Gutless superannuation (retirement) reform

The ALP has come out with a policy that taxes superannuation accounts with $3million or more at 0.30c in the dollar instead of the 0.15c dollar. My first reaction was, ‘So what?’, they’ve marginally reduced the wealthy propensity to save. They can still maintain a very high material level of wealth and they’ve done nothing to address the rising cohort of pensioners living in poverty.

OECD stats (source) place income poverty of old-age pensioners at 23.7% in Australia for the year 2018. That is well above the OECD average of 13.1% For those between the ages of 66-75, 21.6% live in relative poverty. The figure sits at 27.1% for those 75 years and over.

We know there are rising rates of homelessness, particularly for women over the age of 55 (which you can learn about in the documentary ‘Undercover‘) as they struggle to gain enough hours of work and have minimal savings. Most Australians are reliant on the public aged pension which currently sits at $1026.50 per fortnight (inclusive of a pension and energy supplement)

The language used to justify the increased tax rate is ‘budget repair’. The treasurer day in and day out talks about the largest rising expense being the rising rate of government debt. Well I have a simple solution, instruct the RBA to purchase all outstanding bonds and stop issuing new ones. Government debt (officially they are called Australian Government Securities) are a mechanism to help set the offical cash rate (that is the rate banks pay each other when they are short of reserves) As an issuer of currency, the Australian Government has no financial constraint.

We saw over covid the government temporarily increase the rate of unemployment benefits and introduce a wage subsidy scheme. It is entirely within the Australian governments power to raise both the unemployment benefit and rate of the aged pension without needing to raise one cent in additional taxation.

Language and Framing

The orthodox framing severely restricts the ‘acceptable’ policy options. Effective policy, like I described in yesterday’s post, is ruled out as being ‘economically irresponsible’ and metaphors such as ‘placing the future generations in debt’ and ‘budget black holes’ are used that ensure policy will maintain the status quo of the current inequitable system. The framing that the government budget needs to repaired has the ALP come out and propose some mediocre reform that’ll do little to assist those in need. In my opinion it is poor policy.

The Goal of a Retirement System

The goal of a retirement system should be to provide those that are past working wage a dignified existence. The challenges with an ageing population are not whether the government deficit will increase as tax revenues decline but one of increasing levels of productivity. That is the same or more output with a smaller portion of the population in the workforce. There is no financial barrier to the Australian government lifting the rate of the age pension to say the minimum wage.

Currency Issuers vs Currency Users

An understanding that currency issuing governments face no financial constraint, they spend first, before they issue debt or collect tax, allows us to see through the myths of needing to pay back government debt and would open discussion in policy options available to us. Currently effective policies are ruled out as the overall aim is for the government to reduce its overall spending (surplus). That has a significant affect on households as their liquidity is squeezed and household savings ratio begins to decline.

It’s Not About Saving

We can then also assess the logic that we need to save for retirement. The current superannuation system has us compulsory saving all while fiscal policy (surplus) aims to contract the overall net financial assets in the system. The two aims, saving and deficit reduction, are in direct opposition to each other. The latter destroys the net financial assets of the banking system.

The household saving ratio as declined since the 1970’s and reached negative pre the Global Financial Crisis. If the Australian government continues with its plans to reduce the deficit, you will see the private domestic sector (that’s us) begin to contract (or increase in debt) and the household savings ratio begin to fall toward zero and perhaps below. (I wrote about that in some detail here) I find it ironic that compulsory saving has not increased the household saving ratio, it was the government deficit spending post GFC and the Covid stimulus that reversed that trend. Now we are back to austerity framing (deficit reduction) we are seeing the trend of a declining savings return.

A Fairer Tax System means Making a Distinction Between Earned and Unearned Income

Classical economists made distinctions between earned and unearned income. Unearned income or economic rents were usually accrued by virtue of inheritance and land rents. The aristocracy of a feudalist society earned significant incomes despite not contributing to the labour and thus the output. This debate started with François Quesnay, in the 18th century, who advocated taxing property holders rather than disincentivising those that worked the land and reducing agricultural production. The debates became more sophisticated over The Enlightenment and the term ‘free market’ meant to be free of economic rents from a group of aristocracy as we transitioned from a feudalist society and into the social tensions over the organisation of society post-feudalism.

The works of Karl Marx, highlighted profit was derived from the surplus value of workers labour. Under feudalism surplus value was easier to see. Workers would take their subsistence living and the excess would go to the lords. Under a capitalist mode of production the surplus value was more opaque. While the exchange value showed a worker being paid $X an hour – the value of their output may have been much higher. Workers circa the 19th century were forced to endure long hours and low rates of pay that often didn’t even meet subsistence.

As socialist unrest began to rise capitalist needed theories to make that system seem fair. An economist, John Clarke Bates, is what we call marginalist and was a key part of fighting the growing rise of Marxism. Marginal productivity theory justified the ‘unfairness’ of the capitalist system. If you wanted higher wages, you had to invest in your skills development, as under economic rationality, each individual earned the value of their investments. Under this thinking utility refers to a worth or value and each individual was responsible for investments in their skill.

I think (I hope) it is clearer today that it is far better to give all equal opportunity and provision everything we need for a quality life via public goods and services. We should also see that it the workers that create the value, not the capitalist earning rents from sitting idle all while being able to indulge in the goods and services we as workers produce.

Our tax system certainly needs reform to make it more equitable. But taxes should be there to reduce political clout and avoid accruing vast amounts of financial wealth while not doing anything. We need a major overhaul of how we tax unearned income in Australia and to create a system where you can actually work hard and ‘get ahead’. That requires reorganising the ways we distribute housing, it requires us to reassess the costs we place on families for childcare and educational costs for tertiary and vocational education. It also needs us to ask some questions around whether some services are better delivered as public goods (thus no requirement for financial return) over being run privately. Think aged-care services and broadband services.


Superannuation has not been the ideal system to meet the retirement needs of a vast majority of Australians. Most are still reliant on the aged-pension. The aged pension provides a subsistence living and leaves almost a third of pensioners in poverty. We need a rethink of how we deliver income to retirees and a way to downsize the extractive financial sector of the economy. The challenges we will face are growing productivity (particularly with climate change) and to look at what investments will we need to ensure we can provide quality life to a growing elderly portion of the population.

As an aside I have played with the design layout (again) I think I like the simplicity of this. I may add a photo in the header. My posts are much easier to find via category and tags now. I will need to work on updating the accuracy of those tags.

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