Treasury secretary cracks the super whip
WHEN Peter Costello announced his mindbogglingly generous changes to the taxation of superannuation in 2006, the air was thick with economists prophesying such profligacy would soon prove unsustainable.
WHEN Peter Costello announced his mindbogglingly generous changes to the taxation of superannuation in 2006, the air was thick with economists prophesying such profligacy would soon prove unsustainable. Even in business circles, the good news was widely judged too good to last. Super payouts would be tax-free for those 60 and over (thus making people's age as well as the extent of their income a criterion for how much tax they paid) and the salary-sacrifice lurk for the better off was opened wide.At the time, Treasury, whose advice seemed to have been followed by the Howard government, wasn't having a bar of the conventional criticism, and I volunteered to make sure the government's side of the story got an airing.Since the arrival of the Rudd-Gillard government, however, the approach to super seems to have changed, suggesting the policy advice may also have changed. Despite (or maybe because it is) planning to phase up the compulsory employer contribution rate from 9 per cent of salary to 12 per cent, Labor has been chipping away at the cost - and the unfairness - of the super tax concession. It has largely eliminated the salary-sacrifice lurk, corrected the situation where those on low incomes gained no concession on their contributions and, in effect, restored the Howard government's 15 per cent super surcharge for those earning more than $300,000 a year.Last week, the present secretary to the Treasury, Dr Martin Parkinson, removed any doubt that Treasury's attitudes have changed in a tough speech to the super funds association. He warned that, looking ahead, there were challenges for the present super arrangements. An obvious one, he said, was the ageing of the population. Although Australia was much better placed than many of the developed economies to cope with the budgetary costs of ageing, "the question remains, however, whether the current framework for our superannuation system will be sustainable into the future. While changes to the superannuation guarantee have been important for improving adequacy, they will clearly come at the cost of forgone revenue. Also, governments over time have introduced a range of concessions that encourage increased voluntary saving in superannuation. Again, these concessions come at a cost, indeed a very significant cost."With the Commonwealth budget coming under increasing pressure over the next few decades, the fiscal sustainability of all policies, including superannuation, will demand greater public scrutiny. This scrutiny will be even more important to the extent that existing concessions are seen to favour some at the expense of the majority."When you remember all the promises both sides are taking into next year's election, and the difficulty whoever wins will have keeping the budget on track, it is not hard to guess where Treasury will be suggesting they look for savings.Apart from the motor industry, there are not many sectors greedier in their rent-seeking than the super sector. Dr Parkinson took the opportunity to remind the funds in person he is no soft touch. How is this for frankness: "The government ensures the superannuation sector is provided with a steady, guaranteed and concessionally taxed supply of money. No other industry has this guarantee. None."That sounds to me like a heavy hint the government is entitled to, first, keep the industry pretty tightly supervised and, second, expect a high standard of performance. He who pays the piper ..."I would suggest that the superannuation industry has a responsibility to its stakeholders, including members and the government, to invest money prudently so the returns are in the best interests of members and to develop new products to meet the demands of our ageing population," he said."To date, the superannuation sector has focused primarily on the accumulation phase. But as the system matures, as more people move into the withdrawal phase, and as people in general live longer, there will be increased demand on the industry to assist individuals to manage the various phases of retirement and key risks like longevity ..."Members reasonably ask: What has super delivered for me? And, more importantly, what will super deliver for me into the future? That means asking tough questions about the industry's readiness and capability to meet future challenges."Now cop this: "I am not necessarily advocating any particular investment pattern, although I do have reservations about excessive reliance on equities."It is a safe bet that, not long after the contribution rate reaches 12 per cent of salary, the industry will resume agitating for it to be raised to 15 per cent.Dr Parkinson left the super funds in no doubt where he stands on the question of super's adequacy, quoting the example of a 30-year-old entering the workforce today, earning median wages and working for 37 years. They are projected to retire with an income equivalent to 90 per cent of their standard of living while working.He said the level of super funds' management fees had been "a concern for Treasury". To tackle this concern, the government commissioned the Cooper review, from which had emerged its "stronger super" reforms, including SuperStream and MySuper.SuperStream will see greater automation, common date standards and a network to centralise information and transactions. MySuper will provide a low-cost default super product that removes unnecessary and costly features.The reforms could increase the retirement payout of a typical young worker by $40,000. I get the feeling that, should industry resistance prevent the reforms from delivering as expected, the issue will stay on Treasury's to-do list.
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