Peter Costello is right: it is time that the public sector played a larger role in managing the vast sums of money that flow into Australian superannuation each year. After decades of pretending that TV ads and expensive websites will result in the efficient allocation of a trillion dollars' worth of capital, it is time to shake things up. A lot.
Subscribe now for unlimited access.
or signup to continue reading
The superannuation system has done a much better job of boosting the incomes of fund managers than ordinary Australians. Last year Australians paid around $23 billion dollars to the superannuation funds to manage their retirement savings. That is more than the Commonwealth Government spends on Medicare. Indeed, it only costs $0.7 billion to administer the $113 billion in Social Security entitlements for almost 10 million Australians. There is no doubt we can design a more efficient and equitable scheme.
Shake-up required
The last big shake-up to the superannuation system was the creation of 'default superannuation funds' back when Bill Shorten was the Minister for Financial Services and Superannuation. Until the regulatory protections of default super accounts were created, some of the country's lowest income earners were being charged the highest fund management fees in the market. Under the default fund arrangements introduced in 2013, those employees who express no preference for a specific fund can only be placed into these relatively low fee funds. It has saved consumer billions, but there's still much to do.
The Future Fund is a $124 billion publicly-owned investment fund created to provide for public sector superannuants. Its management costs 0.23 per cent of its funds. Compared to the average super fund, the Future Fund is a low-fee and high-return option, which is presumably what prompted its chair, Peter Costello, to suggest last week that a public fund could do much to boost the savings of millions of private sector workers as well.
Defending public provision
Peter Costello isn't the most likely person you'd expect to hear making the case that the public sector can do something more efficiently than the private sector, but now that the Liberal party sees itself as a better judge of the need for coal-fired power stations than AGL, anything is possible.
Similarly, if the Coalition really believes that setting up a $5 billion bank to make subsidised loans for coal rail and other unbankable infrastructure projects in Northern Australia is worthwhile, it is hard to argue that giving low-paid workers access to the Future Fund's low fees and high returns is a crime against Coalition ideology.
The killer blow for the idea that markets do everything well and governments do everything badly came from the electricity industry. While politicians and energy companies try desperately to shift the blame for electricity prices onto environmentalists, the ACCC reminded us this week that the gold-plating of the "poles and wires" businesses and the price-gouging of oligopolists has cost consumers far more than renewable energy policy ever has. Put simply, the roll out of National Competition Policy hasn't saved consumers money, it has cost them billions.
Australians have chosen
For decades Australians have been asked to choose between whether they thought markets were good or bad and whether they thought governments were inefficient or perfect. But those days are coming to an end. The fact is governments and the private sector can both do some things well and some things badly. And regardless of whether we rely on the public sector or the private sector to provide a service, we need to pay close attention to the rules that bind whoever holds the contracts.
The previous Labor government created the Clean Energy Finance Corporation (CEFC) to invest public money in energy projects that struggled to secure finance from the private banks and the Opposition recently promised to create a similar fund to finance high-tech manufacturing investments. The Coalition tried to abolish the CEFC, but created its Northern Australia Infrastructure Facility to finance infrastructure that the private banks wouldn't back, like Adani's coal mine rail line.
There is clearly bipartisan support for the role of public financing of worthwhile projects in Australia, but there is no bipartisanship regarding what projects can be described as worthwhile. Fortunately such subjective judgements are exactly what parliaments were created to make. Unfortunately for the Coalition, the public is far more enthusiastic about investing in renewable energy and manufacturing than new coal mines or coal-fired power plants.
Richard Denniss is chief economist at The Australia Institute
