September 03, 2014

Horse 1746 - It's Australian But It's Not Super

I am 35 years old, which means two things:
a) that I am too old to be distracted by the passing parade of soap stars, music idols and so-called reality TV, not to know when I am being taken for a ride¹.
b) not old enough to be in a position of income or management or political power to do anything about it.

I think to think myself as being born in that glorious age which thanks to the economy throwing wage earners off the back of the train (the year I was born) and dragging us along; whilst hoping that we end up getting bloodied and bruised to the point where we're going to die (and soon), that I happen to be right at the beginning of an entire generation who can look forward to a future standard or living which is actually worse than our parents.
Hospitals, schools, universities, telecom systems, roads, railways, water, gas, electricity generation have all either been or are going to be privatised; thanks to a diet of right-wing baby formula which no-one but the rich can either digest or afford.

Yesterday, saw another smack in the face for people who have already had their teeth knocked out.
In the negotiations which saw the Mining Tax repealed, the previously legislated increases to superannuation were also kicked further down the tracks. This is perfect for those people who are already making use of what amounts to tax-free incomes right now, employers who no longer have to pay as much into their employee's super funds but terrible for those people for whom retirement is still decades away (if it is even going to exist by then).

Firstly, I've always thought that retail superannuation is a giant con. To make real increases requires that all fund managers to better than the market average and this is patently absurd. Secondly, fund managers are recompensed for their hard work of moving one bunch of numbers from one screen to another by collecting a percentage of the funds - this means that they cream off the top when funds generally are doing well, and gouge out real capital when they are not.

The real tragedy though is the fact that pushing back previously legislated increases to superannuation means that the benefits of compound interest from even 0.25% over a thirty year time frame, are not passed on to superannuates. Short-term "savings" for employers now might mean a worse future for their employees later.

The thing is that we were sort of warned about this sort of thing when Dr Ken Henry led his taxation review, which when to publication in 2010.
The retirement income report recommended that the superannuation guarantee rate remain at 9 per cent. In coming to this recommendation the Review took into the account the effect that the superannuation guarantee has on the pre-retirement income of low-income earners. 
Although employers are required to make superannuation guarantee contributions, 
employees bear the cost of these contributions through lower wage growth. This means the increase in the employee’s retirement income is achieved by reducing their standard of living before retirement. 

The effect of this reduction in a person’s standard of living before retirement is likely to fall most heavily on low- to middle- income earners who are unlikely to be in a position to offset the increase in the superannuation guarantee by reducing their other savings. However, it has been argued that the benefits from improving a person’s standard of living in retirement offset the effect of the decrease in their standard of living before retirement.
- pgs108-109, The Australia's Future Tax System Review (Henry Review) 2008

I further look at this with abject terror when I consider the rhetoric concerning cuts to pensions coming out of politics now and wonder what we'll be seeing in thirty years time. By that stage, it will be assumed that people will be relying on superannuation; which provides even greater reasons to consider abandoning pensions altogether.

According to AWOTE² figures, wages in 2013-14 wages increased by 2.6% whilst at the same time the Consumer Price Index suggest that prices increased by 3%. In real terms, this means that the average wage went backwards.
Personally, my wage rose 0% and now that superannuation increases have been pushed back, I won't see those increases either. Just looking at an average rate of growth at 4% (which is a good rate since the end of the Roman Republic in 27BC) I estimate that I'll be put of pocket personally to the tune of $103,000; that's a tune which the piper is handsomely paid for and I really really hate the song. The chap who said that poor people don't drive cars is now ensuring that my super is being stripped to the value of five good cars.

I imagine that in the world of 2053 when I 'retire' at the age of 75, that due to wage competition in Asia and then Africa, real wages will not only be going backwards but actual dollar wages will do as well. I can see us all merrily sleepwalking into a world similar to the 1830s³ and if the conclusions of Thomas Pikety are anything to go by (where the rewards on capital will continue to accelerate faster than the attributable rewards on labour) then I can also imagine a world of social discord as well.
The poor plead for mercy, but the rich answer harshly - "Please let us back on the train" No.

¹Double Negative.
²AWOTE - Average weekly ordinary time earnings

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