The political fanfare and media frenzy which beset the 2005 Budget announcement, heralding tax cuts on many fronts, unfortunately overlooked blatant omissions from a fiscal package which, we are led to believe, is meant to set the nation for an even stronger future.
While the Budget itself continues to be in surplus, the prominent occasion that is the annual Budget announcement was deficient in the Government’s failure to recognise that the 9 per cent superannuation guarantee contribution (SGC) is mathematically inadequate to fund an average retirement for an average wage earner.
Missed opportunity
Where was the visionary planning that would take the majority of Australian workers to a realistic level of retirement savings? Where was the commitment to reform the minefield of superannuation complexity? Where was the encouragement of Australians to better manage household debt? Where was the leadership saying that the tax cuts provide an opportunity for people to reduce debt and make higher overall savings for their future?
Indeed, if ever there was a time in the last 40 years for a government to take the political risk-free lead in setting retirement on a stable and more predictable setting, it was the 2005 Budget.
Just seven months into a three year parliamentary term and a looming Senate majority largesse, this was the time to take the nation to the next stage of retirement savings. It was the time to have gently led the business community and workers down the path of a 1 per cent per year increase in the SGC over a six year period.
After more than 20 years of legislative tinkering at the edges with superannuation, this was the time when politicians, of either political persuasion, should have been able to truly say: “This completes our changes to superannuation,” as did former Labor Treasurer John Dawkins’ in his 1994 Budget speech.
Politically, the opposition could hardly have opposed such an announcement for it was the previous Labor Government which legislated a 3 per cent employee contribution to superannuation (rescinded by the current Government in favour of superannuation choice legislation).
Compulsion
The point is that Australians, as a whole, have failed to voluntarily contribute sufficient funds towards their retirement. The Hawke and Keating governments recognised this and withdrew the tax incentives on personal contributions and implemented instead the SGC which saw the then ‘award’ compulsory 3 per cent increase to the current 9 per cent over an extended period, accompanied by the now defunct 3 per cent employee contribution legislation. The 3 per cent plus the 9 per cent SGC would have seen retirement savings at a minimum 12 per cent of salary.
The fact remains that by reason of lack of capacity through burgeoning household debt, or through simply being unable to manage their money, the majority of Australians find it difficult to consciously make voluntary decisions on increasing their retirement savings. As a nation, we have shown that we need to be legislatively led to contribute to superannuation. If politicians sit back and wait for it to happen voluntarily, then, it’s not going to.
Super assets
It would be nice to think that the current generation of financial planners is fatigued through coping with a supply/demand imbalance brought on by the majority of Australian workers voluntarily seeking advice on increasing their superannuation contributions. But that’s just not the case.
And even though it might be argued that choice will have catalytic benefits in seeing some employees become more interested in their superannuation, it would be foolhardy to think all workers will take such opportunity.
The much lauded Future Fund will do much to extinguish the Government’s contingent liability in its unfunded defined benefit superannuation schemes, yet, apart from abolition of the surcharge, there was nothing in the headline superannuation announcements from which the majority of accumulation fund members can take much comfort.
Disincentives removed
Abolition of the superannuation surcharge appears to be the only positive macro announcement designed as an incentive for people to save. Sanity has prevailed and so called high income earners will now not be penalised for wanting to contribute more towards their retirement and therefore easing the taxation impost on future generations.
It’s history now, but the mind boggles at the logic which predicated introduction of the surcharge in the first Budget of the present Government in 1996.
Consider for a moment the wasted intellectual energy and resources deployed by the financial services sector (and the tax office) over the past nine years to advise clients on the surcharge. A tax that saw the birth of yet another tax term — adjusted taxable income (ATI). Long may it and the ATI acronym stay buried in the casket of failed policies.
Household debt
While governance is about financial management and strategic planning, it is also about leadership. The 2005 Budget announcement was an opportunity for the Government to utilise the centre stage opportunity afforded by the annual Budget announcement, to encourage the households of Australia to better manage their liabilities. In contemporary times, there is no more prominent example of responsible debt management, than what the Government itself has achieved.
In very simple terms, this was an opportunity for the Government to lead through example. There is a noted disconnect between a Government which has been hell bent on cleaning up the liability side of its own balance sheet, yet remains virtually silent on record household debt.
With this economic indicator sitting at five times the level of some 15 years ago, the reality is that at some stage, the debt has to be repaid and Australians need to be told about it from the top. Their lenders won’t tell them — their financial planner should be telling them — but most of all, financial markets sensitivity notwithstanding, the government of the day should be talking about it.
Despite the fact that 10 second media grabs of the daily news bulletins afford precious little time for leadership on household debt management, the annual 30 minute Budget speech is about as good as it gets in terms of national exposure opportunities.
Unanswered questions
From the perspective of preparing the nation for the bulge in baby boomer retirees and presumably moving on from the financial strength, generally, resident in the economy as a whole, there remain unanswered questions from the 2005 Budget. One of which is why, for all our economic success of the last 15 years, does the salary factor of this nation’s compulsory retirement savings, still sit short of the average of OECD nations?
But most of all, after 40 years of successive governments failing to finish the job and follow through on setting adequate retirement savings levels, how big an election win — how much political strength — does a government need to make the hard, yet important decisions on retirement savings?
Ray Griffin is a Tamworth-based planner and former chairman of the Financial Planning Standards Board International CFP Council.
