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Superannuation could be the next ‘Mediscare’ as super wars reach boiling point

Business groups, the Australian Council of Social Service, the Grattan Institute think-tank, a large group of economists and the Reserve Bank of Australia have all raised concerns about the increase. A ginger group of about a dozen Coalition MPs also oppose the increase, including Senator Andrew Bragg, MP Tim Wilson and former employment minister Eric Abetz.

This group is disparate but its members all worry a rise in the super guarantee, the minimum amount employers are required to contribute to their employees’ super funds, will come at the expense of wage growth and hurt the economic recovery at a time when the country is struggling to bounce back from the coronavirus pandemic.

When you’ve got businesses all over the country large and small begging for a reprieve, well how tone deaf do you have to be not to listen.

Senator Jane Hume

“When you’ve got businesses all over the country large and small begging for a reprieve, well how tone deaf do you have to be not to listen,” Hume says.

On the other side of the debate is the Labor party, superannuation funds, unions, former treasury secretary Ken Henry, former Labor prime ministers Paul Keating and Kevin Rudd, and former Liberal prime minister Malcolm Turnbull. This group says there is no guarantee wages will rise even without the increase and a higher guarantee is needed to ensure Australians have an adequate retirement.

A delay to the rise is not without precedent. The Howard government delayed a planned rise to 15 per cent in the 1990s and a plan to get the rate to 12 per cent by 2019 was delayed by the Abbott government. The guarantee has been 9.5 per cent since 2014. Regular changes to superannuation policy were criticised in the Financial System Inquiry’s interim report in 2014 as adding to costs and undermining confidence in the system.

The fight has now become so intense, Keating – who introduced compulsory super in 1992 – has publicly savaged critics of the guarantee rise. This includes saying RBA governor Philip Lowe has “no regard for the key income facts of the last eight years” and describing government MPs opposing it as “little bitchy Liberals”.

Keating, who was treasurer during the 1990s “recession we had to have”, likened abandoning the increase while allowing people to pull up to $20,000 out of their superannuation accounts through the emergency early access scheme to taking the plug out of a bath and turning off the tap. He said when he was treasurer, he had to open up all Australia’s financial markets, undertake privatisations, remove tariffs and centralised wage fixing, and fight off “everyone known to man”.

“What are we asking Treasurer [Josh Frydenberg] to do? To knock over half a dozen Liberals … not massive structural changes, knock over a few Liberals who want them to break an election promise,” he said. Keating declined to be interviewed for this article.

But there were signs a new battle was brewing between the federal government and the superannuation sector even before the coronavirus outbreak was declared a pandemic by the World Health Organisation.

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Signs of trouble

A spate of advertisements from Industry Super Australia on prime-time television earlier this year told viewers the already-legislated rise in the guarantee would provide tens of thousands of dollars more for workers in retirement.

On the surface, the multi-million dollar campaign appeared innocuous enough but it sent a ripple through Canberra.

At that point the federal government had repeatedly said there were “no plans” to change the legislated rise but Liberals were furious. They described the marketing as a “threat” and a reminder of the amount of money the lobby group can afford to drop into major advertising campaigns should the government do something the sector doesn’t like. The advertising activity of super funds has been criticised by Liberal backbenchers who do not think they should be allowed to use members’ money on campaigns and sponsorships. Regulators have typically not been concerned by these activities.

For its part, Industry Super said it was simply informing the public and its members about upcoming changes in super rules that affect them. But three days before the campaign hit national TV screens a joint media statement from Labor’s treasury spokesman Jim Chalmers and financial services spokesman Stephen Jones laid bare bubbling suspicions about a wide-ranging Treasury review into the retirement system underway at the time.

The battle now is more significant and what’s in play is the future existence of super

Industry Super chief executive Bernie Dean

“[The government’s] Retirement Income Review should not be a stalking horse for more cuts to the pension and further delays to the legislated increase,” the release said.

The review was handed to the federal government in July but has not yet been made public. A freedom of information request for the report was denied this month on the grounds its disclosure would reveal a cabinet decision or deliberation.

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By mid-August Senator Hume said the legislation was controversial and she made her “ambivalent” comment about the rise. Days later, Prime Minister Scott Morrison said he would “carefully consider” the rise in light of the economic situation at the time. The first rise is due in July 2021.

The Mediscare approach

Concerns now exist about how the Treasury report could be used by policymakers to justify changes to the super system. This has opened the door to the possibility of a campaign from Labor, backed by the industry super funds, ahead of the next federal election in 2022.

“The battle now is more significant and what’s in play is the future existence of super,” says Industry Super chief executive Bernie Dean. “This is a war largely conducted in Canberra.”

He is suspicious members of the Coalition want to get rid of superannuation altogether but says any moves to hurt the fundamentals of the system would be opposed by voters. In fact, he thinks the ramifications would be as significant as Labor’s 2016 campaign against the Liberal government over Medicare. The “Mediscare” campaign tapped into pre-existing public fears about health care cuts by warning the Turnbull government might privatise the taxpayer-funded health scheme, despite there being no plans to do so.

Dean claims any attempts to tinker with the super system, such as delaying rises to the super guarantee or expanding emergency measures allowing people to access their super funds early, could be seen as the start of plans to chip away at super altogether. Keating also warned in late-August the government was looking to use the coronavirus pandemic to “destroy the superannuation system”.

Industry Super Australia chief executive Bernie Dean.

Industry Super Australia chief executive Bernie Dean.Credit:Peter Braig

“We’ve seen in a political context when there is a scare around the fundamentals of Medicare what happens,” Dean says. “People see it as exactly the same for super. I don’t think that’s lost on many people in Canberra.”

While he acknowledges the recession is a tricky landscape for policymakers, he thinks super should be at the “bottom of the list” for changes and there’s little merit in the argument delaying the super guarantee will affect wage growth.

“The public knows they won’t get a pay rise [if the rise is delayed]. They’re being asked to make yet another sacrifice in return for a suggestion they “might” get a few extra dollars a week post-tax. Working Australians can see a con coming a mile away,” he says.

“We are 30 years in to superannuation and [the merits of the scheme] may be contested in Parliament in Canberra but not in living rooms across the country.”

Labor spokesman for financial services Stephen Jones agrees with the Medicare analogy, saying the opposition is prepared to have the debate out in public to “remind politicians what people really value”.

“It will be a central campaign and a central point of difference between Labor and the Coalition if they seek to pull super apart, it will undermine their economic credibility,” he says.

In particular he is concerned about moves to affect the “preservation” aspect of superannuation, which means it is maintained for retirement.

Any extension to the early access scheme introduced by the government at the height of the pandemic to allow workers to access up to $20,000 from their retirement savings would be particularly concerning, he says, along with any use of the funds to help first-home buyers, as proposed by MP John Alexander and Senator Andrew Bragg.

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“If super is seen to be the magic pudding you use to fix everything, it will fix nothing … It’s an existential challenge to superannuation,” he says.

One of the ways this concern could be abated is by enshrining the objective of super in legislation, as the government committed to doing in 2015. This would mean policy changes affecting super would need to be looked at in this framework. This has so far not happened.

But Senator Hume argues any suggestion the government is taking steps towards dismantling super is blatantly wrong. She says she wants to see improvements to the system – not its demise.

“I am a big believer in the value and the potential of our compulsory super system. It’s not just me. So is the Treasurer, so is the Prime Minister,” she says.

“The Coalition has been in government for so many more years than it hasn’t been since the introduction of compulsory superannuation and at no point in time has the Coalition attempted to dismantle the system,” she says. “I don’t know how many times we have to say it: We have no desire to dismantle the system. Quite the contrary we want it to serve Australians better. What justification is there to circle the wagons around an inefficient system?”

But despite Senator Hume’s frustration with the criticisms from the industry super lobby group and Labor it’s likely the war will get worse rather than better. As the federal budget is weeks away and the countdown is on for the next super guarantee rise, it’s unlikely the wagons will disband any time soon.

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