What Labor and the Liberals plan to do with your superannuation savings
Labor and the Coalition have very different plans for your family nest egg. The risks are extreme.
Australia now faces both an immediate and long-run policy struggle over the purposes, tax breaks and economic goals of our massive $3.3 trillion superannuation pool, with fresh battle lines drawn between the Albanese government and the Coalition.
Labor is on the march. Treasurer Jim Chalmers wants a national conversation about super. That conversation is necessary but Labor’s plans aren’t precise and the political risks are extreme.
While Labor has opened the debate, the Peter Dutton-led Coalition has joined the battle with enthusiastic aggression as the Aston by-election approaches.
Chalmers has essentially unveiled a trio of reforms areas. The most cogent is Labor’s determination to try to fireproof the super system against future “raids” by Coalition governments – a struggle of consequence in terms of the purpose of the system, financially and politically. This issue sees a fundamental split between Labor and the Coalition.
At the same time, Chalmers signals he wants more equity in the system by reducing upper end tax breaks and seeks to tie super more to fiscal policy by helping to finance the mammoth spending demands Labor faces on its budget. The third domain is Labor’s contentious effort to better align superannuation investments with Labor’s social and economic policy goals, a situation that collides with the responsibility of fund trustees to make decisions solely in the interest of members.
The Liberals have laid down the foundations of their retaliation. Dutton, deputy leader Sussan Ley and opposition Treasury spokesman Angus Taylor have been the spear throwers this week, sensing their opportunity.
First, their message is that the funds, compulsorily acquired from members by law, are the property of members, not the government. Everything the Coalition says is anchored in this popular principle.
Second, the Coalition seeks to widen the purpose of super by allowing members to access their accounts for housing in a pitch to young people and women, a practice Labor detests and seeks to kill off. Third, the Coalition will resurrect Labor’s failed campaign of tax rises at the 2019 election when what mattered was not just the number of people facing higher tax but the fear principle – as Dutton has said of tax, “it never stops with Labor”.
Finally, Dutton will run the broken promise allegation. Albanese said in the campaign “no change” to super. He’s on the hook.
Chalmers raised the option of pulling back tax breaks for super accounts over $3m – that’s about 36,000 people and compares with the average super balance of about $150,000 though the actual revenue raised from that change is modest, around $1bn annually. Various proposals have been floated as to where the cap might apply, above or below $3m.
This week Albanese kept saying there would be “no major changes” to super in the budget. The word “major” is assumed to vest him with the discretion to make such a tax reform – if Albanese and Chalmers have the courage to do so.
It seems pretty clear that any more substantial tax changes would wait till the next parliament, but that raises the high-risk need to win a mandate at the next election. Dutton would relish such an event.
Dutton says once Labor starts taking new tax decisions on super it will shift from one rung to the next and that guarantees uncertainty in the system. The godfather of industry super, Garry Weaven, told this newspaper that Chalmers had made “a bit of a political mistake” by letting the issue “swing in the breeze”.
But Chalmers has embraced a much bigger principle – that superannuation tax concessions will total more than the Age Pension by 2050, highlighting the imperative to act on equity and sustainability grounds. This is both an immediate and long-run issue. Again, it guarantees a Labor-Liberal political conflict.
On display this week is one of Labor’s deepest faiths – its entrenched sense of policy ownership of Australia’s superannuation model. Originating a generation and a half ago in the epic collaboration between Paul Keating and Bill Kelty, the unique Australian super system has vested Labor with a supreme stake in financial power with political spin-offs. Ever since, the Liberal Party has been in constant disarray about exactly how to fathom a viable response.
Chalmers seeks to enshrine in law an objective of the superannuation system that would embody and strengthen Labor’s firm philosophy of superannuation. This is reflected in the Treasury consultation paper released this week. Leading these priorities is Labor’s effort to deny the Coalition its latest super policy, which was on display during the pandemic when people were allowed to access their super accounts, and in the 2022 election campaign when Scott Morrison promised access to super accounts for housing.
Accusing the former government of being responsible for the loss of $36bn from super accounts, Chalmers declared: “Never again.” He attacked the Liberals, saying its ideology had forced people to choose between paying bills and a better retirement.
“The last decade has seen the former government raid the superannuation system for their own purposes – with devastating impacts on Australians’ savings,” Chalmers said. “Legislating an objective for super – a Labor commitment at the last election – will give confidence to the super industry and peace of mind to Australian workers that we’ll do everything we can to safeguard their savings to deliver income in retirement.”
Ultimately, this seeks to eliminate what the Liberals see as one of their most appealing policies: super for your home.
At the same time, Chalmers said the legislated objective would reflect a “double dividend” – getting a good return on super funds but also recruiting the system to make investments to advance Labor policies in social housing, the care economy, climate and digital. This legal definition is more wide-ranging than that proposed in 2014 in the Financial Services Inquiry chaired by David Murray, and Murray has warned that trustees have obligations to members in their investment decisions and cannot be directed for other purposes.
Morrison’s proposal in the final week of the campaign was to allow home buyers to access $50,000 each from their super accounts to buy a home with Morrison calling it “a game changer for thousands of Australian families” – particularly younger voters battling to get into the market. It was attacked by Labor and the superannuation industry, with Keating saying it was a “frontal assault” by the Liberals on the system.
In his reply to last October’s budget, Dutton committed the Coalition to limited use of superannuation access to support first-home buyers and women over 55 in seeking a deposit for a home while preserving any capital gains at the point of subsequent sale to return to the super fund. The Liberals know this policy is highly popular and anathema to Labor’s conception of super.
The reality is that in order to implement this policy, a future Coalition government would probably require legislation and, in the process, would obviously need to amend the wording of Labor’s legislated superannuation objective.
In 2022, Morrison left the housing proposal until late in the campaign fearing the super funds would launch a massive hit on the government.
In his speech this week, Taylor argued that access to housing was consistent with the originating purpose of superannuation. He said: “It is important that a balanced superannuation system support home ownership and good retirement outcomes, when all the evidence suggests it is critical to quality of life in retirement.”
Dutton and Taylor will build a political campaign on the idea that super funds are owned by members, alleging Labor seeks to utilise those funds for its own purposes. Taylor said: “When the Treasurer argues that superannuation should be used for nation building he doesn’t just misunderstand that it’s not his money, he fundamentally misunderstands how the economy works.”
He said the Coalition would support an objective for super, provided it reflected the primary purpose of retirement income, not nation building.
But the Coalition’s concept of retirement outcomes includes housing. Expect Dutton and Taylor to hammer this point with a sharp twist: that Labor wants the super funds to invest in social housing but won’t allow you to use your funds for your own home.
The Treasury consultation paper released by Chalmers leaves no doubt about its intent. The paper says the purpose is to ensure super savings are used “for a person’s retirement only”. That’s watertight. These words are not yet government policy. Submissions on the Treasury paper close on March 31. But the entire world can see where this is heading. Once legislated, a future Coalition government presumably would need to change the law to proceed with its super policies. Getting that through the Senate would be difficult. Pressed by Neil Mitchell on 3AW on whether he conceded his proposed tax changes were a broken promise, Chalmers said: “We haven’t decided any changes.” And that’s right. This is a “testing the waters” project, the thing Chalmers excels at. But he puts the big problem up in lights – Labor has pressing spending commitments in the budget through Medicare, aged care, the NDIS, national security – all sitting next to huge inequitable tax breaks for superannuation that benefit the top 20 per cent of taxpayers.
“We have said over a long period now that we’ve got to make superannuation sustainable,” Chalmers said. But this is also a way of avoiding the reality: Labor didn’t want to take any chances raising super tax concessions in the last campaign since that risked handing Morrison a life raft. But having waged a ferocious assault on Tony Abbott over broken promises in the 2014 budget Labor can only expect the Liberals to retaliate in kind if given the chance in Labor’s 2023 budget.
Albanese needs to be careful. With multi-employer bargaining and the gas price cap in the bag as broken promises, he must judge how far he goes in adding super tax reductions to the bag. He might just get a reputation as a PM of broken promises.
With the Aston by-election in his sights, Dutton has seized on super with a mixture of desperation and relief. For Dutton, this is a Labor move onto a vast fiscal stage. “People have worked hard,” he said. “It’s their money … if they’re just treating it as a piggy bank, as a cash cow, then people will rightly get angry.”
The case to reduce the tax concessions on equity and sustainability grounds has long been established. The Grattan Institute has made the argument for some time. It has been a strong sentiment within the Treasury with action taken when Morrison was treasurer. But the politics are diabolical. If Labor moves, watch the teals – they have already sent their alarm signals. Any Labor reduction of tax concessions is a strike at the high-income teal electorates. The teals will be trapped between their progressivism and the interests of their seats – and hard financial interest will prevail. But the teals will be powerless to stop Labor. Ultimately, only a Coalition government could do that.
With 78 per cent of Australians having money in super accounts, the pool now represents 139.6 per cent of GDP and is now the fourth largest in the OECD. Superannuation policy needs to be revised and reformed but with careful precision. The message this week, however, is that there is no bipartisanship. This will be an intense political struggle.
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