(03) 9020 2905Debt Man column – The West Australian (Business)
February 5, 2010.
Bruce Brammall
Debt Man
Berlin’s Wall takes a fall. Kurt Cobain ends it all. Oils’ release “Diesel and Dust”. Chris and Pixie Skase go bust. “Young Einstein’s” Yahoo Serious. Eddie Murphy’s “Delirious”. Yothu Yindi’s Yunupingu. Can you remember Kajagoogoo? Compulsory superannuation … erm … nope, got zip. Nothing rhymes with that.
That shows that when it comes to poetry, I should probably stick to financial advice. It may also remind you of your youth. If it does, you’re Generation X – you were teenager in the 80s and/or early 90s.
Back then, you could still smoke in cinemas and you might remember watching Paul Keating’s head literally grow on TV when some European magazine labelled him the “world’s greatest treasurer”.
You were probably too young to have owned shares in Skase’s Qintex, so compulsory super is the only one of direct financial relevance to Gen X.
What’s the relevance? Well, it arrived in 1992, soon after Gen X started entering the workforce. Compulsory super was conceived for us – to make sure we had something left to look after ourselves in retirement, once we’d been taxed harder than previous generations to look after Boomers in their twilight.
Compulsory super was Keating’s baby. Nearly two decades on, it’s still considered visionary stuff.
So, given that super was a Labor vision, why does the Rudd Government seem so intent on buggering it up? Why are they making it harder for people to embrace super, by removing the incentives, changing the rules and creating uncertainty?
This week, the latest Intergenerational Report was released. It paints a predictable horror story about how many ageing Boomers there are and how few Xers will still be working to support them.
There are currently five working Australians for every retiree. By 2050, it’s expected to be just 2.7. Eventually, Xers are going to have to work one job to support their nuclear family and another just to support Ma and Pa Kettle.
The Rudd Government wants to leave its mark on super. Superannuation Minister Chris Bowen has declared as much.
To that end, they are running three inquiries that have or will touch on super. (And, as they say in politics, only launch an inquiry if you already know what it’s going to find.)
There’s the Ripoll inquiry (out last November), Treasury secretary Ken’s Henry tax inquiry (partially leaked) and the Cooper inquiry into super (still investigating).
The Government hasn’t acted on those inquiries yet. So what form do we have to go on?
They halved the concessional contribution limits for super in last year’s Budget. From last July, the maximum that can be put into super, pre-tax, was halved to $25,000 (with a three-year exception for those aged over 50 of $50,000).
This has a significant influence on those earning above, say, $75,000 – not that much above the average $60,000 wage. Its negative impact increases the older you are.
There are indications the Rudd Government wants super stripped back to a safety net to support the government age pension. If that happens, the incentive to invest in super will be drastically reduced.
Henry’s tax report looks like it will make super about as appealing as the late transvestite-singer Divine (produced by none other than Stock, Aitken and Waterman). You may shudder now if you remember “You think you’re a man”.
Henry’s recommendations include cutting back tax deductions for super contributions to high-earning Australians to the same dollar value as for lower-paid workers, delaying access to super to age 67 and forcing everyone to take some of their super as a guaranteed lifetime pension.
He argues against raising the super contribution rate beyond the current 9 per cent because he believes it will be sufficient from about 2040 onwards. Few people agree with him there.
What does all this add up to? Wait for the steak knives.
There will be plenty more fun when the whole Henry Report is actually released. And we’ve got nothing from the full superannuation inquiry, Cooper, yet.
It might not be grabbing the attention of the man-on-the-street, but 2010 is shaping up as a potential turning point for superannuation.
And, if you’re a little above Mr or Ms Average, it’s not looking good. Given the current political uncertainty, anyone – Gen Xers or older – who is wary of contributing large wads of money to super has good reason.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser. bruce@debtman.com.au .