Yes, the Productivity Commission (PC) has come up with some straight-forward ideas that would make average workers hundreds of thousands of dollars better off.
But those ideas will be tossed into the political fire by the predispositions of both major parties, never mind a federal election. Given that the government seems scared of parliament sitting, the PC’s final superannuation report is going nowhere any time soon.
That means further delays in weeding out the dud superannuation funds, reducing unnecessary fees, insurance policies and multiple accounts.
And the PC itself points to the report’s own shortcomings: if we’re going to get serious about reforming superannuation, it can’t be done in isolation the way the government limited this report.
Our super system needs reviewing in terms of our whole savings system, to check whether Australia is getting a fair bang for its buck with super, or primarily subsidising the relatively well-off.
That would be a tough job under either a Liberal or Labor prime minister, given that both sides have particular axes to grind.
For example, the Liberal Party continues to snipe at industry superannuation funds, despite all the Royal Commission has uncovered and the PC underlining the industry sector’s overall outperformance.
Meanwhile, the Labor Party remains overly committed to industry super, already ruling out the PC recommendation of an expert committee to pick the “best of breed” funds for default super.
Weeding out the chronic underperforming funds would mean some industry funds would bite the dust along plenty of retail funds.
Given what the polls are saying about which party will actually decide what to do with the report’s recommendations, it’s unfortunate again that Labor seems committed to increasing the super guarantee levy despite overwhelming evidence that it would not be in Australia’s best interests in the foreseeable future.
Some might think increasing the levy to 12 per cent from the present 9.5 would at least be one way of getting a pay rise when real take-home wages have been going backwards for half a dozen years.
Unfortunately, the real world doesn’t work like that.
On the surface, increasing the levy might look good for those on awards. The way super increasingly works for a great many workers though is that it’s just “part of the package”.
A bigger levy would mean lower take-home pay – the exact opposite of what the economy needs now. But it’s more complicated than that. The Grattan Institute’s Brendan Coates makes a comprehensive case in The Conversation for not increasing the levy because it ultimately comes out of the wages pool, not company profits.
Along the way, he quotes no less an authority than Bill Shorten. This is what Mr Shorten was saying in 2010 when he was assistant treasurer:
“Because it’s wages, not profits, that will fund super increases in the next few years. Wages are the seedbed of the whole operation. An increase in super is not, absolutely not, a tax on business. Essentially, both employers and employees would consider the superannuation guarantee increases to be a different way of receiving a wage increase.”
The interaction of the tax system, broader savings and superannuation is complex. Both sides of politics are capable of pushing their vested political interests when the $2.7 trillion industry and the nation deserve and need better.
Scott Morrison found himself in enough hot water as treasurer when he sought to wind back some of the worst excesses of the super system in his 2016 budget. He won’t want any further grief from his base.
Similarly, Labor has nailed itself to an ever-greater levy, and protecting the current structure of industry funds receiving an awards preference.
Maybe there is a better alternative again. For mine, I’d leave the levy as it is and have the ATO collect it from everyone – including the self-employed – as part of the tax system.
I’d have the ATO hold that money for no fee but at no risk, and paying the government bond rate until the individual’s pot was actuarially worth having someone manage.
At that point – $25,000 or $50,000 perhaps – the individual would make the decision while doing their annual tax return about who should manage it.
The default option of a “best of breed” panel would be there for those who choose not to choose.
Alternatively again, work by former PC economist and present CEO of Lateral Economics, Dr Nicholas Gruen, previously reported here is worth repeating.
Dr Gruen made his own submission to the superannuation inquiry, a submission that got short shrift.
While the PC recommended a collection of best-of-breed managers to act as default funds for superannuation, Dr Gruen believes the government itself would be best placed for that role.
He uses an appealing analogy between health care and wealth management.
“The more I think of finance, the more I think of health where in every country other than the US there’s an informed purchaser of expert services keeping costs down and quality acceptable,” he told me.
“Where you don’t have that, prices go through the roof while quality can often decline with over-servicing for everyone except those in the know. Same in finance except that in finance, as we’ve seen, over-servicing often takes the form of no service whatsoever.
“The idea that we want to empower everyone to be their own consumer of sophisticated financial services is not only wrong-headed. Just chat to the next person you meet in the street and you’ll understand it’s one of those ideas that Orwell said was ‘so absurd that only an intellectual could believe them’. It’s cruel and immoral.
“Only 60 per cent of Australians describe themselves as ‘comfortable’ in managing their money, and they’re talking about basic budgeting, not choosing between sophisticated investment offered by professionals working as salespeople who ply their wares as government licensed ‘advisers’.
“It produces entirely avoidable disasters. We don’t do it for health, do we? We just give people the option to manage things their way.
“Economics used to be what I call clarified commonsense. Today it’s practitioners who spend most of their time staving off commonsense.”