Superannuation is savings, not government property

The guiding star of superannuation must be that it is money that belongs to those who make the contributions, not government or the union-backed funds trusted to invest it. Taxpayers should be encouraged to save into super by good government policy that they can trust will not constantly change. Superannuation account holders should be free to decide when it is in their best interests to use their own money. But in the name of stopping the super wars, Jim Chalmers has fanned the flames of difference. His reform plans promise to reignite years of fighting with the Coalition over how to define the purpose and goals of the nation’s $3.3 trillion pool of savings.

The Treasurer hopes specifically to outlaw what is Coalition policy: to let account holders access funds early for special purposes, as occurred during the pandemic, and to borrow from their own retirement savings to help fund the purchase of a home. Accessing superannuation for housing, with the money to be repaid when a house is sold, is popular with voters. Peter Dutton restated on Monday the Coalition would allow partners fleeing domestic violence to use their super to buy a new home for themselves and their children. This approach recognises that the most important asset someone can have is a roof over their head. Owning a home is a key determinant to having a comfortable retirement. It is better to use superannuation to fund housing security than be a permanent renter, especially if the house you are renting is from a superannuation fund that is using your money to own the house they are charging you to live in.

Dr Chalmers’ plan is to define an objective for superannuation that would be enshrined in law. A consultation paper proposes that “the objective of super is to preserve savings to ­deliver income for a dignified ­retirement, alongside government support, in an equitable and sustainable way”. The wording of the proposal has far-reaching implications for how the enforced trillions in savings of current and future gener­ations of workers are treated under the tax system, how and where that money is invested on their behalf, and what limits will be put on concessions for larger balances.

Included within the consultation paper is a guidepost to how Labor wants to harness superannuation for its own ends. It says there is a “significant opportunity for Australia to leverage greater superannuation investment in areas where there is alignment between the best financial interests of members and national economic priorities, particularly given the long-term investment horizon of superannuation funds”. It says for these broad benefits of superannuation to be maximised, it’s critical for there to be a clear, shared understanding of the objective of superannuation.

What is missing is the clear ability of those who own the superannuation funds to determine how they should be spent. Given the thinking outlined in Dr Chalmers’ writings on the future of capitalism, there is the potential for much more extensive changes to superannuation policy. This includes government giving direction to fund managers about how they should invest to help the social priorities of government. There are the beginnings of this in areas such as the provision of social and low-cost housing.

Hiding within the reforms is the potential for government to wind back further the tax concessions that have encouraged taxpayers to make provisions for their retirement. At compulsory super’s inception, the trade-off for taxpayers to forgo having access to income today in the interests of having greater savings in retirement was the more lenient tax treatment of income that was preserved. Over time these tax advantages have been progressively whittled away.

Labor prides itself on being the party that introduced compulsory superannuation. But deep within its DNA there is a rich vein of political envy directed towards those who have used the tax advantages to accumulate a substantial superannuation balance. Dr Chalmers was echoing Wayne Swan when he said tax concessions for superannuation would cost taxpayers more than the Age Pension by 2050. From another perspective it costs taxpayers nothing because the money Dr Chalmers counts as forgone income is more correctly the property of superannuation account holders and not the government’s to collect.

The latest attack on superannuation under the guise of equity, sustainability and providing a dignified retirement for workers is not entirely unexpected. But it is all the more concerning because it was not part of the Albanese plan that was taken to the election for voters to decide. Labor’s key election commitments did not mention superannuation. The ALP campaign agenda was to strengthen Medicare, invest in fee-free TAFE and more university places, to make childcare cheaper and to promote local manufacturing and renewable energy. Super did not rate a mention. Neither did new laws to cut back on franking credits. Given the changes being proposed, both issues should have been front and centre at election time. They were not because the experience of 2019 for Labor was that voters did not want government to mess with their dividend income and retirement savings. Labor needs to heed this lesson.