Tim Wilson's war on Super

Lisbeth Latham

Tim Wilson, Liberal MP and former Institute of Public Affairs mouthpiece has deepened his campaign to undermine the superannuation system supposedly in the name of supporting homeownership amongst young workers. Reality is that his proposals are unlikely to increase the ability of people to own homes, and even if it did increase buying capacity it is likely to further inflate prices, but instead serve to drive more people into poverty in old age.

In a February 6 article by Rick Morton in The Saturday Paper, Wilson argues the following: 

• Workers accessing superannuation during the COVID pandemic was a policy success; 
• The decline in the number of young workers owning their own home is a consequence of the superannuation guarantee; 
• That homeownership will provide greater security in both working life and retirement;

As a starting point, super is deeply flawed, it is not the best way of securing a comfortable retirement for all working people. However, Wilson is not looking to address the weaknesses of the current system. Instead, he is cynically trying to use justifiable angst about retirement, particularly in the context of the COVID pandemic, to undermine and weaken the superannuation system, particularly for marginalised workers.

The Morrison government’s policy of allowing workers facing hardship due to COVID to access their Superannuation balances to meet their needs signaled that the government knew that the financial support it offered people in its stimulus packages was totally inadequate to meet people’s financial obligations. Moreover, the policy allowed people to mortgage their futures to meet the living costs of today. As a consequence, they not only denuded these workers of their retirement savings but undermined the superannuation balances of millions of workers as superannuation funds were forced to liquidate assets, some at a discount, in order to meet the cash demand of people making withdrawals.

While it is true that superannuation is a deferred pay rise, that deferral long ago occurred and cannot be accounted for in declining wage growth. The Superannuation guarantee increased to 9% from July 1, 2002. It did not increase again until 1 July 2013, when it increased to 9.25%, and then to 9.5% from 1 July 2014. The Abbott government delayed the subsequent increases in the guarantee which had been legislated by the Rudd government, with the next increase not due until July 1 of this year, the guarantee is scheduled to increase by half a per cent each year until it reaches 12 per cent in 2025. In the meantime, the average wage price index has moved from 3.6% in 2004 to 3.7% in 2012 and 1.4% in 2020. This decline is more to do with the increasingly combative outlook of employers eager to maximise the share of productivity growth going to profits rather than wage rises. This more aggressive outlook has been encouraged by successive LNP governments and mirrors patterns across the OECD.

Source: Wage Price Index, ABS. 

Brendan Coates, director of Grattan’s household finance program, in states the article that a 12% superannuation guarantee is more than sufficient for most workers, and thus workers should be able to draw down their super balances each year that exceed 9%. However, this does not hold up against the reality of high levels of poverty in retirement within Australia, with the OECD finding in 2019 that 25% of those over 65 in Australia living in poverty. The research found that breaks in contributions, in the study this was primarily due to periods of unemployment or parental leave, resulted in significantly worse financial outcomes. Moreover, given that superannuation is based on compounding value - but may decline due to market fluctuations, judging what counts as “in excess of 9%” would be difficult to judge.

At the same time as wage growth has slowed to record low levels, housing prices have continued to grow. From 2004 to 2020 the average home price in Australia’s eight capital cities has almost doubled, with only a couple of years where prices contracted. Given that wages have not grown anywhere to the same extent, what has been the driver behind this ongoing growth? A major factor has been the availability of historically cheap finance, which is allowing people to borrow much greater amounts compared to their incomes. This creates a real danger that any rise in interest rates could see thousands of homeowners being forced to sell or face foreclosure particularly given that a quarter of all mortgage owners report mortgage stress. In addition, the ongoing growth in house prices has encouraged a significant level of speculation in the housing market, with speculators taking on interest-only loans on the assumption that they will be able to sell the home at a profit prior to any interest rate increases. A final driver of house prices has been successive government policies around negative gearing which allows owners of investment properties to write-off the difference between interest payments and rental income against their income tax. These policies have led to numerous individuals owning multiple “investment properties” and any first home buyers competing with speculators in the marketplace and the driving up of prices but also contributed to increasing rental prices which undermine the ability of renters to save deposits towards their first home.

Source: Residential Property Price Index, ABS

According to Association of Superannuation Funds of Australia, in 2017 the average superannuation balance of workers aged between 30-34 was $43, 593 for men and $33, 748 for women. In most cities, this is insufficient to make up a deposit - in August median house prices in Australian capital cities was $804, 602. Even if you assume you have a couple they would struggle to pull together a full deposit - at the same time they would then need to be able to cover a mortgage - which may or may not be possible based on their combined balances and saving, but they would potentially be left in retirement with a co-owned house (possibly still a mortgage on it) and limited savings.

Given the distance between Wilson’s proposal and the reality that accessing their super accounts will not make buying a house affordable for most workers, why is Wilson pushing this proposal? While it could simply be a public destabilisation scheme, which both Wilson and the IPA are fond of, it is more likely that it is to help soften up the public for the Morrison government pulling back from the legislated super guarantee increases. Either way, the media should reflect this reality rather than accept the proposals in good faith. Moreover, if they are serious about exploring approaches to provide security in retirement, they should explore solutions that don’t pose it as either a choice of owning a home or retirement savings based on a life of work. Instead, we should be looking at ensuring that everyone has sufficient incomes in retirement. Whilst super may have a role in this, we would be better served by increasing all pension payments to livable levels. Moreover, whilst it is true that owning a home in retirement can provide security and capital - this is primarily due to the cost of rentals. Housing security would be better served by greater government investment in quality housing stock aimed at providing affordable and long-term housing to residents.

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