For Australia’s sake, support the 12 per cent

Amid the political and business angst over the Federal Government’s move to put in place a resource rent tax, one thing seems to have been lost in translation, writes AIST CEO Fiona Reynolds. In 10 years, I’m certain I’ll be asked at international gatherings: “Tell me, just how did Australia get to have a 12 per cent compulsory superannuation scheme?” It’s the usual question I get asked – usually by a slightly incredulous pension fund trustee or regulator from overseas – about Australia’s existing 9 per cent superannuation guarantee regime. My usual response is: It came about as the result of one, single, big, smart idea 25 years ago and a lot of political willpower to make it happen. Australia has one of the most efficient and well-performing superannuation systems in the world. It didn’t just happen. A previous government had to break eggs to make that particular omelette.

Every time someone boasts of Australia’s $1.2 trillion superannuation pool, remember it came about because bold thinkers and activists came up with a great idea decades ago and had the gumption to see it through to reality. Australia now has the fourth largest pool of super funds in the world, even though its economy is only 18th on the global league tables. The reforms announced by Treasurer Wayne Swan and Superannuation Minister Chris Bowen inevitably strengthen it and ensure that the country’s retirement incomes system remains world’s best. Major social reforms take a long time to get right. The original compulsory occupational superannuation, backed by law, was introduced gradually so its impact could be absorbed by business and workers. The first 3 per cent was a tradeoff for workers not taking an increase in take-home pay, and the government offered businesses tax cuts to compensate. Sound familiar?

Slow and steady increases in the rate of super, with the cost impact blunted through a cut in company taxes? Over the decade between the early 1990s and 2002, compulsory super rose to 9 per cent, before hitting a road block as a result of some short-sighted political decisions. Former Prime Minister Paul Keating has calculated that the lost decade of accumulation during the Howard and Costello years cost the national savings pool roughly $500 billion. Now a new government, and a new Minister, have found a way to free the political and economic machinery. In small increments – of no more than half a per cent per year – super will reach 12 per cent within a decade. The impact of this on businesses – and even on people’s take-home pay packet – should be manageable.