, Forestry, Maritime, Mining and Energy Union discussed the push against...

US-Iran conflict escalates again, raising the threat of another war in the Middle East

The United States' reinstitution of punitive sanctions is causing real hardship to Iranians.AAP/EPA/Abedin TaherkenarehLet’s start with a number. On any given day, more than 17 million barrels of oil pass...

Secrecy over Paladin's $423 million contract highlights our broken refugee system

PNG not only wants to end the Paladin security contract on Manus Island, it's demanding Australia find a permanent solution to the refugee crisis.Joel Carrett/AAPNearly six years into the revival...

Turning local libraries, pools and playgroups into sites of surveillance – ParentsNext goes too far

Tomsickova Tatyana/ShutterstockSydney Morning Herald reporter Jacqueline Maley evoked the spectre of the Orwellian surveillance state recently when discussing how library staff had been implicated in the ParentsNext program. Maley reported...

a stylish, enjoyable, historically informed opera premiere

Fernando Guimarâes and Brenton Spiteri in The Return of Ulysses.Brett Boardman Review: The return of Ulysses, Pinchgut Opera, Sydney.Claudio Monteverdi entered the 73rd year of his life when he composed...

Popular articles from Modern Australian

Cosmetic Physician, Dr. Phoebe Jones shares her expert tips on how to treat the most asked about skincare problemsYvonne Allen: How to improve your sex life in your relationshipThe Rug Lady Announces The Launch Of The Latest Saffia Rug Range7 Tips To Get Your Home Ready For WinterFuture-proofing your career prospectsYour Winter Hot Water System Guide for 2019Circulatory System Diseases and Risk FactorsEXYRA eyewearShould you get a hair transplant in Turkey if your hair is grey?Do You Need a Tummy Tuck or Just Liposuction?Best 4 Sassicaia Wine with Soothing Taste and AromaMarvelous Makeover - 5 Tips to Revitalize Your Look This SummerWhat to Expect When Recovering from Gynecomastia SurgeryClickClack Pantry Range | Helping Australians save time & moneyThe Gentleman’s Guide to Wearing Custom Ties