A few weeks ago, when I offered my list of our top 10 economic reforms
of the past 40 years, I was surprised by the number of people arguing I
should have included compulsory employee superannuation in the list.
Really? I can't agree.
It is, after all, merely a way of compelling
people to save for their retirement. That's probably no bad thing in
principle, countering our all too human tendency to worry excessively
about the here and now and too little about adequate provision for our
old age.
But compulsory saving hardly counts as a major reform. I
suspect some of my correspondents see it as a boon for workers because
it extracts a benefit from employers over and above the wages they're
paid.
If so, they've been misled by appearances. Economists are in no
doubt it all comes out in the wash: that when the government obliges
employers to contribute to workers' retirement savings, the employers
eventually make up for it by granting smaller wage rises than they
otherwise would have.
It's true that compulsory super
contributions - and the subsequent earnings on them - attract tax
concessions, being taxed at a flat rate of just 15 cents in the dollar. But
while upper income-earners do disgracefully well out of these
concessions, people on incomes around the average gain little advantage,
and those earning less than $37,000 a year gain nothing. Hardly sounds
fair to me.
My other reservation about compulsory super is the way
it compels employees to become the victims of the most shamelessly
grasping, overpaid industry of them all: financial services. These are
the people who made top executives and medical specialists feel they
were underpaid.
Compulsory super delivers a huge captive market
for the providers of investment services to make an easy living from and
for the less scrupulous among them to prey upon. The pot of money the
government compels us to give these people to manage on our behalf has
now reached $1.6 trillion.
Most of us have little idea how much
these people appropriate from our life savings each year to reward
themselves for the services we're compelled to let them provide to us -
and little desire to find out.
We should be less complacent. For many
workers it's more than we pay for electricity each year. Think of it: we
put so much energy and passion into carrying on about the rising price
of power - and Tony Abbott used our resentment to get himself elected -
while the men in flash suits dip into our savings without most of us
knowing or caring.
To be fair, industry super funds dip into our
savings far more sparingly than the profit-driven "retail" funds backed
by the big banks, insurance companies and firms of actuaries. Since most
workers do have a choice, you'd need a very good reason not to have
your money with an industry fund.
But even this worries me. It
means the union movement - the people whose job is to protect workers by
being full bottle on the tricks the finance industry gets up to - has
divided loyalties. Those who should be holding the industry to account
are also part of it.
For years the industry campaigned for an
increase in the super levy of 9 per cent of salary, arguing it was
insufficient to provide people with an adequate income in retirement.
This is a dubious argument, rejected by the Henry taxation review.
But
look at it another way: here is a hugely profitable industry arguing the
government should increase the proportion of all employees' wages
diverted to the industry for it to take annual bites out of before
giving us access to our money at age 60 or later.
This is classic
rent-seeking. The Howard government was never tempted to yield, but as
part of the Labor government's mining-tax reform package, it agreed to
boost compulsory super contributions to 12 per cent by 2019. Why? I
don't doubt Labor was got at by the union end of the financial services
industry.
Contributions increased to 9.25 per cent last July, but the
Abbott government came to power promising to defer the phase-up for two
years. I'd lay a small bet this deferral will become permanent - though
probably not before contributions rise to 9.5 per cent on July 1.
I
wouldn't be sorry to see the phase-up abandoned. The Henry report
recommended against it, arguing that action to reduce the industry's
fees could produce a similar increase in ultimate super payouts. And
it's doubtful that low income earners are better off being compelled to
save rather than spend their meagre earnings.
The government's
policy of compelling workers to hand so much of their wages over to the
finance industry surely leaves the government with a greater-than-normal
obligation to ensure the industry doesn't exploit this monopoly by
misadvising and overcharging its often uninformed customers.
This -
along with the millions lost by investors in Storm Financial and other
dodgy outfits - prompted Labor's Future of Financial Advice reforms,
which focused on prohibiting or highlighting hidden commissions and
requiring advisers to put their clients' interests ahead of their own.
But
now Senator Arthur Sinodinos is seeking to water down these consumer
protections in the name of reducing "red tape". The financial fat cats
live to rip us off another day.
