Monday, March 20, 2017

Paul Keating: Only a reckless government would raid super for housing

Countries get one chance in history of putting into place a savings retirement scheme on the scale of the Australian superannuation system.

The right conditions had to be there: a government which saw the need, a policy-induced surge of productivity to pay for it and an organised workforce prepared to defer some current consumption to provide better living in retirement.

The system is the envy of the developed economies.
Only the most reckless and wilful government would abort the policy settings to put the system at risk.

The two key elements underpinning superannuation are preservation of contributions to age 55 and the compound earnings on those contributions.

If the preservation rule is breached and savings, especially those of young people, are allowed to drain away, the loss of the accumulation and its compounding would rob them of a large block of savings at the end of their working lives.

And to make matters worse, the proposed diversion of these savings into housing would simply push up the price of the current stock of properties. It would add to demand while doing nothing to supply.

So were the government to proceed with this irresponsible idea, it would potentially destroy superannuation for those, in the main, under 40 years of age, while at the same time, driving up the cost of the housing they are seeking to purchase.

As an economic idea, this is scandalous. But, of course, for the Liberal Party, this is an ideological proposal.

In the last 40 years, the Australian community has adopted two new community standards; universal health protection with Medicare and universal retirement coverage with superannuation.

The Liberal Party has done everything within its power to either thwart or destroy both of those standards.

With superannuation, former treasurer Joe Hockey succeeded in jamming the Superannuation Guarantee Charge at 9.5 per cent of wages from its legislative trajectory of 12 per cent. He also floated this same idea of busting preservation for housing deposits, but was warned off the course in adopting it.

I have said before, you don't expect conservative parties to believe in much but you do expect them to believe in thrift. And when a Labor government comes along and, in a co-operative way, encourages the workforce to save for their retirement, you would think any true conservative party would be eternally grateful.

Instead the Liberal Party, limited by its ideological snakiness, continues biting at superannuation, as it does, periodically, Medicare.

And all of this is going on at a time when the same government has committed itself to enshrining the David Murray proposition of "superannuation for retirement" in legislation.

So, one minute, the government is putting superannuation as a savings vehicle on a pedestal, the next minute, it is seeking to pull the backside out of it.

Is it any wonder people despair about the government's economic credentials?

The average superannuation balance of those aged between 25 and 40 hovers around $45,000. Were this to be taken from a saver's account to be employed as a housing deposit, it would effectively destroy that person's ability to compound any future sum into a meaningful retirement supplement.

More than that, once the preservation rule has been breached, the whole investment system would be compromised as superannuation trustees were required to make provision for short-term withdrawals from an otherwise, fully preserved system. This would be completely disruptive to professional funds management.

But almost as bad as the proposed measure itself is the policy bankruptcy.

How could a country which would wilfully do this to itself have any prospect of rational policy frameworks?

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