When economic policy transcends political division

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It is one of the ironies of Australian political history that a policy that has profoundly benefited this country’s version of capitalism came, not from the right, but from the Labor party and unions. The mandating of superannuation payments in 1992 under the Keating government has profoundly changed Australia’s financial system. There are few better demonstrations of how mouldy left-right economic distinctions based on ideas formed in the nineteenth century (or eighteenth century in the case of the Adam Smith) have mostly lost relevance in the twenty first century.

  Main image: Paul Keating (Patrick Riviere/Getty Images)

When the policy was introduced many Liberal Party politicians at first expressed hostility — until they realised how much money was to be made, that is. It turns out that if you want robust capitalism, then ask the Left. The full financial effect has taken decades to emerge and it is still mostly ignored, or not understood, in political debates. There is much coverage of growing income disparities and how it affects wealth differentials, but there is very little examination of savings, which is also wealth. When that is included, the picture in the Australian economy looks very different.

In 1991, the pool of accumulated superannuation savings was around $146 billion, equivalent to 38 per cent of GDP. In 2019, according to the OECD, assets in all retirement vehicles in Australia equated with 135 per cent of GDP, ranking the country sixth in the world behind Denmark, Iceland, the Netherlands, Canada and the US (the OECD average is 60 per cent). To give some idea of the long term structural implications, in New Zealand pension fund assets only equate with 31 per cent of GDP. Over time that will put much greater pressure on the Kiwi government to fund the aged pension, a problem far less likely to occur in Australia. Even those who do not have sufficient savings to fully fund their own retirement will still be taking some pressure off the government accounts with what they have.

There is now over $3 trillion in Australian super funds which, as Keating has boasted, has completely changed Australia’s external accounts. In 2019, Australia became, for the first time since the Second World War, and perhaps ever, a net foreign investor rather than a net recipient of foreign investment. That was largely because of super funds investing in overseas stock markets (the Australian stock market is just over $2 trillion).

To complete the muddying of left and right wing distinctions, a further irony is that representatives of organised labour, the unions, have turned out to be much better investment managers than the private players. The Liberal Party in the 1990s was outraged at the formation of industry funds because they thought, rightly enough, that it would give great power to the union movement.

Trouble is, the industry funds have tended to do better over the last three decades than the privately run retail funds. One reason is that retail funds tend to charge more for their services. According to the Productivity Commission, there are many ‘excessive and unwarranted fees’, and although they have come down ‘a tail of high-fee products remains entrenched, mostly in retail funds.’

 

'If there are two well proven rules in investment, they are: the higher the fees, the lower the return; and, the best way to manage risk and reward is to diversify.'

 

Another reason is that industry funds often have access to different types of investment, such as infrastructure vehicles, which allows them to diversify more. If there are two well proven rules in investment, they are: the higher the fees, the lower the return; and, the best way to manage risk and reward is to diversify.

Another great virtue of Australia’s super system is that individuals own their own savings. In many European pension systems there is no direct ownership and because governments have big unfunded pension liabilities it is likely to mean that superannuants will never get all they were promised. But in Australia the money is invested on your behalf; it is yours.

It is an exemplification of a strain of political thinking, neither strictly left wing nor right wing, that was devised by the great writer GK Chesterton: distributism, the idea that productive assets should be widely owned rather than concentrated. Superannuation has made big steps towards such distributed ownership, unlike the Australian housing market, where there is unfortunately a massive generational divide because of reckless bank lending. The little understood implication is that the ideologies that define our political divisions no longer mean very much.

 

 

David JamesDavid James is the managing editor of businessadvantagepng.com. He has a PhD in English literature and is author of the musical comedy The Bard Bites Back, which is about Shakespeare's ghost.

Main image: Paul Keating (Patrick Riviere/Getty Images)

 

Topic tags: David James, Liberal, Labor, right, left, superannuation, capitalism

 

 

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Existing comments

It should also be noted that favourable tax treatment of superannuation accounts, on the way in, and on the way out, is especially favourable to those fortunate enough to be able to reduce their marginal tax rate during their savings phase, and, courtesy of the Howard Government, avoid tax altogether in post 60 retirement. Some of us can live on the interest from these protected savings.
John Saint-Smith | 09 April 2021


Already into my 5th decade when arriving in Australia on a one-way ticket, I often feel as if there are some things that seem obvious but no one ever mentions in polite company - hidden in plain sight, as it were. Keating's Labor apparently stealing the ideologies (if not the clothes, exactly) of the Right re: superannuation is one of them. I am reminded of a quip from the late UK Parliamentarian Tony Benn, who observed: "The [British] Labour party has never been a socialist party, although there have always been socialists in it - a bit like Christians in the Church of England." (The late Lord Wilson, Labour PM in the 'sixties, noted too that the Labour Party 'owed more to Methodism than to Socialism.') When an ever-more-right-leaning neo-liberal Coalition government in Australia gives away its precious surplus at the first sign of crisis and introduces, if only temporarily, what might be viewed as Universal Basic Income (Jobkeeper in response to the Covid crisis) I feel we have come full circle. You couldn't make it up. As you say in the first sentence, superannuation policy "has profoundly benefited this country’s version of capitalism"; which fire we may - in time - come to feel might have been better left unstoked. In the final analysis no Ponzi scheme is too big to fail, even (perhaps especially) a global one.
Richard Jupp | 09 April 2021


Very good summary including information or concepts that are neither presented to the public nor understood, well e.g. portability of super. Several 'qualified' economic and/or business journalists supposedly of the centre in the public domain, i.e. linked to the Grattan Institute, ANU's Crawford School etc. are helping to create doubts round superannuation and supporting the introduction of constraints e.g. no SGC increase to 12% etc. Worst is the political PR presentation methods used in media framing i.e. focus upon tax benefits for wealthy (from the past), assuming same settings remain and telling employees they can have either super or wage increases, not both. However, the same media then egregiously ignore future of changing demographics (also assuming all employees are citizens with pension access....) and fact that Australia continues to come in the top 5-7 nations of 'sustainable retirement income systems' (versus the carnage in many unsustainable pension systems e.g. many European nations, due to ageing demographics, with both a declining tax base and working age cohort of taxpayers, with increasing numbers of retirees. Like we see on other issues in media being promoted by journalists, supposedly acting as being in the interests of employees or citizens, but following political announcements of the government. Reality? It's a 'trap' set by radical right libertarian interests in creating antipathy towards super (influence of funds) and nobbling or constraining funds, when in fact it is an open attempt at equating the SCG as a 'business cost' needing elimination, reduction or bypassing. Quite strange in Australian media how the supposed economic experts in journalism are mute on super because they do not understand, do not care or more likely, are not empowered to discuss economic policy that contradicts the LNP, IPA or NewsCorp/9F line? The first cycle of retirees who have had super from their first job will not be apparent till mid century, so we have a long while to wait for outcomes......
Andrew J. Smith | 11 April 2021


The benefits from superannuation will depend, to a large extent, on the health of the financial system. All governments are now printing money faster than the Weimar Republic ever did. One commentator recently noted: “How is America paying for its imports? By selling stocks to foreigners, according to Treasury data. Foreign investors have been dumping low-yield US Treasuries and corporate bonds.” But what happens when foreigners get tired of buying overpriced stocks? Treasury will then have to sell more bonds, which means interest rates will rise, because investors won’t buy bonds at very low yields. In turn that will push stock prices further down, and so on. “That’s a death spiral. It’s not inevitable, but it’s a serious risk.” Let’s hope it’s not inevitable. A “cancel culture” used to cancelling whatever it disagrees with, might find cancelling Weimar-like runaway inflation somewhat more difficult.
Ross Howard | 11 April 2021


Thanks for an interesting article, David. It is true that the ALP under Paul Keating introduced compulsory superannuation. And it has to be said that it has ensured that many ordinary Australian workers have experienced a measure of financial security for their retirement years. However, the article has an implied assumption that the ALP is more "left" than the LNP. However, despite the thinking of many Australians, he right wing of the ALP is often more right than some LNP politicians eg the "Liberal" Party liberals or wets. And many ALP politicians who describe themselves as left seem to lack any conception about human rights, and social justice. As Richard Jupp has pointed out, the British Labour Party has never been a socialist political party. This is also true of the ALP, but from time to time socialists are members of both parties but rarely get elected into political office. I found his quote by the late former BLP PM Lord Wilson that the party owed more to Methodism than socialism rather interesting. Many 18th century Methodists described themselves as Christian Socialists and were active in the Chartist and union movements in Britain. All the Tolpuddle Martyrs were Methodists and their leader was a lay preacher. In addition many of those Methodists played a very significant role in the formation of trade unions in the early years of colonisation in Australia. - especially the Cornish and Welsh miners. However, Tony Benn's analysis of the BLP applies to Methodists too. There were socialists in the Methodist Church, but it was not a socialist organisation!
Andrew (Andy) Alcock | 08 June 2021


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