If the superannuation system is not firmly in the government’s sights as a funding support for the crisis stimulus, then it soon will be, according to chief executive of the Grattan Institute, John Daley.
In particular, taxes on investment gains is where the government will look to fund its latest round of stimulus measures, Daley said.
“In a world where the younger generation has taken a big [financial] hit to keep an older generation alive, they will look to taxing super, particularly in the older phase [of retirement],” Daley said during a session at Professional Planner & Investment Magazine’s Retirement Conference, in which he pitted his views and research against David Knox, Mercer’s senior partner and senior actuary. Daley noted his turn of phrase was intended to be illustrative and not meant to be insensitive in the current situation where the spread of COVID-19 has crippled health systems and economies globally.
Daley further explained that tax increases would need to follow “somewhere along the line” to fund the government’s audacious economic rescue package in light of the COVID-19 impact.
“One hundred and thirty billion dollars [the value amount of the latest stimulus package] – that’s getting up to 10 per cent of GDP, that’s a lot of money people are going to have to pay back,” he said.
“Look at any post war period where huge amount of money have been spent and its always been taxes on investments where governments have focused their attention afterwards,” he said, highlighting that high taxes on inheritance is an obvious measure.
Daley – a prominent advocate for not increasing the super guarantee above 9.5 per cent as has been planned – noted that the COVID-19 impact would further strengthen the case against growing the $3 trillion super pool at the expense of the quality of Australians’ every day lives.
Earlier in the day to open the conference, Assistant Minister for superannuation, financial services and financial technology, Jane Hume, said she was not prepared to look too far ahead when asked whether the government would look to the superannuation sector is further measures were needed to stimulate the economy beyond the early access and change in minimum draw-down measures announced in late March.
“Working age incomes are going to be lower because people will be unemployed. History tells us unemployment will be sticky, so unemployment will be high for a long time. Secondly, contributions above the SG are unlikely as businesses are in stress,” Daley noted, further strengthening his case for people to keep more of their working-age incomes rather than contribute to mandatory retirement savings.
On the other side of the argument for preserving and sticking to the plan to increase the SG, Knox noted that one of the major impacts of the COVID-19 crisis and subsequent markets and economic dislocation is self-funding is going to be more important for individuals.
“The government is going to have to make some difficult choices,” Knox said, noting that linking pensions to inflation [CPI] instead of wages could be one of these moves. Linking the pension to prices and not wages and that would have a significant impact on modelling retirement outcomes, he said.
The current COVID-19 situation has brought into sharp focus the trade off between dignity in every-day working life and dignity in retirement, Daley said.
“There is no reason for governments to force households to live a more dignified retirement than they live in their everyday working lives. Absolutely none… Increasingly we will find that people are increasingly being put in a situation where their income today might be materially less than what they will have in retirement,” he said.