LAURA JAYES:
The Government will release the report from its Retirement Income Review today which could see the Government reverse its plan to raise the superannuation rate to 12 percent over the coming years. Let’s go live now to Treasurer Josh Frydenberg. Thanks so much for your time.
JOSH FRYDENBERG:
Good morning Laura.
LAURA JAYES:
Before we get to that review Treasurer, can I ask you first about the ADF report and how you have digested this news that we all read quite sullenly yesterday?
JOSH FRYDENBERG:
Well no doubt Australians are shocked by those very serious allegations but the Government has established a process with a special investigator that will assess and investigate these particular allegations. But my view, the Prime Minister’s view, the Defence Minister’s view and indeed the CDF’s view is that there are so many good people in our Australian Defence Force and they do so much good work. We shouldn’t allow these allegations to overshadow that broader performance which has been outstanding by so many of our men and women in the ADF.
LAURA JAYES:
Let me ask you about the Income Retirement Review now. It says that increasing superannuation guarantee will be to the detriment of low-income earners. Is that right?
JOSH FRYDENBERG:
Well it talks about the trade-off between wages and compulsory super, and as you know we have a superannuation guarantee at 9.5 per cent. It’s scheduled to go up to 10 per cent by mid next year and to eventually increase by 12 per cent, and so the money that you don’t get in your wages today is put into your retirement for later. The report goes into some detail about the adequacy of retirement and what is a good replacement level for your retirement based on the income that you had in your working life. It is a very comprehensive report Laura. It’s the first report that looks at our entire Retirement Income Review since compulsory super was established in 1992. So, it looks at the so called three pillars; the Age Pension, compulsory super and also voluntary savings including home ownership. It confirms that the Government is on the right track, trying to enable people to maximise the gains through their super with our significant reforms which are going to help reduce fees, boost transparency and boost accountability by the various super funds. As well as what we are doing with home ownership, which the report points out is absolutely key to people’s financial security and retirement.
LAURA JAYES:
Well how to you digest this report then? Will the super guarantee increase of 10 per cent go ahead next year in July as planned?
JOSH FRYDENBERG:
It is legislated but the Government will make a decision before that time. We’re obviously considering this report. The Governor of the Reserve Bank has had some very strong words on this subject as well as other reputable bodies like the Grattan Institute. So, we’ll consider these findings, these observations by the report. It’s more than 600 pages in length. It was conducted by an independent panel. An expert panel led by Mike Callaghan a former senior figure at the International Monetary Fund and a former distinguished treasury official, as well as Professor Ralsten, who is the head of the Alliance for a Fairer Retirement, and Carolyn Kay, a well-respected business figure who is on the board of the Future Fund. So, an expert panel who did an enormous amount of work and that work is in the report, and no doubt will be looked at in great detail by many people in the weeks to come.
LAURA JAYES:
So, you are going to seek to delay it, if I just could clarify that? Because what’s the point of having a report like this if you don’t take its findings seriously?
JOSH FRYDENBERG:
Well we’re obviously looking at its observations very closely. It doesn’t make specific recommendations but as for the increase in super, the Government has said that we will make a decision on that before its scheduled increase in mid next year.
LAURA JAYES:
Okay, so are we looking at a scenario whereby that scheduled increase to 10 percent may or may not go ahead? Because as you say it is legislated, so you’d need to get the Senate on board but the trajectory to 12 percent, is that in the medium term if you like, a bigger concern to you?
JOSH FRYDENBERG:
Well again, the report goes into some detail about that trade off. What people lose in wages today, they get in terms of the compulsory super and their retirement incomes later on. But the report looks at what is an adequate amount of money for people to have in retirement. It points out a lot of people don’t draw down fully on their super, in fact they effectively leave a bequest for future generations. The superannuation system was designed to be used in retirement and that’s one of the key observations of this report, as well as of course they look at the Age Pension, they talk about it meeting community standards, that it’s increased faster than inflation, and also wages over the last decade. There’s a lot in this report that will need to be digested over the weeks to come.
LAURA JAYES:
Ok well it focuses is on low income earners and what that might mean, and in a post-COVID recovery you have spoken about how low income earners often contribute to economic stimulus because they spend almost every dollar that they have. But what guarantee is there because I think that people watching this today would think well superannuation is paid by my employer, it’s not paid by me, so what guarantee is there that you would see a wages increase for low income earners if that guarantee was left at the level it’s at?
JOSH FRYDENBERG:
Well again, that is something that the Reserve Bank Governor and The Grattan Institute and this expert body have looked into at great length, and they make it clear that it does come out of peoples wages and that is the point. Now again, these are trade-offs because having a compulsory super system does allow and enable people to save for their retirement. But the question is at what is the appropriate rate? Now 9.5 percent is a very big increase on where it started. It’s going to 12 percent. I noticed the Labor opposition would like it to even go higher. That does come from people’s wages. So, it’s about getting that balance right, particularly at these very difficult economic times.
LAURA JAYES:
Well shouldn’t the onus be reversed on business here? Shouldn’t it come out of business? Business should be paying for superannuation, and if there is going to be a delay in the increase, the guarantee, what will you do to make sure that we see that in wages growth?
JOSH FRYDENBERG:
Well you’re getting ahead of yourself right now Laura. Because as you and I know this is a legislated increase that the Government will consider and make a decision on before it actually occurs in mid next year. We are in the middle of a once in a century pandemic. Our economy has had a very big hit. The recovery is now underway. We saw 178,000 jobs created last month. We saw the effective unemployment rate come down from 9.3 per cent down to 7.4 per cent. So we know that consumer confidence, that business confidence, is tracking in the right direction. But that being said, we are going to have moderate wage growth for some time. That’s an observation both in the Budget as well as by the Reserve Bank, and there is a trade off here between people’s wages today and their superannuation incomes that they generate as a result of the superannuation guarantee. So these are important observations that will help generate future decision making.
LAURA JAYES:
Yes everything changes post-COVID, a lot of things will be turned on their head. Just finally before I let you go, your Liberal colleagues want to consider making childcare tax-deductable, Dave Sharma among them, also Dominic Perrottet on this program yesterday that it was a good idea but of course it doesn’t come out of his budget, so I’m sure you’d say he can say that. But is this something now that you would consider on a productivity basis?
JOSH FRYDENBERG:
Look we put more and more money every year into our childcare system, and we’ve also made significant reforms to that system to enable that those on low and middle income earners get more of our funding, and that’s how it should be because you actually want to get those people into the workforce if that’s the choice that they make. Now the Labor party has in effect provided more money to higher income earners, far higher income earners than our system actually provides for.
LAURA JAYES:
What’s wrong with that?
JOSH FRYDENBERG:
Well again it’s about getting the balance right, and if they want to be providing support to people on incomes of half a million dollars than they need to explain why they are doing that and that obviously comes off the broader Budget bottom line which means less money that can be provided to other areas and those are choices that government’s make. We have significantly boosted our childcare funding and made significant reforms which are delivering better outcomes and you see that in the workforce participation rate for women that got to a record high before COVID-19 hit.
LAURA JAYES:
Won’t be the last conversation we have about childcare Josh Frydenberg but we have to leave it there. Thanks so much for your time.
JOSH FRYDENBERG:
Good to be with you.