“The best people in this community are… those who by thrift and self-sacrifice, establish homes and bring up families and add to the national pool of savings, and hope someday to sit under their own vine and fig tree, owing nothing to anybody.”
These words were delivered by Australia’s very first Liberal Prime Minister, Robert Menzies, just before his 1949 election victory.
Within two generations, this idea of a national pool of savings was cemented by way of the superannuation guarantee. It meant that all workers would set aside funds to provide for their retirement. And since its inception in 1992, the superannuation guarantee has continued an incredible trajectory alongside the growth of Australia’s economy, which unlike the rest of the developed world, had not experienced a single recession. At least until now.
But fast forward to 2020 and we are effectively challenging this notion of a national pool of savings. In my editorial last month, I asked the rhetorical question; If super can be accessed early, does it even need to be injected with fresh funds?
I was foreshadowing the populist notion that perhaps workers will be offered a freeze on contributions to stimulate consumption.
This argument has recently been taken up by Tony Shepherd, the former president of the Business Council of Australia, who said that a freeze on contributions “would be a much-needed boost to a dissolving economy and just as importantly give a lift to consumer and business confidence.”
For now, the idea has been broadly dismissed with even the Treasury assuring that they are not considering this initiative in any of their modelling, despite the potential increase in tax revenues that this would entail. But perhaps it is just the first wave of these suggestions, with different voices ready to explore the idea publicly.
The counter-arguments are clear. Firstly, it is unknown if these monies would actually stimulate domestic consumption. It is perfectly plausible that those on higher incomes might use the money to reduce mortgages. It is also plausible that those most in need of support with their living expenses are also the most likely to lose their jobs and thus not receive this de facto stimulus measure.
The clearest single reason to object to this idea is the most obvious of all. Once you suspend contributions for a period of time, it becomes increasingly difficult to start the payments again. Once a habit is lost, it can be gone forever.
As an initiative to support a fairer and more prosperous society, placing a moratorium on superannuation contributions, however short, is surely a flawed one. The economic logic aside, there must surely be another reason to consider it? Perhaps it is a political one.
In an age of crisis and emergency measures, there are several ideological battles taking place. Global trade is close to collapsing and we are about to experience unemployment around the world that we have not seen in the best part of a century. Businesses starved of cash flow will fail, intellectual property will be lost and negative multipliers will ricochet around the economy as consumer and business confidence dwindles.
Across society, there will be considerable economic pain as we aim to mitigate against the health risks of a new virus that the world has no immunity for.
The burden of suffering needs to be managed efficiently and equitably. We know for certain that over the coming months more jobs will be lost and incomes reduced.
However, we should be careful to consider the unintended consequences of quick fixes. Superannuation offers dignity for retirees tomorrow and instils good saving habits today. It is also a conduit for society to channel funds into the most appropriate investments to help offset our imminent recession.
As a nation, we must look to superannuation as a solution to our problems, not as a cause. We must encourage business leaders to work with industry funds to secure fresh capital is put back into the system, not marginalise it as a perceived constraint on consumer spending. Academics, think tanks and super funds should work with policymakers to develop, and not disassemble, the institution.
After all, its purpose encapsulates all that is commendable in our community. You don’t need to take my word for that, or Paul Keating’s, just ask Robert Menzies.
Colin Tate is the chief executive of Conexus Financial and publisher of Investment Magazine.