Labor has the politics of superannuation badly wrong. Its core constituency would be much better off without it. So would the economy.
But Labor has long promoted super as 'gift' to ordinary workers that it compels employers to provide. Recently, however, the superannuation minister Bill Shorten acknowledged that compulsory contributions to super come from money that could otherwise be paid as normal wages.
Rather than being forced to hand the money over to fund managers to punt volatile financial markets, many employees could prefer to spend the money on their own priorities, such as raising a family, paying off a mortgage and improving their education.
Shorten is pushing ahead with Labor's decision to increase compulsory super contributions to 12 per cent of salaries. Yet Treasury modelling has shown that even the existing 9 per cent, plus the age pension, will produce an incongruous outcome in which low income earners have a higher disposable income in retirement than while working. Shorten is now fighting union resistance to trading off the increase to 12 per cent against wage rises.
If employers were allowed to convert the 9 per cent to a normal part of salaries, this would boost take home pay by $85 for those on average weekly earnings of $1333 and by around $45 for someone on the minimum wage of $589. Finding better things to do with this money than putting it into super should not be hard. Australian Prudential Regulatory Authority data show the average rate of return on super over the ten years to June 2011 was a meagre 3.8 per cent.
Governments could also find better things to do with the money they spend on superannuation tax concessions that are heavily biased towards high income earners. The research director for financial information company Rainmaker, Alex Dunnin, says about half the value of the concessions goes to the 8 per cent of superannuation members who are in a self-managed super fund (SMSF). Tax office figures show 75,000 of these funds have assets between $2 million and $10 million. Two have more than $100 million. Yet 90 per cent of SMSFs have only one or two members. Dunnin estimates the average balance in not-for-profit industry funds is $44,000.
The Henry tax report notes the cost of lifting contributions to 12 per cent will outweigh any savings on the age