SUBJECTS: Superannuation system, Superannuation Guarantee, Henry Review, Cooper Review
MADONNA KING:
Chris Bowen is the Superannuation Minister. Welcome back to 612 ABC Brisbane, Minister.
CHRIS BOWEN:
Well it's nice to be back, Madonna.
KING:
Why do you say 9 per cent super contributions are just 'adequate'?
BOWEN:
Well, what I said is, we need to be having a discussion, nationally, about how we can get the best out of our super system. It's served Australia very well over the last 20 years on many levels, but it is now almost 20 years old and we need to be examining what we can do better.
So I outlined yesterday some criteria, and some of the criteria were adequacy and equity, and I actually said we can do better than adequate. There's an argument about whether 9 per cent contributions are adequate or not. I thought, well, let's try and do better than adequate. Let's try and get to a situation where we have more comfortable retirement incomes and there's more savings, a national pool of savings at the disposal of the economy.
Now, obviously the superannuation guarantee is an important part of that. The original plan was that it should be 15 percent. That wasn't implemented by the previous Government, but there's also other ways you can achieve that boost in retirement incomes; you can have a good look at the tax system; I made the point yesterday that low and middle income earners are forgotten in this debate. There are 1.2 million Australians who get effectively no tax concession for super because they're on the lowest tax rate.
KING:
Do you believe that the compulsory super guarantee should be lifted above 9 per cent?
BOWEN:
I think that's one of the alternatives that needs to be on the table in this discussion. I think that there is a trade off here, that when you increase post-retirement income by doing that, which you would do, you reduce pre-retirement income. This is the debate that was had when Paul Keating introduced superannuation. There was the argument: well, 9 per cent, that's just a 9 per cent tax employers will have to pay. Well, of course what's turned out is that employers say, 'well, we're putting 9 per cent into your superannuation, some of it came from tax cuts transferred into superannuation, but we're putting money into superannuation, we're going to take that into account in our wage negotiations with you'. And unions have, of course, been very supportive of that, said, 'yes, we want to increase retirement income for our members and yes, we will make those trade offs'. So there's a trade off, actually much more for the workers, in terms of post-retirement income versus pre-retirement income. But I've said all these things…
KING:
Yeah, but you must savour one option.
BOWEN:
Well, obviously I have views, but I am putting this on the table to say that we should use this process with the Henry Review and the Cooper Review. And the other things I've put on the table are simplicity and efficiency, and we that can do a lot better. This super is too complex, it's too hard, there's too much paperwork. It's too hard to roll over your funds when you change jobs.
KING:
We've heard a lot of this before, and we've heard some of those other options. But simply, if employers had to pay more than nine percent, has there been any modelling on what an average worker would require in terms of super contributions to retire on more than an adequate income?
BOWEN:
Well there has, but there are very strong and different views. I mean, there are some people in the industry who argue that you would need at least 12 [per cent]. Some people say 15 [per cent], but that's on the current taxation arrangements.
KING:
Has Treasury done any modelling?
BOWEN:
The interim Henry report, which was released on Budget night, said 9 per cent was adequate and they had some figures about the various income levels and what it means for replacement rates. When we say replacement rates, we mean what percentage of your income when you retire is available you retire. And look, there are very strong differing views about that, but what I'm saying is, well, let's have a national discussion, let's put all the cards on the table, including the SG, including tax. It is time to do this; it's now 20 years old and we're all getting older.
KING:
But whose job is this? Is it the Government? Is it the Deputy Chair of the Securities and Investments Commission, which is conducting a review of the fees and charges on super? Or is it Ken Henry, who's been charged to look at the issue of super amongst our other taxes?
BOWEN:
Well ultimately, of course, it's the Government. Ultimately, it's our responsibility, but we'll be informed by the two reviews.
KING:
But Ken Henry's already said 9 per cent is adequate.
BOWEN:
That was his interim report, but of course there are also other elements which he'll be considering in his report. And I don't want to pre-empt that.
What I am doing is setting the scene for the Government. What I've said yesterday, Madonna, is here are the four criteria we'll work through, the Government will work through, when we're considering those Henry recommendations, which we haven't seen yet in their final form, and the Cooper recommendations. Now Cooper, Jeremy Cooper, is concentrating on efficiency and simplicity, so that second part of the equation that I talked about before…
KING:
Businesses claim they can't afford any increase. Do you think they could?
BOWEN:
Well look, as I say, this was the debate when Paul Keating introduced superannuation in the first place and the Liberal Party then opposed it. Some employers opposed it, not all, and said that this would be a tax on employment, employers would pay it. And as I say, over time it's turned out that that's not the case. Now, I'm not saying that's not a legitimate point of view to bring to this discussion. There is a trade off here to be had but we've got to keep it all in context.
KING:
The last time it increased, I think to 9 per cent, was 2002. What was the basis for the last increase?
BOWEN:
Well look, this was the timetable set out by the Keating Government. It was done very gradually and of course, when you're examining these things, you would have to do it very, very gradually over a long period of time to increase. Now, that was the system that was introduced in 1992-93, when it came into force, and it was increased gradually over that time period. So it is only, as you say, over the last 10 years or so that we've all been on 9 per cent, so the first group of workers who have lived their life on 9 per cent are still some way off from retiring and so the system hasn't reached full maturity yet.
KING:
How do you balance what you do with super? You say this is one option, increasing that above 9 per cent. You could have more Government co-contributions, you could have more tax breaks on super. How do you determine which road you go down here?
BOWEN:
Well, that's what we have to do Madonna.
KING:
But how? The question is how.
BOWEN:
Well, what you do is you analyse all the evidence and reach a balance and consult. That's the process we're in the middle of, and what I tried to do yesterday was outline the criteria for considering our response. So four things: equity, efficiency, simplicity and adequacy and I'd added, of course, sustainability. The system's got to be sustainable. You can't have massive tax breaks which the Government can't afford.
KING:
So when do you think my listeners would hear what you want done with super?
BOWEN:
Well, we'll be getting the results of the Henry Review towards the end of the year. The Cooper Review is giving a series of reports over the next 12 months to the Government. They'll have another paper out within the next week on some of their current thinking. And, as I say, we'll be informed by those reviews and we'll develop the policy over the course of the next 12 months.
KING:
Chris Bowen, thank you.
BOWEN:
Nice to talk to you, Madonna.