Let me begin by acknowledging the traditional custodians of the land upon which we meet, the Gadigal people of the Eora Nation, and extending my respects to elders past and present.
I would like to also extend my thanks to Mike Taylor and his colleagues at Super Review for the invitation to speak to with you all today.
As the Shadow Minister for Small Business and Financial Services I have been asked to speak today about the Federal Opposition’s approach to superannuation in particular.
With the Federal Budget released just over a week ago, I also thought that I would make a few remarks about some of the policies it contained and our views on that.
But before I do, I will just start with Labor’s vision for superannuation and why we think it is so important.
Labor’s vision for superannuation
Labor has a proud history on superannuation.
Labor established the age pension and we built universal, compulsory superannuation.
Now, the Labor party itself can't take all the credit for creating the world class superannuation system we have in place now, we must acknowledge the role played by the labor movement over many years in recognising the need for a mechanism which ensured improved income for workers in their retirement years, and also acknowledged the inequitable access to superannuation schemes, particularly for low income workers and women workers at the time, and their role in advocating for a system where working people have the same access to super savings as high income earners and public schemes that were in operation at the time.
It was off the back of negotiations between the industrial and political wings of the labour movement that in1992 that Labor in Government introduced Australia’s compulsory super system with the requirement that employers make superannuation contributions on behalf of their employees. And aren't we all glad today that they did.
Since that time, estimated superannuation assets have increased from around $148 billion in March 1992 to over $2 trillion today and the rate of employer contributions has also steadily increased from 3 percent to the current level of 9.5 percent.
Further increases to the contribution rate as we all know were scheduled to raise it to 12 percent by 2019, but these gradual increases fell victim to the infamous Hockey/Abbott budget of 2014, and the contribution rate is now not planned to reach 12 per cent until 2025-26. Labor strongly believes in protecting and growing superannuation. We also believe in increasing the superannuation guarantee increase to 12 per cent, when fiscal circumstances allow to provide millions of Australians with higher retirement incomes.
We also believe in pursuing proactive and progressive policies that improve fairness and strengthen retirement incomes, for all working people and particularly for women and low and middle income earners.
In terms of fairness, Labor has led the debate about tightening superannuation tax concessions when we announced our policy back in April 2015. At the time the Government came out attacking those policies, but by last year’s budget they, for the large part, accepted the general direction of Labor’s proposed reforms and legislated substantial changes to super tax concessions which Labor largely supported.
Whilst our proposed reforms went further than what the Parliament legislated, we believe the changes are fair and fiscally responsible. Following on from these changes we would, however, like to see a period of stability where super does not become victim to a yearly assault by the budget razor gang and we have announced our position in terms of a five year report from an independent council of superannuation custodians to assist with that.
In terms of other reforms before the parliament, legislating an objective for super remains on the table. Currently, Labor does believe in legislating an objective for superannuation, as a way to protect the integrity of the system, as recommended by the Murray Financial Systems Inquiry. But we strongly believe that we need to get the objective right - we will not agree to a Bill which doesn't protect or strengthen super - or we believe we are better off without the legislation.
Superannuation in the 2017-18 Federal budget
If I turn to how the Federal budget released last week and see how that rests against our vision of a stronger super system for all Australians.
First home super saver scheme
An issue which we have heard quite a lot about over the past few months is whether the Government should allow first home buyers to access superannuation for a housing deposit.
We all witnessed the various internal disputes from within the Cabinet play out in the papers on what seemed like a daily basis for a while there. Labor has been very clear from the outset that we do not support accessing super for housing.
Superannuation is for retirement incomes.
The stated purpose of the Government’s first home super saver scheme is to encourage home ownership.
Now, Labor is all for supporting home ownership – housing affordability is a huge issue in this country – whether it’s those trying to break into the housing market or people struggling with high rents or others who are homeless – but we don’t believe this policy will not do anything to resolve these critical issues.
We believe there are several problems with the Government’s policy.
Firstly, that it undermines superannuation. We believe, as I said, superannuation is to build up savings for retirement. It is not a savings tool for housing or for that matter any other significant financial liability that a person may have during their lifetime.
The introduction of this policy could be just the beginning of allowing other withdrawals from super – which we believe would be a disastrous approach which would severely undermine our superannuation system.
Secondly, it is inconsistent with the Government’s proposed objective for superannuation.
The Superannuation (Objective) Bill 2016 is currently before the Senate and it proposes that:
“The primary objective of the superannuation system is to provide income in retirement to substitute or supplement the age pension.”
The legislation also provides for subsidiary objectives of the superannuation system to be prescribed by regulations. The Government has said that these regulations are to:
· facilitate consumption smoothing over the course of an individual's life;
· manage risks in retirement;
· be invested in the interests of superannuation fund members;
· alleviate fiscal pressures on government from the retirement income system; and
· be simple, efficient and provide safeguards.
Quite rightly we would argue that they didn’t include saving for a home or using the superannuation system as an alternative to genuine policies to address housing affordability in this Bill.
Thirdly, the Government’s policy could have unintended impacts on other members of a superannuation fund.
The Government’s policy is that the amount of earnings that will be released to the first home buyer will be calculated using a deemed rate of return based on the 90 day Bank Bill rate plus three percentage points. It is not clear what would happen in the event that the prescribed earnings rate for housing deposits differs from the earnings of the super fund. For example, if the housing deposit earnings rate is higher than what the super fund earns, will other members cross subsidise those who withdraw their super for housing? Or will the super fund need to draw from the member’s compulsory super savings?
Fourth, the policy could be very difficult to implement.
The Government’s budget fact sheet says that the ATO will have primary responsibility for administering the scheme. It will be responsible for determining the eligibility of the person seeking a release and for calculating the release amounts. Its decision is to be based on information provided by the applicant and superannuation funds.
The ATO is also to be responsible for compliance – to ensure that people who withdraw their deposit actually go on to purchase their first home.
Frankly, we are yet to see the details about how the ATO will go about these various responsibilities.
We know from a recent Senate Inquiry into the non-payment of the superannuation guarantee that there are significant gaps in data and reporting of superannuation to the ATO that have constrained its ability to identify when employers do not meet their superannuation guarantee obligations.
These data gaps may make it difficult for the ATO to implement the first home super saver policy effectively and with job losses and other pressures on the ATO, which are well known and documented, its difficult to see how they would prioritise or manage this scheme.
Fifth, the first home super saver scheme may not make a significant impact on the ability of first home owners to purchase a home.
Plenty has been written by commentators on this since the Budget was handed down last week. The Government’s budget fact sheet gives an example of Michelle and Nick saving for their home deposit. Under this example, they both earn $60,000 per year and salary sacrifice $10,000 into super. Under the new policy, after three years, they will save $12,480 more than if they had the funds in a standard savings account.
But if the house prices in Australia grow even at their average historical rates since December 2011, then it could be that the median price of a residential dwelling in Australia would grow by over $100,000 in the three years that a first home buyer was saving. So under the scheme, a first home owner couple would receive an additional, just shy of$12,500 but meanwhile while house prices could have increased by over $100,000 over the same time.
Clearly this policy isn’t going to be a game changer for first home buyers.
And, this brings me to my sixth point – that this policy does nothing to address housing affordability.
It will do nothing to put first home buyers back on to a level playing field with investors or take the heat out of the housing market.We’ve certainly been taking the lead on developing policies that will genuinely work to address housing affordability.
Labor’s housing affordability plan is to respond across the housing spectrum with tax reform, national leadership through COAG, new financing vehicles, homelessness support, better outcomes from national agreements and for the expenditure contained within them, and support for a better supply of housing.
Contributing the proceeds of downsizing to superannuation
Another policy announced in last week’s budget is to allow people aged 65 or over to make a non-concessional concessional contribution to their superannuation of up to $300,000 from the proceeds of selling their home from 1 July 2018.
Labor has previously supported a policy objective of creating an incentive for older Australians to down-size their home.
In government we had program called Housing Help for Seniors pilot program in 2013-14 which was to provide an income and assets test exemption for pensions over the age pension age who downsized their home. The pilot program was to run for three years and be reviewed, however it also fell victim to the Abbott Government back in2014 and was scrapped before it had a chance to even commence.
The Government’s policy though, is to provide superannuation tax concessions for over 65s who downsize their home.
The difficulty is that it is likely to only be taken up by higher wealth individuals. This is because the proceeds of the sale of the home will still count towards the calculation of the pension asset test. So anyone who is currently receiving the age pension, or is marginally above the cut off, would think twice about downsizing purely for the financial benefits.
Labor however is still consulting stakeholders and considering whether there are sufficient benefits to the housing market to justify granting further superannuation tax concessions to higher income earners.
Policies to address unpaid super missing from the 2017-18 budget
In terms of what wasn’t in the budget, it was certainly disappointing to see that there was nothing to address the issue of unpaid superannuation.
A report by Industry Super Australia released in late last year, and updated earlier this year, projected that 2.76 million Australians are being underpaid on their super, with an aggregate amount of $5.6 billion. This equates to an average amount of just over $2,000 per person. If this situation is allowed to continue ISA projects that the cumulative impact on retirement savings would be $102 billion over the period 2013-14 to 2023-24.
This would not only put significant further demand on the age pension, but it would also deny employees the superannuation payments they are legally entitled to.
Australians deserve to get the super that they have earned. That is why Labor moved to establish a Senate Inquiry into the non-payment of the superannuation guarantee which has recently reported
The Inquiry heard many cases where employers were failing to meet their superannuation guarantee obligations and made recommendations on how to strengthen compliance to ensure that all workers receive the superannuation that they are entitled to.
In January this year, the Government announced that it had established a new multi-agency working group to investigate and develop practical recommendations to deal with superannuation guarantee non-compliance. It also said that the working group had been going since December last year.But despite the working group being due to provide a final report to the Minister back in March, we are yet to see action from the Government in this area.
In fact, I would argue we are yet to see a broad vision for superannuation from this Government, perhaps beyond its pursuit of a clear ideological agenda against certain elements of the sector.
There are many long term policy challenges for Australian super and for retirement incomes more generally. These include ensuring that lower income workers, particularly women have access to a decent retirement. It includes ensuring that the changes we are seeing over time in the labour market do not leave people who do contract, casual and part-time work get left behind. It also includes positioning ourselves to meet the future challenge of supporting more Australians to live longer lives of value and dignity. Superannuation, and its interactions with the age pension, health and aged care sector, will be a critical component of this future.
As a $2 trillion sector, with growth coming forward and such a significant impact on people’s lives, governments and policy makers should be turning their minds now to meeting the challenges of the future.
In terms of what Labor will do we will always support evidence based policies that seek to strengthen superannuation – particularly for low income workers and women – but we will not support policies which aim to weaken and target the labour movement’s role within the superannuation system. We know there is substantial work underway – with the Productivity Commission review and other super industry working groups along with changes flagged by the Government. Labor will be active participants in these debates and our focus will always be on what is in the interests of working people across Australia.
This principle has guided us from the very beginning and it will continue to serve us well in 2017 and beyond.
Major banks levy
Finally If I could just make a few comments on the Government’s new bank levy which also featured prominently in last week’s budget and every day since. I see from the program that this policy that may be discussed in the conference later in the day.
Given the tight fiscal circumstances, Labor has said that we will not stand in the way of the new major banks levy. However, we do believe the Government needs to ensure that the burden of levy isn’t simply passed on to banking customers. The Government promised very clearly on Budget day that this levy had been designed in a particular way that protected consumers and Labor believes they need to stick to their word.
Like everyone it seems, including the banks themselves, we would like to see more details from the Government on exactly how intend to do this.
We note the concerns that have been raised about the rushed process, lack of information, modelling or regulatory impact statement. We believe it is important and in the public interest, that all of this information is released ahead of the legislation coming before the parliament.
I have to say with my other hat on as Manager of Opposition Business in the Senate, It is pretty common these days for rushed legislation to come before the Parliament without proper process resulting in the need for substantial amendments bills to come later. Last year’s superannuation bills were a classic example of this. Whilst we will not seek to delay the bank levy bills we do believe a Senate inquiry is warranted and we will begin scrutiny of this measure in next week’s estimates hearings.
I know in the time available I’ve only been able to address a few of the many issues facing the superannuation and the financial sector more broadly.
There is a lot more we could discuss today but I can assure you that Labor’s response to the Government’s proposals in the budget will be guided by our values, by doing the right thing in the interests of working people and by what's in the long term interest of the country.
Thank you very much for the opportunity to talk to you at the conference today.