Compulsory Superannuation – A View – Ross Cameron

In a presentation to The Sydney Institute on Wednesday 6 July 2011, on compulsory superannuation and its future benefit to Australians, Ross Cameron, former Liberal Party Member for Parramatta and now company director and contributor to the Sydney Morning Herald joined Dallas McInerney, who has worked in financial service regulation at ASIC and is currently Group General Manager, Government Affairs at the National Australia Bank to discuss the pros and cons.

COMPULSORY SUPERANNUATION: ANOTHER VIEW

ROSS CAMERON

It’s worth stepping back and saying, if this is an argument within the Liberal Party we ought to ask what is the great goal of liberalism? And what is the policy objective that we’re trying to achieve as it plays out in the context of the debate over compulsory superannuation. I can see Dallas shifting from foot to foot as a Liberal trying to come to grips with the fact that he is urging on you and me, and all Australians, a greater measure of compulsion, a more powerful state, a deeper reach into the pockets of ordinary Australians – that’s what Dallas is advocating.

My dream and the traditional value of the Liberal Party is freedom, the idea that we want to see individuals emerge from some vast, faceless class of anonymous integers and shine in the world as the brilliant distinctive unique creatures that each one of us is. We want individuals to experience the dignity that comes from having maximum levels of control over their own lives, their own thoughts, their own decisions.

I had an arresting experience recently with a 15 month old child. A little girl I was sitting with was engaged over a square box with holes shaped as a square, circle and star. She had three square, circle and star blocks to poke through the holes. As we sat there, she was mesmerised as I was putting the circle into the circle and the star into the star and so on. She delighted in taking the lid off and dumping them all out and we started all over again. She could have done this for 24 hours, just watching. Eventually, I handed her the star which she picked up in her chubby little hands trying to get it into the star opening. And it just wouldn’t go. And she tried and she tried. So I took it and put it in myself. Then I took it out again and I gave it to her and she finally managed to manoeuvre it into the star opening. With that, she looked up and burst into applause.

This was a magnificent achievement in the little girl’s short life. And that is the moment that liberal philosophy is aimed at. My argument would be that Labor is happy to spend the hour sitting there with the child, saying “This is the hole it goes into” and the child’s sitting there just watching it being done for her.

Ronald Reagan talked about the journey after the Challenger disaster and gave what I would regard as one of the greatest speeches of the twentieth century. It was about three hours after that disaster and dreafted by an Australian, Peggy Noonan, who was his principal speech writer. But it was Reagan who gave the speech and it was a Reagan sentiment. He talked about the long march, the human race from the swamp to the stars. And we want to reach the stars.

We have in R G Menzies and Gough Whitlam, two definitions of political leadership which I regard as two sides of the same coin, expressing essentially the same sentiment. Menzies talked of leadership as the ability to persuade people to think in the long term. Gough Whitlam described it slightly differently, saying political leadership was the ability to anticipate change. Either way, both of them accepted the onus is on the leader, in a democracy, not simply to compel behavior but to engage with the citizenry in a dialogue which calls on their rational faculties, to make the case.

For me, there are two issues. One is the merits and defects of the current compulsory system; then there is the issue of whether we should further ratchet up the pain, and tighten the screws by another three per cent. And this decision is being made at some distance from those the decision will most adversely affect.

We ought to acknowledge the fact that here in the magnificent offices of the National Australia Bank, none of its  directors are going to go home tonight and asking themselves, “How do I pay the wages of the workers tomorrow?” None of them are going to be asking that question. None of them get nervous when the phone call comes through with a blocked number on it and think, “If I answer that, it could be the bank manager pulling my loan facility.” None of the directors of se companies who occupy great buildings owned by our mega superannuation funds and these vast list of enterprises, none of them have the experience of going home at night and saying to their spouse, “These are the terms of the personal guarantee that I didn’t mention to you 18 months ago but I had to give it in order to secure a loan facility to keep the business running and now it’s being called in.”

Those decisions and those experiences are being made by a hundred thousand little wealth creators taking on the risk of creating value in this economy. They are not vast listed enterprises and they do not have the benefit of a vast cache of capital built overwhelmingly by previous generations to derisk their business. They’ve got to make the call and they have got to find the wages.

This is one of the problems with this policy. A lot of the advocates say that another three per cent in Australia’s prosperous booming economy will be no problem for most businesses. And perhaps most businesses can manage. But we Liberals are not satisfied with an answer for most, or an answer just for the healthy ones, or an answer just for the ones who have already succeeded. We are interested in all the hopes and dreams of those who haven’t yet got there. They are the ones who are creating new enterprises. They are the ones who are creating new industries. They are the ones who wake up in the morning with that great idea in their brain and wonder, “Is there enough in it to take the risk of leaving whatever secure thing I’m doing to do something new?” But an added three per cent of compulsory superannuation for every employee punishes all of them.

What the superannuation industry is saying is that in the last year under this measure of compulsion, Australian superannuation assets grew by $100 billion in 12 months. I asked one of Dallas’ colleagues tonight, since he’s a banker, to do the maths for me. If you break that down to a daily number, what’s $100 billion divided by 365. We scurried around and got out the computers. The answer was, a lot of zeros. In rough figures, it’s about $274 million a day of fresh capital washing in the door of a group of huge and listed fund managers. An increasing proportion of it is also going into self managed super funds because people are so fed up with the deal they’ve been getting from their current fund managers. Many are saying they can do a better job themselves. It’s good work if you can get it.

When I was first elected to parliament in 1996 we were furiously in agreement that we needed to continue to lift the rates of national savings. Any fair minded policy maker, any person thinking about the future would be saying we want Australians to retire with dignity. And we have a problem. I’ll admit. We’re not here talking about nothing, we’re here talking

There are about seven million Australians in the workforce who are in good shape. They’re going to get to near enough an adequate retirement income. We know there’s about three million at the moment who are falling short. Overwhelmingly, these are the baby boomers. We also know that anyone who joins the workforce today and starts now is basically going to get there. On current trends because they’re starting early. That’s the whole magnificent power of compound interest and long-term investment. So the question is what we do for those who are not quite going to get there.

The first thing I would say is that I start from another R G Menzies principle, which is, “‘We believe”. I had it on my business card when I was a member of parliament because I liked it so much – “We believe, as we always have, that the only freedom is a brave acceptance of unclouded individual responsibility.” Whatever the outcomes and consequences that are taking place in your life today, the overwhelming centre of responsibility for those outcomes is not the Commonwealth government, it’s not the State government, it’s not the City of Sydney, it’s not Amnesty International, it’s not the National Australia Bank, it is you.

I’m committed to that principle because I also believe – not that I take any pleasure in the misfortunes that people suffer as a consequence of their own decisions – but because I have much more confidence in a person’s ability to manage your affairs than I do in Dallas’ ability to manage your affairs or in Julia Gillard’s ability or Tony Abbott’s ability.

The person who is at the scene, who can see the car coming, who can see the opportunity presenting when the neighbour’s business shuts down because he’s gone overseas, which means there is no hairdresser on the High street. He can see that a million years before Julia Gillard can see that. So we want him to have the maximum amount of responsibility to act at that moment. We do not want him or her to jump through a thousand other hoops that we’ve established to say, “Look we’re not really confident that you can take care of your own problems so we’re going to help you take care of those problems.” What we know is that the more intensively governments seek to help people take care of their problems, the worse things get.

To the advocates of compulsion, I can report that I meet with remote Australian indigenous communities who have for 30 and 40 years not had a cent of exertion income, whose self-images have been completely destroyed but we continue to look after them all, don’t we? And we go happily to bed at night because, thankfully, we don’t have to see them.

Dallas says this is not a payroll tax as it is income of workers going to the workers. But there’s only one source for that income. It’s either the individual or the business the individual works for generating the earnings. You can call it earnings, you can call it income, you can call it profits, whatever you call it, there’s got to be something there in order for anyone to see it. Those earnings have either got to go to the employee or contractor or to the business or potentially to the government. The more you deprive the employee or the business of access to those funds, the more you shrink liquidity. And the smaller the business, the bigger the impact that shrinking liquidity has.

That’s why the Henry Review specifically addressed the question whether we should move from 9 per cent to 12 per cent. Henry, whom I don’t regard as a great friend of the Coalition, said no we shouldn’t. And that if we did, it would punish mostly low income earners. If you live on a $100,000 a year and take an extra $3000 out of your bank account and put it into MLC or MTAA, you can probably manage the impact of that with some degree of flexibility. You have got some discretionary income. If you’re on $40,000 a year and $1200 is taken out of your wallet, you’re starting to cut into very basic family expenditures like utility bills or whether the earner will get third party property insurance for a motor vehicle. You don’t have a lot of flexibility to manage a $1,200 removal from a $40,000 wage.

When I got elected in 1996, there was $270 billion in Australian super savings. Under the policies of Howard and Costello of balanced budgets, tax cuts and policies that drove increases in productivity, we saw a massive uplift in superannuation. When I retired in 2004, there was $900 billion in super savings. This was not because we’d increased the super levy but because we’d increased the productivity of the economy. And that’s got to be the goal of Liberal Party policy.