There is a paradox at the heart of the superannuation guarantee set up by the Keating government in 1991. On the one hand, it has unquestionably made Australia richer overall. On the other, it is failing many Labor supporters it was intended to help.
That’s a problem for former-PM Keating’s legacy, because many of those let down by the scheme are the very people to whom it was promised as part of the ‘social wage’ trade-offs between 1983 and 1991.
During that reform period the ‘prices and incomes accords’ involved unions holding wage claims in check, while government fiscal and monetary policy was set to keep inflation low to preserve real wages.
The social-wage sweeteners in the deals were substantial -- the creation of Medicare, increases in pensions and benefit, a shift to decentralised wage negotiations that got employers and employees pulling in the same direction, and the super guarantee to ensure everyone retired with dignity.
But there is growing evidence that the last of those sweeteners is, in the long run, a mixed blessing for the union members whose leaders negotiated, via then-ACTU boss Bill Kelty, with the Labor government.
This has most recently been highlighted by the progressive think tank Per Capita, which last week reignited the debate over super policy settings with the release of its detailed report ‘The Entitlement of Age’.
That wide-ranging report tackles many problems in the super framework, but some of its findings show a growing number of asset-poor Australians over 65 living on less than the "60 per cent poverty line", defined by the Australia Council of Social Service as being 60 per cent of the median wage.
The Per Capita report notes: “In dollar terms, 60 per cent of the poverty line is approximately $24,648 per annum. The current maximum age pension is approximately $22,000 per annum, including supplements.
“As ACOSS rightly points out, people who do not own their home face a higher risk of poverty. Together with rental assistance, a single pensioner on a full rate takes home approximately $25,000, placing them just over 60 per cent of the poverty line.”
Australia’s long-term divergence between incomes (upon which the ‘poverty line’ is calculated) and property prices, makes matters worse for those who do not own their homes with they retire -- rent or mortgage payments in retirement devour too much of the weekly budget for many.
It is this factor that explains the report’s startling revelation that “people aged over 65 in Australia have the lowest disposable incomes among all OECD countries”.
The report quotes an ACOSS finding that more than “a third people over 64 still live below the 60 per cent poverty line. Home ownership provides a significant protection against poverty for many older people but the minority who rent face a higher poverty risk.”
Paul Keating is obviously not going to take the blame for a property boom that has left some retirees high and dry.
In fact, he probably would blame these appalling statistics on the Howard government not raising super contributions from the 9 per cent to 15 per cent over time as both sides of politics had promised to do during the 1996 election campaign.
Then again, the Coalition will argue that fixing Keating’s ‘budget black hole’ and paying down the $96 billion debt he left behind made such a move unaffordable.
Let them slug that one out.
The key take-out of the report is that the super guarantee as part of the ‘social wage’ is failing the bottom third of retirees, who have seen the real value of pension payments eroded but have not developed super nest-eggs to offset the difference.
But what about the other side of that paradox? One of the great things about the super guarantee is the large pot of national savings it has created.
Australian corporations, which are approximately 60-70 per cent owned by Australian residents, have benefited hugely from this pot of money.
About 60 per cent of capital raisings come from super funds -- a fact that has been credited as ‘saving Australia’during the more than $200 billion of balance-sheet repairs undertaken by Australian firms during the GFC.
Those companies have invested, profited, paid Australian wages, paid Australian company tax, and have returned dividends to super-fund owners -- and Keating’s big reform was to make all Australian workers members of one fund or another.
So how can a third of retirees be so hard done by?
The answer, spelled out in great detail in the Per Capita report, is that the benefits of the superannuation and tax settings ensure that the super system is regressive in nature -- the richer you are, the more you can put away, the more tax you can avoid paying, and the less you will need to rely on a paltry government pension in retirement.
My colleague Robert Gottliebsen raised this issue again yesterday with his examination of ‘super tax concessions’, which critics of the scheme claim is a subsidy to high-income earners of well over $30 billion a year (Abbott must not be fooled by Treasury’s super trickery, August 27).
This figure was debated towards the end of the Gillard years and, once pension savings to the government were factored in, came out at something closer to a $16 billion a year subsidy to high income earners -- a figure that, by the way, continues to rise.
To compound that problem, exempting the family home from the pension asset test, and allowing up to $1 million in other assets, is allowing wealthy Australians to claim a pension they don’t need.
The report notes: “At the time of the Harmer Pension Review, 15 per cent of people in the top net wealth quintile reported receiving the age pension ... This finding is in line with research by NATSEM showing that 13.8 per cent of all people receiving the age pension were living in households where the average net worth is more than $1.6 million.”
The ethical side of this may not be clear cut. However the economics of it are.
If a third of Australians retire below the ACOSS defined “60 per cent poverty line”, super is not providing what Paul Keating envisaged.
And if a considerable portion of the wealthiest Australians are claiming a pension they don’t need, likewise.
If one were able to take a factory worker retiring in 1990, with a small company pension and a full government pension, and transplant them into 2014, they might just calculate that they’d prefer to travel back to the time in which the super guarantee did not exist.