Even among those who idolise Paul Keating, one will find grudging acceptance of the notion that an excessive sense of theatre helped contribute to his downfall at the hands of that haunting phrase, "Relaxed and Comfortable". For better or worse, that sense hasn’t dissipated over the last decade. Perhaps most memorably in recent times, it was on display in an interview on ABC Radio this time last year, when PJK sent sub-editors scrambling for the nearest Concise Oxford to brush up on their spelling of "desiccated". It was disappointing, however, that in the subsequent media coverage, the former PM’s latest withering character assessment overshadowed an arguably more important issue.
Keating had been invited to pass comment on one of his pet topics: superannuation. Specifically the fact that no-one was doing anything about improving it. Not a man lacking interest in policy development, PJK counts super as an issue particularly close to his heart, due in no small part to the struggles involved in getting it on the federal agenda. Even allowing for his self-avowed crash-through approach, institutional inertia forced Keating, in conjunction with the ACTU, to introduce occupational super in 1986, prior to legislating compulsory contributions in 1992. Beginning at 3 per cent of an employee’s income, the contribution was incrementally pushed upwards to its current level of 9 per cent, reached in 2002.
It goes without saying that superannuation has proven a highly worthwhile reform, contributing to a savings pool of over $1 trillion and allowing many more Australians to make independent plans for retirement. But as Keating observed in 2006, the Howard government’s failure to push for a significant expansion in the scope of compulsory super has represented "a lost decade", at the cost of up to $300 billion in accumulated savings.
But as many including Keating have maintained for a long time, the current 9 per cent, although a solid platform in itself, should not represent the end-point for retirement income policy. For those on or below the average wage, Keating understood that the contribution needed to be closer to 15 per cent to maintain a weekly payment of around average earnings once in retirement. This was a key reason behind his push, late in his final term, to increase compulsory contributions to that level, funded jointly by employer-employee contributions.
Moreover, at the present rate, compulsory super still falls far short of meeting Australia’s retirement needs. A 2005 report by the Productivity Commission estimated that in the absence of behavioural or policy changes, old-age pension liabilities would rise by 1.7 per cent of GDP between 2004 and 2045. In conjunction with our own ageing population, it is critical to start implementing policies now in order to lessen the budgetary strain a few decades down the track.
Unfortunately, super reform is an area where the timidity of both major parties, combined with perceived electoral realities, has squandered a golden opportunity for economically sensible and socially warranted reform. In a politically pragmatic attempt to defuse the issue before it grew legs, Labor copycatted the Howard government’s super policy last March — hence Keating’s original spray on the wireless. Keating has reason to be cranky: his original attempt to increase contributions to 15 per cent in the 1996 budget fell through when Howard redirected the proposed tax cuts to cash-in-hand (sound familiar?).
This approach highlights a deep policy malaise going forward. The election campaign just past has reminded us that the Government literally has more money than it knows what to do with. Big-spending promises were met with calls to heed inflation risks; Rudd stole a march on the Coalition by advocating fiscal restraint. With Government coffers flush with cash, unable to be unleashed on the economy without the risk of being dissolved into interest rate rises or creating an inflation spiral, there is no time better than the present to bring the issue of raised super contributions back to the fore, as various parties, including the union movement, are now doing.
Presently, compulsory super contribution forms one part of an individual’s pre-tax income, with the rest split between take-home pay and tax. Rather than promising over $30 billion in inflationary tax cuts, it would have been immensely more far-sighted for either party to promise to redirect that amount into boosting compulsory super contributions, balanced out by equivalent tax cuts: a direct shift of monies, from the tax portion of individuals’ income, to the super portion. With tax cuts appropriately tailored to each bracket, there would be no reason for an individual’s weekly pay packet to be affected, either upwards or downwards.
Calculated in terms of the average wage (currently just under $57,000), an increase of 5 per cent via this method would amount to the equivalent of just over $2800 per person, per annum. With around 11 million taxpayers currently registered in Australia, this comes to a total of $31.35 billion – close to the Government’s promised tax cuts. With appropriate weighting induced to ensure a positively scaled outcome, this is a fully costed means of ensuring the present surplus makes a viable and equitable contribution to Australia’s long-term prosperity.
The case for making such a reform is clearer still when one looks at the recent headline inflation figures. The underlying trend has pointed for months to an overheated economy, with many lower down the income ladder doing it very tough. Under such circumstances, it is nonsensical to pump-prime spending patterns with an additional $30 billion in consumers’ pockets. By delaying access and thus the rate of diffusion across the economy, putting the money towards additional super contributions will have an important stabilising effect.
There is also the satisfying prospect that an even greater proportion of Australians will be able to have a larger stake in the country’s future. With the sharemarket having proven itself a strong performer over the long-term, investment by super funds has afforded far more Australians the opportunity to partake in the benefits of this prosperity than did prior to the introduction of compulsory super – a trend which would only be reinforced by the expansion of the program.
It is sad that political ‘pragmatism’ will likely result in a second lost decade. It amounts to nothing less than timidity, and a fear that the media will nail Labor to the wall over broken election promises.
However, broken promises are not the worst mistake a new government can make; they are forgotten in time, particularly if a government is as popular as Rudd’s presently is.
The title of "worst mistake" instead falls to the deliberate disregarding of long-term considerations, especially economic ones. Labor has a number of talented minds, including the likes of Lindsay Tanner, who are well aware of the benefits of expanding compulsory super. They need to ask themselves this question: when they come to the end of their time in office, would they rather have to their name a policy that genuinely serves the nation’s long-term interests on an ongoing basis, or a tax cut driven by perceived expediency?
Aside from his talent for the theatric element, Keating’s downfall was brought about, in part, by a perception that he was concentrating too much on "the vision thing". Australia could use a bit of that vision right now.
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