It’s good to be here for the first time speaking as Minister at this leadership series.
I stand in the considerable shoes of two very talented and effective Ministers for Superannuation, Chris Bowen and Nick Sherry, talking, as I must, of the future.
Both Chris and Nick underscored to me the valuable work of the Financial Services Council, and its individual members, in contributing to public policy development.
So of course I look forward to continued constructive engagement with John and the team.
Today I’d like to talk about the reforms the Gillard Government is committed to delivering for our superannuation system - and consequently, what we stand for.
The bottom line is well-known: our superannuation system is the best in the world.
But there are some things we can do to improve. And then step back and stop making changes.
At the moment, superannuation is an unfinished symphony. But we need to know when to put down the pen.
That time is hopefully not far away. Some reforms have to be presented, and then delivered in the current Parliament.
It is addressing this delivery question that I want to keep coming back to in my talk today.
As John Howard bluntly put it in his memoirs: Politics is relentlessly driven by the laws of arithmetic.
Today, for instance, I could reasonably predict that 95 percent of this room are strong supporters of superannuation.
But everyone in this room also knows, that for the Government to deliver on our commitments – like our undertaking to raise the Super Guarantee to 12 percent – to do this we need the legislative support of members of our Parliament who are not members of the Australian Labor Party.
We need to convince people as different in their emphasis as Adam Bandt and Bob Katter, Tony Crook and Rob Oakeshott and Tony Windsor.
And I don’t want to only convince the Independents, as important though they are.
I also want to convince Coalition MPs to drop their unhealthy scepticism and board the super train. It’s time to get on board the increased Super Guarantee locomotive.
Now it’s very hard, in this cacophony of raised political voices, to guarantee 100% certainty to anyone.
To say, okay, this is the moment when we shift it into the right gear, take our hands off the levers and let the machine run on its own. To say we’ve got the settings right, we are leaving the station and onto the new destination of a new era.
But certainty is something we need to deliver. So let me set out the priorities - what needs to be achieved to get the gear settings right.
The Gillard Government is absolutely committed to boosting the retirement savings of all Australians. That’s a given.
The increase to 12 percent is the big game, it’s the next destination - 8.4 million hardworking Australians will benefit from it.
It will yield to the average worker that’s now thirty years of age, $108,000 more to the bank balance they inherit upon retirement.
And it helps – though of course not enough – the current sixtyish generation about to hang up their boots.
So we need public policy that is designed, and indeed designs itself, around the life cycle of Australians. A system that ensures the age of retirement is everything – rich, rewarding and comfortable - as it can be.
The inter-generational priority
To put some definition around this, by 2050 there will only be 27 working aged people for every 10 of our citizens aged 65 and over. This compares to 50 workers for every 10 retirees today.
This is the double edged promise of life and pressure on society. Sooner or later we have to get to grips with it.
The gift of Australia in the 21st Century is that we’re living longer lives. And the more Australians have set aside in savings the more they will be able to enjoy their retirement.
But there’s no avoiding the rub. This demographic change will substantially increase pressure on the Government’s Budget through higher pension and healthcare expenditures.
So the more Australians have set aside as retirement savings, the less pressure there will be on these Budget demands.
The more Australians have set aside in retirement savings, the less reliance we will have on foreign capital to fund Australia’s future infrastructure and development needs.
The alternative? Probably something akin to the overworked steam engine, strained and stressed boilers over-heating and increasingly in need of expensive maintenance.
It will be a challenging bottom line, whoever is in office. And unless we pump up the private savings of the advancing grey armies of retirees – the fact is there will be more and more tax required to maintain the pension safety net.
Our children will pay more, and risk carrying a generational tax burden that none can bear.
This is why I am passionate about superannuation. It’s an investment in our kids’ future.
It’s essential for Governments to look ahead at the economic challenges facing the nation and make timely provisions for adequacy today to ensure we are well prepared.
Superannuation prepares us. It eases the future fiscal burden.
Already, Australians have over $1.2 trillion dollars invested in super. That’s roughly the same amount as our GDP.
That massive pool of savings is estimated to grow to over $6 trillion dollars by 2036. This figure includes $550 billion from the superannuation reforms the Government announced recently.
In this way, the superannuation reforms will help us to build a stronger, broader and more competitive economy.
Superannuation: a Labor reform
Labor has a long history of championing superannuation. This is what we do. It’s hardwired into our DNA.
Along with hospitals and schools and work safety it’s what a Labor Government does.
Australia’s mandatory superannuation system was of course introduced by the Keating Government and commenced on the 1st of July 1992.
The initial employer contribution rate was set at 3 percent of the employee’s earnings and gradually increased to the current rate of 9 percent during the following decade.
And while it was initially opposed, by our political opponents, eventually the Liberal-National Coalition supported it.
I hasten to point out that analysis at the time suggested that the Superannuation Guarantee would increase national savings by about seven‑tenths of one percent of GDP by 2005, and by over one‑and‑a‑quarter percentage points of GDP by 2029.
Subsequent analysis upgraded these projections to 2.3 percent of GDP in 2004-05 and 3.6 per cent in 2019-20.
Since our super scheme was introduced, the amount invested has grown seven-fold.
This would not have been possible without compulsory superannuation.
At the individual level, 93 in every 100 employees now have superannuation coverage. This is an outstanding result, especially when you compare it with the 40 in every 100 employees who had coverage when award superannuation was introduced back in 1986.
Super is also a low inflation instrument while also, as a huge savings pool, being a fuel for economic growth.
At the time of the SG system’s introduction, it was expected that the provision of wage increases through superannuation would provide significant benefits to employers, as well as employees.
Employers would not incur the additional on-costs associated with a direct cash wage increase, such as workers’ compensation and payroll tax.
Between 1 July 1992 and 30 June 2003 when the Superannuation Guarantee finally reached at 9 percent:
- The Australian economy grew strongly – GDP growth averaged 3.9% p.a.
- Unemployment fell from 11% to 6.1%.
- Labour productivity grew very strongly, well above its 30 year average, at 2.2% p.a.
- Unit labour costs fell over the period by 4.3%.
- Real wages grew.
- Australian business profitability grew by 6.1% p.a. and profits rose as a percentage of GDP.
So, the standing evidence is that increasing the compulsory rate is no inhibitor of economic growth and productivity.
Superannuation reforms (SG increase)
Superannuation has grown to be of enormous national economic importance. And it will grow to be even more significant as it matures in the future.
The reforms we enacted on May 2nd this year improve retirement savings and make tax concessions fairer.
The Super Guarantee increase is of course the big building on the skyline.
It’s difficult to determine an exact figure, but based on ABS and ATO data of 2007, Treasury estimate that 30 in every 100 of individuals had contributions in excess of the 9 percent superannuation guarantee.
It is time every working Australian received more than 9 percent.
It’s is time every working Australian felt confident about a secure, well earned post work life.
The SG reforms will come in slowly, giving employers and employees time to adapt, and wriggle-room over that time in wage negotiations.
Because it’s wages, not profits, that will fund super increases in the next few years. Wages are the seedbed of the whole operation.
An increase in super is not, absolutely not, a tax on business.
Essentially, both employers and employees would consider the Superannuation Guarantee increases to be a different way of receiving a wage increase.
Wage productivity, unassisted, will make the difference. This will make sure real wages continue to grow.
You might call it the ‘Eventual Wage’, or the ‘Beyond the Blue Horizon Wage’, or the ‘Woy Woy Touchdown Wage’.
But it’s not employers that will solely fund it. It’s all of us who go to work everyday. And the work Australians do, with greater and greater efficiency, through their working lives.
But let’s be clear, the SG will have the greatest impact on younger Australians and future generations of workers. We also need to do more to help the current generation of Australians approaching retirement build their retirement savings.
From 1 July 2012, workers aged 50 and over, with superannuation balances below $500,000, will be able to make up to $50,000 in concessional superannuation contributions annually.
This initiative will allow these people to “catch up” on their superannuation contributions when they are most able.
From 1 July 2013, the Government will extend the Superannuation Guarantee arrangements to workers aged between 70 and 74. This measure will particularly help older workers who did not benefit from the Superannuation Guarantee during their early working lives.
And from 1 July 2012, we will introduce an annual Government contribution of up to $500 which will effectively return the tax payable on compulsory superannuation contributions made by or for workers on incomes up to $37,000.
This will provide a fairer distribution of superannuation tax concessions.
Superannuation reforms (Cooper Review)
However, if we are encouraging Australians to put more into superannuation, we also need to ensure that the system is operating in their best interests.
This is why the Government commissioned the Cooper Review - to make recommendations to ensure the system is as efficient as possible, and delivers a world-class retirement system for Australians.
The review reported to Government on 30 June and the public were able to read it first on the 5th July. It found that in significant respects, our superannuation system is a national success story.
But it said what more could be done by making the system easier to use and understand.
The super industry processes an estimated 100 million transactions a year at a total cost of $3.5 billion. So each transaction costs around $35.
Contributing to this inefficiency, each working Australian has, on average, three – not one, not two – but three superannuation accounts.
To this, I think, we can make improvements.
The so-called “SuperStream” recommendations are a welcome contribution to the debate on what needs to be done to make the simple things in superannuation easier.
An important first step is better use of Tax File Numbers (TFNs) to locate lost accounts and help members consolidate and switch accounts.
The Government has made some early progress in this area, by announcing that from 1 July 2011, an individual’s Tax File Number will be the primary identifier of member accounts. This will be subject to strict conditions to ensure privacy and security of information.
Superannuation reforms (MySuper)
Another important improvement will be the availability of a simple cost-effective super product called ‘My Super’, from July 1st, 2013.
This gives each worker a diversified investment portfolio, suitable for the kind of inattentive worker who, up till now, for the sake of a quiet life, has allowed his employer to choose his or her default fund for them.
I firmly believe that if you’re not actively involved in your super fund, you shouldn’t be charged fees as though you are.
MySuper will replace existing default funds.
Only those funds whose default product meets the MySuper standards will be able to operate as a default fund.
MySuper products will not be allowed to charge certain types of fees, including entry fees, hidden fees, or commissions to financial advisers.
MySuper products will also be subject to more transparent and comparable reporting standards.
MySuper will lift standards that apply to default funds, while maintaining freedom of choice for those members who do wish to take an active role in managing their superannuation.
I would emphasise that MySuper products will not be compulsory, either for funds or for members. Superannuation funds will still be able to offer alternative products and will not be required to offer a MySuper product.
The Government thus, in watchful partnership with industry, consumer and employer groups, will minimise compliance costs, and do it with great care.
Treasury estimates that about 4.5 million Australians will hold MySuper accounts when fully implemented.
We estimate that in the long run, members will save $2.7 billion a year on fees.
That’s a lot of money. You could probably get Oprah and her audience to come over here at least twice for that amount of cash.
Infrastructure and MRRT
I should say a few words about the linkage between superannuation, infrastructure investment, and the Minerals Rent Resource Tax.
So: our super investment in total is about $1.2 trillion - the cost thus far to America of the Iraq and Afghanistan wars.
This huge sum makes superannuation a player, as Gordon Gecko might say, in Australia’s infrastructure projects.
The Government considered this, and looked at the barriers to it. And the Government’s Review concluded that the law, as it is, does not hurt super’s capacity to be involved in infrastructure projects.
Superannuation can do what it likes, and should not be forced into government-friendly projects. It has a free hand.
But the Government is interested in stimulating a targeted conversation between the superannuation industry and government and private sector players who are looking to develop infrastructure assets. We should see whether there are expectation gaps or other impediments which might be addressed.
We looked as well at the Minerals Rent Resource Tax, and if what we’re doing will stifle, or hobble, or impede, on inconvenience, the mining sector.
We found it wouldn’t.
We looked at the facts. And we found, on the contrary, that a boom is imminent in that sector. And all we are doing, as a country, is taking full advantage of that boom. The way good capitalists do.
Proceeds from the tax will help to fund the reduction in company tax for all businesses, an increase in investment in critical infrastructure - and the creation of a bigger pool of retirement savings delivered through the reforms to superannuation that I have outlined today.
These policies will help all regions of Australia to benefit from the commodities boom that’s driving much of our economic growth.
In this way, we can share the wealth, and mitigate the risk of a “patchwork economy”, to borrow a phrase from the Prime Minister.
Conclusion
Friends, the Government is committed to promoting the growth of our superannuation industry in a way that provides Australian workers with certainty, and a comfortable retirement – with no need to supplement income by busking in a capital city mall.
We are talking closely with industry about changes to the regime. And we will continue to consult as we consider the remaining recommendations of the Cooper Review.
But we need to do more than consult. We need to construct.
We need to get on with the job fast.
Because none of us are getting any younger nor does the world owe Australia a living.
And these are the impulses that drive the whole discussion.
Together we need to construct a consensus that is clear about the benefits of bigger and better super.
We need to be persistent and consistent in arguing those benefits to all of us, in the decades of the Great Inevitability, those decades of longevity and opportunity that are simply and naturally coming for all of us.
I need those of you in this room... those of you that are supporters of 12 percent, those of you who fully appreciate the importance of superannuation in building Australia. I need you to appreciate that delivering this compulsory increase is not inevitable.
So if you believe you can do a few things to help deliver the improvements – please do them.
Publicly argue for a raised super guarantee. Fertilise the growing consensus in private meetings. Advocate for the reforms across the political spectrum.
Yes – talk to your Liberal, National, Katterite, Wilkie-ist, Oakeshotten, Windsoresque, Green and swinging voter mates.
Essentially what I am saying here is: think what you like about the ALP – that’s your call.
But do what you can to build the consensus about super reform, because it’s out there.
That’s my call to you. That’s my earnest, urgent advice.
The arithmetic of the national parliament means every good idea has to be argued through.
And if we are going to see the national reform story of the Australian economy continue, and in doing so write the next chapter on national savings - the one envisaged so long ago by Paul Keating and Bill Kelty two decades ago – and prudently and profitably managed by so many of you here. We need to build a broad-based and powerful consensus to get it moving.
It is not inevitable that change will occur. We find the door to the next room is ajar from time to time. But it is up to us to push that door and stride through it.
The fact is that the superannuation industry, the wider financial services industry, and employee representative bodies have all indicated their broad support for the proposed Superannuation Guarantee increase.
But it cannot be taken for granted. And it must be translated somehow into a minimum of 75 votes in the House of Representatives.
So let’s take the suffocating politics out of super... The Monty Python factions of industry funds versus retail, accountants versus planners, self managed super funds versus the world... the bickering, the industry navel gazing and insularity, the nights looking wistfully across a misty lake like a jilted lover.
Let’s put super where it belongs – on the pedestal of national esteem shared by the old age pension, Medicare and, for that matter, that big 2 mile race on Tuesday.
On 10 May of this year, the five leading bodies of Australia’s superannuation industry called for bipartisan support.
This was the call of the Australian Institute of Superannuation Trustees... the Industry Super Network... the Association of Superannuation Funds of Australia... the Financial Services Council... and the Self Managed Superannuation Funds Professionals Association of Australia.
But the industry needs to talk less to itself and talk more to the Australian public.
When it comes to the 12 percent question, what we need now is to communicate a ‘get on board’ message to the members of the Federal Coalition and their constituents.
To the Parliament’s crossbenchers and their constituents.
‘Get on board’ - help deliver 12 percent compulsory superannuation – this needs to not just become a catch cry of the responsible Minister.
‘Get on board’ needs to be the catch cry coming from a chorus of professionals on the superannuation playing field - and that is you my friends.
Being in office may be the privilege of some. Politics the pastime of quite a few more.
But a desire to build a better future for ourselves, and more importantly a better future for our children and grandchildren – this is a task for all of us.
A desire to build a massive pool of national savings for our children and grandchildren – this is a task for all of us.
Thank you for inviting me to speak with you today.
The ideas in this room - your thoughts on how to construct a new consensus – these contributions are just as important as my own.
So I look forward to hearing these observations and suggestions in the times ahead of us, on the rail tracks of reform and national growth.
Thanks very much.