Last week the Abbott government made the decision to freeze compulsory superannuation contributions at 9.5% for at least the next 7 years. This decision means that by 2025 there will be $128 billion less deposited into superannuation. That’s $128 billion less to fund people’s retirement, $128 billion extra in age pensions coming out of welfare, $128 billion cut from schools, hospitals and government services to pay for it.
Of course this doesn’t take into account lost interest on these deposits, which is a compounding and ongoing loss. The cost of the decision by the Howard government in 2002 to freeze contributions at 9% instead of gradually increasing it to 15% as originally intended currently stands at about a trillion dollars.
It also doesn’t take into account the impact superannuation has on the Australian economy. The value of Australian superannuation today is more than $1.5 trillion. That’s $1.5 trillion largely invested in Australia. Superannuation provides a source of investment where financial institutions are either unable or unwilling to invest; it’s the main reason Australia prospered during the Global Financial Crisis, in fact it’s the reason Australia has prospered for the last 20 years.
Economic modelling shows that gradually increasing superannuation contributions to 12% over the next 7 years will increase investment by 1.3%, exports by 1.04%, capital stock by 0.9% and GDP by 0.33%. Currently $45 billion in superannuation is invested in infrastructure, including airports, ports, hospitals and education facilities. On the basis of likely asset allocation that figure was projected to increase to $200 billion by 2025 before last week’s decision.
The Government’s decision was made without considering any of these benefits. It is a decision that has no long term savings or benefits and an astronomical long term cost. Furthermore it clearly demonstrates our “adult” Government’s inability to understand superannuation and their complete lack of knowledge and/or concern for the Australian economy. It’s also a far more compelling reason to want to get rid of them at the first opportunity than say, questions about whether or not Tony Abbott has renounced his British citizenship, the sordid dealings of Christopher Pyne or allegations of Peta Credlin’s money laundering.