Super proposal risks members’ best interests

Treasurer Jim Chalmers. Picture: NCA NewsWire / Gary Ramage

US president George W. Bush once quipped, “It’s clearly a budget. It’s got a lot of numbers in it.”

This same logic can be applied to superannuation policy in Australia. There must be a policy because there is a lot of legislation and regulation.

Lost in all the excitement following Treasury’s release of a consultation paper seeking feedback on the government’s proposal to legislate for an objective for superannuation, the second sentence in the executive summary is striking: “For most Australians, super­annuation is now one of their largest assets.” This observation is supported by Australian Bureau of Statistics analysis that shows “home ownership … for those aged between 25 (and) 39 years has decreased in each successive generation”. If this does not put a chill down the spines of policymakers, not much else will. Not just from an economic perspective, with rapidly rising rents, but also from a national security perspective.

Many liberal democratic nations provide incentives for home ownership one way or another. Reasons are many and varied, but the intent is to promote social stability and wealth accumulation.

It encourages a community of stakeholders where citizens are owners and not just renters, with citizens prepared to defend their property and to defend their nation and way of life. But at a time of escalating strategic tensions, given declining home ownership, why would the young defend a nation in which they don’t have a stake and where one of their largest assets, superannuation, is broadly liquid and portable?

In announcing this consultation, Jim Chalmers repeated the oft-used claim that the Australian superannuation system is the “envy of the world”. A system so envied that it has not been replicated anywhere else in the world.

This does not signal that Australia’s superannuation system is good or bad but that it needs to be considered in the context of broader government policies.

The federal government has proposed legislation to define superannuation as a means “to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.

This proposed definition conveniently overlooks that a dignified retirement is more than just a function of savings. A dignified retirement is a function of many things, not the least monetary and fiscal policy settings that manage inflation risk effectively to prevent the erosion of such savings.

There is also a naivety in the consultation paper in that a legislated definition will “anchor any future superannuation policy settings to a meaningful base”. As if legislation cannot be changed in the future and retrospectively, as it has been done in the past. To suggest such a legislated definition would prevent a future government from facilitating early withdrawals in the future is disingenuous.

Of greater issue than the proposed language defining the objective of superannuation is the language used by the Treasurer in his covering media announcement where he noted the “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”.

This accords with Chalmers’ recent essay in The Monthly where he wrote that “it’s not just our economic institutions that need renewing and restructuring, but the way our markets allocate and arrange capital as well”.

Such language signals the potential for government to direct superannuation investment and private capital allocation.

Current legislation requires superannuation fund trustees to act in the best interest of their members. This is known as the sole purpose test. This fundamental obligation rests with trustees because it is they who have proximity to their members and are best placed to know what is in their best interest. Overlaying the sole purpose test with incentives and compulsions to co-invest in government-determined national priorities should concern all Australians. Consider the financial outcomes and reputational damage to superannuation were co-investments made into the National Broadband Network or Snowy 2.0.

Much also has been written in these and other pages about the possibility of further changes to superannuation taxes. But a tax is not just a charge “off the top”. It is a diminution of purchasing power. If an outcome of the government’s proposed reforms is to channel superannuation funds to projects where returns are diluted, this also would be an effective increase in superannuation taxes.

American political scientist Steven Teles describes a kludgeocracy as a system of governance that relies on quick and inefficient workarounds to pressing problems rather than implementing more holistic solutions. The key problem with a kludgeocracy is that every subsequent kludge adds to the system’s complexity and fragility. This is Australian public policy. A proposed legislated objective for superannuation does not add a single additional dollar of savings to superannuation accounts. On the contrary, it will trigger new and further compliance obligations on fund trustees that will need to be paid for from members’ savings. After all, how are savings meant to be preserved in an “equitable and sustainable way”?

German statesman Otto von Bismarck noted that wise men learned from the experience of others. Labor prime minister Ben Chifley unsuccessfully attempted to nationalise Australian banks in 1947 as part of his government’s economic policies. The following election, a Liberal-Country Party coalition government was elected, and Robert Menzies remained prime minister for 18 years.

The Treasurer should tread carefully. Very carefully.

Dimitri Burshtein is a principal at Eminence Advisory and a former government policy analyst.