Tim Wilson wants you to buy a house. This idea is central to his campaign to reshape compulsory superannuation.
The Liberal backbencher says that if people could use the money in their super account – all of it, if necessary – they might be able to fund the deposit for a first home. With a property bought, he says, they will get back to planning for their retirement.
“There is only one policy that stops young Australians using all of their savings to buy their first home, and it is prioritising super over home ownership,” Wilson tells The Saturday Paper.
“Since we have prioritised [that], the average age at which young Australians have purchased their home has gone from their low 20s to their late 30s. And that is not an accident.”
Wilson, 40, says he thinks “in terms of priorities”.
“You know: fine to have super,” he says. “But is it really a more important priority than home ownership? No, I don’t think it is.”
So far, Wilson’s super crusade is closely following the playbook of his campaign against changes to franking credits at the 2019 election. That campaign was criticised for politicising a parliamentary inquiry and taking questionable evidence, including submissions Wilson had helped write, but it was also seen as central to tipping the election in favour of the Coalition.
As with his franking credits campaign, Wilson has created a website for what he calls “Home First Super Second”. It carries a video of the MP spruiking his position, as well as a form to collect names and home and email addresses. He includes a link to the site in almost every social media post he makes.
In addition to his hopes for housing, Wilson sees the possibility of super being used to cover other areas that would usually involve government support. He gives family violence as an example.
“Now I think there’s an interesting story particularly in … post-divorce or when people [are] fleeing domestic violence,” he says. “We may have a look at significant life events but the principal focus is first home.”
Wilson is doing this not just as a “humble backbencher” but as chair of the house of representatives standing committee on economics, which is currently running an inquiry into the superannuation sector. Here, he enjoys the powers of political compulsion. He has used the inquiry to grill fund managers and extract details about what he sees as the wasteful spending of membership fees, particularly on bonus schemes.
This time around, his opponents are careful about waving away his inquiry.
“I’ve noticed,” Wilson says, “there’s an increasing number of articles where Labor people are saying you shouldn’t underestimate what this bloke is doing.”
Wilson’s campaign is perhaps the most pointed in a government logbook of moves against superannuation. Faced with having to launch a banking royal commission, Morrison made sure it included the super sector. Both the Productivity Commission and a separate retirement income review have, in part, driven proposed reforms to the system. And when Covid-19 hit, the government moved quickly to allow people early access to their superannuation.
In November former prime minister Paul Keating, the father of superannuation in Australia, responded to Wilson’s campaign. He told the ABC’s 7.30 that Wilson’s scheme is “draining the bath” and defeats the entire purpose of compounding savings.
Separately, Keating lashed “baby-faced Liberals”, including Wilson, Andrew Bragg, Jason Falinski and Dave Sharma, for agitating to ditch the legislated increase in compulsory super to 12 per cent.
“I have a number of concerns,” Wilson says about the legislated increase.
“So, I want a direct correlation between increase and outcome and I don’t see it, except low home-ownership rates, stagnant demand on the pension and at the expense of wage growth and jobs growth.
“I think there needs to be a compelling basis to show that it’s actually going to prove to be beneficial to justify an increase.”
The stakes are high. During the 2019 federal election campaign, Scott Morrison pledged to forge ahead with delayed plans to raise the superannuation guarantee by 2025.
But last year the prime minister said the legislated changes – which begin on July 1 this year, with a rise in the guaranteed rate to 10 per cent – would need to be “carefully considered” because of the pandemic.
“People’s jobs are at risk,” Morrison said in August.
Labor and the industry superannuation funds, which are controlled through the union movement, have launched dogged attacks against the Coalition in a bid to pressure the government to keep the 2.5-percentage-point jump.
On this point, though, the opposition has lost the backing of most economists and even former staunch defenders of the increase.
Both Saul Eslake, the former chief economist of ANZ, and Paul Keating’s former top mandarin, Michael Keating (no relation), believe the current rate has more than done its job.
Similarly, the Grattan Institute released detailed modelling in 2018, updated last year, that showed the current superannuation settings, even after allowing for inflation, will give the average worker a post-retirement income of “at least” 89 per cent of what they earned while they were working.
The OECD benchmark is 70 per cent.
Crucially, if there were no negative impacts of raising superannuation, there would be no reason not to pump up the retirement nest egg. But Grattan’s research shows “most or all” of the cost of a rise to 12 per cent would be borne by workers.
The institute held firm in its February 2020 update of the modelling: “Policymakers can justify lowering someone’s living standards during their working life only if they’re protecting them from even worse outcomes in retirement.”
Brendan Coates, director of Grattan’s household finance program, tells The Saturday Paper that there is a better argument – one the Morrison government may be considering as a politically acceptable compromise.
“Particularly with super at 12 per cent, which is higher than what you need,” says Coates, “I would certainly say that you should allow people to cash out each year anything above, say, 9 per cent.
“Because then you’ve got a choice. You’re still being compelled to save it but the whole debate about whether super comes from wages is completely gone. The employer is forced to pay it, it’s just whether you choose to use it for super and save for retirement or whether you choose to cash it out as part of your tax return.”
The Coalition is considering a number of proposals, including making any increase above 10 per cent “opt in”. Coates’s idea, however, has the advantage of functioning as a legislated, guaranteed pay rise for workers if they choose to cash out at tax time each year.
It also would avoid the inflationary consequences of Tim Wilson’s push to let people draw down everything in their super for a first home deposit.
Wilson denies his plan would lift property prices. He instead argues there are a number of factors that feed into the housing market, including interest rates, taxes and regulations.
“The Reserve Bank of Australia did a study a few years ago which found that basically a third of the cost of a new apartment in Sydney came down to planning laws,” he says.
Wilson frames his plan as corrective to Australia having engaged in “a form of economic social engineering” by elevating people saving for super above home ownership in terms of priorities.
“Now, that works for funds, but not for young Australians. And every bit of work I do is focused on how we can make sure that funds are accountable, and work for fund members as part of their logical progress in life.”
But Coates says Wilson’s plan would inevitably see house prices rise. He says the proposal would help people aged between 40 and 45 who have not managed to buy their own home yet because time is, in effect, running out to pay off a mortgage before they retire.
“But the more people we allow access to their super to buy a house, the more you’re adding to demand for housing,” Coates says.
“And the more you add to demand for housing, particularly in a world where supply is constrained by the planning system in our major cities, the more you will push up prices.
“So, at the same time as you help some people access a home that wouldn’t have otherwise got a home, you would also be pushing up prices – which benefits sellers of those homes, which tend to be boomers at the expense of younger Australians.”
The policy problem Tim Wilson has identified is real: not owning a home in retirement is the biggest factor that pushes people into poverty. And Australians are buying homes later in life than ever – largely because wages have not kept pace as property prices ballooned.
In the mid-to-late ’80s, the average cost of a house grew at less than the rate of average weekly full-time earnings. That flipped just a few years later and then the trend exploded. Since the 2000s, home price growth has soared far beyond the modest wage rises.
Experts, including Brendan Coates, say it is “undeniable that compulsory super makes it harder for some people to purchase a house when they would like”.
But, he says, the question is whether allowing access to super for a deposit would make a big difference. “And the answer, pretty clearly, is no.”
Monash University professorial fellow Deborah Ralston, a member of the government’s retirement income review panel, said home ownership is critical in retirement planning but was similarly unequivocal: “The review did not conclude there was a case for allowing further withdrawals from super to enable [home buyers],” she said.
Naturally, Tim Wilson disagrees, noting home ownership has benefits beyond dollars and cents. First among them is the creation of stability.
Increasingly, superannuation has become an avatar for political identity itself in Australia. As one economist puts it, the heart of the debate about what to do with super is a “political divide between industry funds supported by the ALP and the union movement, and retail funds historically supported by the Coalition”.
For what it’s worth, Wilson says he is not going after industry super funds, which the Productivity Commission showed almost uniformly performed better than retail funds.
“Look at my own super and it is pretty clear I am sceptical of retail and industry super by having a self-managed super fund,” Wilson says. “I want higher control and engagement from Australians over their finances.”
Wilson says Labor has a blind spot on super, because of its closeness to the union-run funds. “They interpret any proposal for reform as an attack and they see the issue through themselves, they don’t see it through the best interests of Australians looking to progress their lives,” Wilson says.
Of course, that door swings both ways. For Brendan Coates, the debate about raising the super guarantee and attendant reforms, while worthy, misses the biggest piece of the puzzle.
“This whole time we are having this debate about the [super guarantee] we’re not having the more important conversation about how to improve the income support system, which is where the big problems in retirement really are,” he says.
“Because that is far more important if you are worried about poverty. Super is not well placed to deal with poverty because it is a contributory system; you get out what you put in.”
What would alleviate poverty in retirement is a massive increase in Commonwealth rent assistance (CRA). Grattan modelled a 40 per cent increase – about $1.7 billion extra each year – and the retirement income review found this would alleviate income poverty for some renters.
Even a doubling of CRA, at an annual cost to government of $5 billion, would still not provide as big a benefit to renters “than the annual value of exempting the principal residence from the Age Pension assets test for most home owners”, the review found.
If the pandemic has made one thing clear, it is that where it can get away with it the Coalition is quite happy for people to spend their own money in lieu of more wide-ranging government support.
Its early-access super scheme during the coronavirus was a clever way of privatising a chunk of the government’s pandemic response and lowering the budget cost, at the expense of everyday Australians. More than half a million people completely emptied their accounts.
In August, Paul Keating noted that more money had been taken out of super by Australia’s lowest-paid people than had been spent by the government on JobSeeker and JobKeeper. He said the most vulnerable were being forced into “ratting their own savings”.
By the time the early-access scheme closed at the end of the year, Australians had taken $36 billion from their retirement savings.
This enormous raid on the system served as a proof of concept for Tim Wilson, a template for the future.
“The early super release scheme has made young Australians realise their super needn’t be controlled by a faceless fund manager,” he said. “It’s there for them to control and use to advance their life.”
This article was first published in the print edition of The Saturday Paper on February 6, 2021 as "Inside Tim Wilson’s campaign against super".
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