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'Saving superannuation first', Association of Superannuation Funds Australia, NSW Division luncheon, 14 April 1999, Sydney.

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Speech from the Shadow Assistant Treasurer - Member for Wills


Association of Superannuation Funds Australia

NSW Division Luncheon






Kelvin Thomson MP

Shadow Assistant Treasurer

Opposition spokesperson for superannuation



14 April 1999









For Further Information;


Kelvin Thomson MP     Phone: 03 9350 5777  Mobile: 0419 594 882

Tim Fawcett             Mobile: 0416 397 088


Mail:   3 Munro St, COBURG, VIC 3058




Thanks to ASFA for the opportunity to talk to you today. 


My address is titled ‘saving superannuation first’ which is a variation on ‘saving social security first’, the major theme espoused by US President Bill Clinton in his 1998 State of the Union address and which he reiterated in his 1999 State of the Union address in January.


President Clinton was referring to saving the US Social Security system which in Australian parlance is the age pension.  While the trust fund which holds US Social Security payroll tax contributions is currently in surplus, in the year 2013 outflows will be greater than inflows and the trust fund will be in deficit by the year 2032.  That means from 2013, US tax payers - working men and women - will be subsidising the Age pension of their parents and could face higher taxes after 2032 to support Social Security at the equivalent of current levels.


That presents a serious public policy challenge to US policy makers and President Clinton chose to make social security reform the key issue of his State of the Union address.  I’d like to read you his phrase, which I think is a timely reminder of what we need to consider in Australia.  Bill Clinton said:


“I was born in 1946, the first year of the baby boom.  I can tell you that one of the greatest concerns of our generation is our absolute determination not to let our growing old place an intolerable burden on our children and their ability to raise our grandchildren.”


President Clinton proposed a range of measures to save social security, boost retirement incomes and increase security for older Americans, including:


  • Investing 60 per cent of the US budget surpluses for the next 15 years in the Social Securit y trust fund;
  • Allow the Government to invest a small portion of the 60 per cent in the private sector;
  • Using one out of every six dollars in the surplus for the next 15 years to guarantee the soundness of the US Medicare system;
  • Using 11 per cent of the su rplus to establish the ingeniously named universal savings accounts - USA accounts - with a matching or co-contribution, especially for those on low and middle incomes; and
  • A $1,000 tax credit for the aged, ailing or disabled who are in long term care, whi ch can also be accessed by the families who care for them.


You will note that there is a stark contrast in President Clinton’s use of his country’s budget surplus and the Prime Minister’s use of Australia’s budget surplus.  The American President is on ab out saving social security and medicare.  Mr Howard is spending it on GST compensation - with over fifty per cent going in over $13 billion of tax cuts to the wealthiest twenty per cent of the population.  While America plans for the future, we’re into tax cuts for the rich.


President Clinton’s policy of allowing the Government to invest part of the Pension funds in the share market has created quite a stir in the US.  There are clearly problems in involving Governments in share market investment.  Labor had this debate when we established the current superannuation system.  The outcome was Labor’s world-class three pillars retirement income system, with compulsory contributions invested by the private sector through a prudentially sound trustee system with the chief aim of maximising returns for fund members.  The US Government would be making a mistake if it were considering investing directly in the share market.


One can imagine USA accounts striking a patriotic chord with the American people.  But, doesn’t the idea of USA accounts sound familiar?  These accounts - with a matching, means tested Government co-contribution sound very much like Labor’s own 3 per cent co-contribution policy, announced in the 1995 federal Budget.


The use of tax credits to assist those in need of long term care and their families is an innovative idea.  Of course, there is only one political party in Australia which is talking about tax credits, and that is the Labor Party.  We are particularly int erested in the potential of tax credits to reduce unemployment.


I have three reasons for drawing your attention to what the USA is doing with its retirement incomes policy.


First, they are doing what we have already done.  In other words, when it comes to the structure of retirement incomes policy, Australia is leading the world.


Second, President Clinton rightly puts the issue of the ageing population at the forefront of public policy challenges facing governments right around the world.  He says:


“H ow we fare as a nation far into the 21 st Century depends on what we do as a nation today.”


The sentiment expressed by that phrase is something I have been acutely aware of since taking on the role as Labor’s retirement incomes spokesperson.


Thirdly, the focus of President Clinton’s State of the Union draws attention to the need to ‘save superannuation first’ in Australia.


So why does superannuation need to be saved?


More Australians are going to retire between the years 2010 and 2050 than at any other time in Australia's history. The vast majority of these people will have experienced higher living standards in their working years compared to their parents'. They will expect a higher standard of living in retirement. In addition, these future generations of retirees are going to live longer than previous generations. Their savings will need to be stretched further. We will see pressure on government pension outlays; they will rise. The cost of health and related care will rise as new technology extends the life of many people into their nineties.


What we do know is that this poses a twofold challenge for governments. First, we have to have public policy that ensures that future generations of retirees have enough income to live on to ensure a decent standard of living in retirement, and we have to do that without placing an unreasonable tax burden on current generations of workers. We also have to have public policies that ensure that there are adequate funds available to finance the increase in health and related care services without compromising the quality of care and to make sure that the health benefits from the new technology are spread as evenly as possible across the elderly population.


That sort of perspective has been strongly supported by ASFA.  Philippa Smith has pointed out the Treasury projections which show that by about 2030 the government will need to spend about 22 per cent of gross domestic product on age pensions and health care, compared with the 10.5 per cent that is spent now, and that if you combine this with an ageing population and declining labour force participation we have a real problem down the track.


Labor established a world-class retirement incomes policy framework capable of meeting the challenges of an ageing population.  But more work was needed to build on the strong foundation, particularly in the areas of taxation and coordination between social security and superannuation.  In addition, the perceived complexity of the system and continual changes to the laws have not helped retirement incomes policy.  For that, all Governments have to accept responsibility.


However, it was a Labor government which put superannuation and retirement incomes policy on the right path and we are proud of our achievements in that area. 


Disappointingly, Australia has since lost its way on both retirement incomes policy and national savings policy.  There is little doubt that the Liberal government has undermined Australia’s world-class retirement incomes policy, as established by Labor.  Consider the evidence:


  • Abandoning the co-contribution;
  • The superannuation surcharge tax;
  • The inclusion of superannuation in the means test for over 55s in receipt of a Commonwealth income support payment;
  • Attempting to implement a convoluted choice of s uperannuation fund policy, in both the public and private sectors;
  • Announcing a flawed and complex opting out policy - supposedly to be implemented on 1 July 1998, but yet to be seen; and
  • Proposed changes to Do-it-yourself funds which do not have any revenue attached - makes one wonder why they are doing it? - which are co unter to the twin-regulator principles of the Wallis inquiry.


And that’s just to name a few of the changes that have been ring-barking Labor’s superannuation tree. 


The government's response to this has been to say that things are going all right becaus e superannuation contributions are rising. This is always the Assistant Treasurer's response when we raise these concerns. When we say, `You really need to do more about the issues of savings and retirement incomes' he says, `No; it is okay. The contributions are still going up.'


The lie to this was given by a study released by ASFA in February. Your national body analysed the trend of contributions to superannuation over the past two years.  This analysis indicates that the strong recorded growth in member contributions is for the most part a rise in one-off payments to retail superannuation funds to buy retirement income stream products. That is being done in order to meet the social security assets test and minimise the tax on accumulated savings. If you are going to calculate growth including those figures, you end up with double counting because that is simply reinvesting lump sum payments from the superannuation system.


This analysis of trends in superannuation contributions over the past couple of years shows a clear pattern of decline in voluntary contributions to superannuation, implying disenchantment by employers and employees with superannuation.


So, if we do not get some urgent action to boost national savings and retirement incomes, in my view, millions of Australian retirees are going to suffer the same fate as Old Mother Hubbard's dog; there will be no bone when they get there. ASFA had a good look at this and described the government's treatment of superannuation as being like the picture of Dorian Gray, displaying everything as rosy and unchanging while the portrait stashed away in the attic shows the reality—a much uglier and more depressing look for superannuation.


The Government did announce one change recently - for which we are yet to see legislation.  As a result of industry and Opposition lobbying, Senator Kemp has announced some decomplication of the Government’s surcharge collection arrangements.  While the Opposition waits to see how this works, I welcome feedback from this or any other audience about the value and impact of these changes.


But, to give you one more surcharge tax ‘war story’ as an example of what a disaster this tax has been and continues to be, the Victorian Government still refuses to implement it, nearly three years after it was first announced!  They have not passed legislation which would apply the surcharge to Victorian Public Sector defined benefit schemes.  The surcharge on some defined benefit schemes is not payable until a member leaves.  In Victoria, members who leave the scheme are not being levied any surcharge tax.  The State of Victoria is footing the bill.  So Peter Costello’s great claim for the surcharge as an equity measure is unmasked once more - ordinary Victorian taxpayers are footing the bill for the high income earners in Premier Kennett’s defined benefit schemes.


Labor has opposed many of the superannuation fiddles proposed by the Government because the Government has put forward bad public policy based on flawed assumptions.


It is disappointing that the spirit of bipartisanship on retirement incomes policy which did exist for a short while between Labor and Liberal parties has sunk, with the latter veering between complacency and downright hostility towards superannuation and retirement incomes.


However, today I want to throw a life-line to the Government on retirement incomes policy and give it a chance to reinvigorate the bipartisanship which once existed.


To draw on Bill Clinton’s speech:


“…I reach out my hand to all of you in both hous es and both parties and ask that we join together in saying to the American people:  We will save Social Security now.”


Today, I also reach out my hand to my Parliamentary colleagues in both parties and both houses, and ask that we join together to save superannuation now.


Simon Crean has already said that Labor will offer bipartisan support where the Review of Business T axation undertaken by John Ralph proposes some real improvements in business taxation in a revenue neutral way.


I extend the bipartisanship offer when it comes to retirement incomes policy.  Labor stands ready to join with the Government, industry, fund members and their representatives and other interested stakeholders to ‘save superannuation now.’


We announced before the last federal election that we would undertake a review of the retirement incomes system to examine what further reforms are required and address those problems which have been created since we left office. Despite the outcome of the election, we are now carrying out that review although obviously an Opposition does not have the resources available to it that a Government does.


Many others have also called for a review of retirement incomes policy, including ASFA, the Investment and Financial Services Association, the Australian Bankers Association, the Financial Planning Association, and the Australian Chamber of Commerce and Industry.


The Government certainly missed an opportunity to review the taxation of superannuation through the Ralph Review.  I am pleased that organisations such as ASFA have kept the pressure up to the Review of Business Taxation by making submissions on superannuation and savings issues.


However, it is not too late to conduct a retirement incomes review. 


The Senate Select Committee examining the Government’s new GST tax package, A new tax system , has almost delivered its final report.  Once that report is delivered, it is time to re-establish the Senate Select Committee on Superannuation, with wide ranging terms of reference, to conduct a review of retirement incomes policy.  The review could begin after 30 June 1999 when the new Senators will take their place.


The Senate Select Committee has the expertise to conduct such a review.  Properly resourced, the Senate Select Committee could receive submissions from industry, Government and other interested parties including a range of noteworthy academics who have proposed a raft of changes to the superannuation system.


Labor is currently examining a range of possible new policy initiatives, building on the strengths of the existing system, that will reinvigorate the retirement incomes debate through forward looking policies.


Kim Beazley flagged in his Pathways speech that we are examining aged care extension accounts - ACE accounts - where Australians can save for the purposes of aged care spending.


On the same day as Kim’s announcement, Vince Fitzgerald proposed a similar idea at the recent Conference of Major Superannuation Funds which I was fortunate enough to attend.  Vince’s model was for a 2 or 3 per cent co-contribution to be phased in and earmarked to a health care account within an existing superannuation fund.  The health care contributions could be used for hospital related costs, to pay for private health insurance or to buy the pharmaceutical benefits card, with excess balances to be drawn down as an income stream.  We welcome Vince’s contribution to the debate.


Simon Crean has pointed out that we are looking at ways of boosting the amount that people are contributing to superannuation for use in retirement, including the possibility of allowing people to have limited access to the additional funds they contribute - strictly for investment purposes rather than consumption - like education and retraining.


But Labor is also examining the current structure of our superannuation system and will propose changes where they are needed. 


While Australia’s retirement incomes structure is the envy of other countries, our taxation of superannuation is not.  ASFA has been critical of the taxation of superannuation, particularly in the Blue Skies policy document, which proposes an Exempt - Exempt - Tax model as opposed to the Tax - Tax - Tax model which currently exists.


A noteworthy variation on this proposal has come from David Knox, and was presented to the Institute of Actuaries at the ASFA conference in November last year.  It would remove the contributions tax, increase the tax on earnings and tax the end benefit at higher rates.  It involves a one-off tax calculation at a ‘tax changeover date’ described by David as the ‘Big Bang’ - and he also talks about transitional arrangements to address the problems caused by a loss of immediate revenue to government.  What is clear is that more, detailed work is required and the Senate Select Committee is the obvious forum for developing policy proposals in a bipartisan way.


Labor’s means tested 3 per cent plus 3 per cent co-contribution policy would have seen the 9 per cent level increased to 12 per cent for the majority of the Australian workforce and 15 per cent for those on low and middle incomes. 


Currently, the SG will peak at 9 per cent from 1 July 2002.  When combined with the means tested Age Pension, this will provide retired Australians with an income equivalent to around 30 per cent of final income.  This may well not be enough for the majority of working Australians who continually indicate that they expect to retire on a level of between 60-80 per cent of final income, something that Labor’s co-contribution would have delivered over time.


Policies should be developed that encourage further savings through superannuation for use in retirement and that boost retirement incomes.


Retirement incomes policy has evolved from separate, but not always coordinated policy areas - social security and treasury.  These policy areas can be used in coordination to remedy what is seen by many as a weakness in Australia’s retirement incomes structure:  the way retirement benefits are delivered. 


The current mindset is supported by the knowledge that the Age Pension is there as a safety net after superannuation savings are spent.  It is also supported by aggressive marketing of schemes to get a part age pension by financial planners and others.


Many other countries require citizens to purchase pensions or annuities with their tax advantaged savings when they retire.  Australia does not, although this is encouraged using a ‘carrot’ approach by generous retirement benefit limits and through initiatives designed to give pensions and annuities preferential social security means test treatment.


Moving to an optimal benefit structure - with a comprehensive income stream based system - is an important issue and should be investigated further. 


Retirement incomes policy and superannuation in particular sit at the heart of core Labor values.  It is a policy which aims to improve the retirement lifestyles of working men and women and which, up until 1983, was the domain of white collar and high income earning individuals. 


A sweeping new retirement incomes policy will confirm Australia as a modern, forward looking country which is continuing to focus on meeting one of the biggest policy challenges now and in the future.


Retirement incomes policy emphasises security in retirement through better retirement incomes and security for the nation through boosts to national savings and the associated economic benefits, including national sovereignty.


Retirement incomes policy is a cornerstone of Labor philosophy and our current public policy thinking.  Assisting Australian men and women to save for their retirement in order to boost their incomes above the Age Pension is a priority for Labor.  We hope that the Coalition government will adopt a bipartisan spirit and join us in a comprehensive review of Australia’s retirement incomes policy.


Thank you.




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