With a world awash with cheap credit from the mid-1990s the debate waned. However, the recent financial crisis has put the spotlight on national savings again. The Government’s response to the Henry Review – in announcing an increase in the Superannuation Guarantee from 9 per cent to 12 per cent – makes the hard decision to deal with Australia’s savings rate. Although a key reason for increasing compulsory superannuation from 9 per cent to 12 per cent is that it improves retirement incomes, it does a lot more than that. Increasing compulsory superannuation has significant wider benefits for the Australian economy and the Budget. Compulsory superannuation was always intended to serve two purposes.
The first was to improve the incomes of retirees and reduce the burden on the Budget of paying the Age Pension. The second was to increase Australia’s savings. Treasurer John Dawkins said as much in the 1995 Budget, which announced increasing the Superannuation Guarantee: “One of the principal objectives of this Budget is to meet the medium term imperative of improving national saving to maintain investment and employment . . . “The goal is better retirement incomes for Australians. The commitment, simultaneously established, is to substantially increase the nation’s savings.” The first is an obvious goal and increasing the Superannuation Guarantee does a lot in this respect. The average 30-year-old Australian will have an additional $108,000 in their superannuation account on retirement as a result of the increase in the Superannuation Guarantee to 12 per cent. This is clearly a great outcome for all those hoping for a comfortable retirement.
The benefits of the second goal are less obvious but equally, if not more, important. Since compulsory superannuation was introduced in 1992, Australia’s superannuation savings have increased from $141 billion to $1.3 trillion. This has contributed to Australia now having the fourth largest pool of funds under management in the world and ultimately to the strength of the Australian economy. One of the factors that assisted Australia to ride out the recent financial crisis was our superannuation savings pool and ongoing contributions. While companies around the world struggled for funds to invest during the GFC, Australian companies were able to draw on Australia’s superannuation funds. It is estimated that Australia accounted for 10 per cent of the world’s total recapitalisation in 2009 – a staggering figure given the size of the Australian economy. We need to build on this position to further strengthen the Australian economy.