Q+A John Brogden Interview Transcript 13/10/13
Sunday 13 October, 2013
Australia’s compulsory superannuation scheme has been ‘an incredibly beneficial policy’, says head of Australia’s Financial Services Council.
John Brogden told TVNZ’s Q+A programme that since the Australian Labor party introduced the compulsory retirement scheme, the country had amassed $1.6 trillion in superannuation and helped the country avert a recession during the Global Financial Crisis.
Mr Brogden told host Susan Wood: “One of the reasons we didn’t have a recession in Australia during the financial crisis is because when listed companies deleveraged, the flow of funds that came into superannuation allowed superannuation funds to buy those shares,” he says.
The then Labor Government brokered a tripartite deal with unions and businesses in 1992. Mr Brogden says the scheme retains 84 per cent public support but that small businesses in Australia ‘hates superannuation”.
“They see it as a tax. And it’s really a shared contribution, if you like. By law, it’s actually a complete contribution by the employer. So the employer is required to do that. So if you go for a job in Australia, it will be $50,000+ super, or it will be $55,000 including super, roughly speaking. So people understand that, and small businesses tend to see it as a tax on a small business. They hate the fact that it’s going up, but there’s never a good time to make this decision, Susan. That’s the critical thing. There’ll never be a good time for NZ or any country in the world to make this decision. Australia had the guts to make it. A Labor Government, to their credit, made that decision 21 years ago, and it has put Australia in an incredible position worldwide. We’ve got the fourth-largest private pension system in the world. That’ll be the third-largest soon enough, and it will provide Australians with an affordable and a comfortable retirement,” Mr Brogden said.
Tomorrow, the NZ Financial Services Council will offer its solutions to increase retirement savings and incomes at a one day conference in Auckland.
Q+A, 9-10am Sundays on TV ONE and one hour later on TV ONE plus 1. Repeated Sunday evening at 11:30pm. Streamed live at www.tvnz.co.nz
Thanks to the support from NZ On Air.
SUSAN WOOD INTERVIEWS JOHN BROGDEN
Good morning to you.
- CEO, Australian Financial Services
SUSAN You saw that story there. It’s not uncommon in this country, sadly. Is it lack of financial knowledge or that we earn so much less?
JOHN Oh, look, I think it’s a combination of factors. There’s no doubt from an Australian perspective when the then-Labor Government back in 1992 made the decision to put in place a compulsory superannuation system, starting for most people at zero and moving to 9 per cent of their salary by 2001, that that was a brave decision, I think. It wasn’t a bipartisan decision. The then Liberal Opposition opposed it, but when they came into government in 1996, they continued the acceleration up to 9 per cent. It’s become a very significant part of the Australian psyche that people support their superannuation system. The last piece of polling we did showed that 82 per cent of Australians support the superannuation system. It’s up to 9.25 per cent now and on the way to 12 per cent, and that’s supported by 84 per cent of the population, which is an incredible concept. You’re basically saying to people from the day they start working - let’s say that’s 18 - that you have to put soon to be 12 per cent of every dollar you earn away. You can’t touch it till you’re 60, probably 65 by the time young people get there, and it’s a defined contribution scheme, not a defined benefit scheme, so there’s no guarantee what will come out the other end. Yet, it remains so popular because I think people don’t want to be, as your story just showed, completely reliant on the pension.
SUSAN So is that what we need here? A government to make a brave decision and bring in compulsion?
JOHN My father’s a Taranaki boy, so I’m very conscious of coming to NZ-
SUSAN And telling us what to do. I’m asking you, though. I’m asking you. Because the example there would indicate it is what we need to do.
JOHN There’s no doubt that it has been an incredibly beneficial policy. Most Australians retiring now will have only had compulsory super for about half of their working life. Let’s say it started 20 years ago when they were in their 40s. So they’ll end up, for most of them, having a super fund and part pension, and for many of them, it will run out at about 75. So it’s always been a long-term policy. It won’t really reach maturity for another 20 or 30 years. So people who started working at zero per cent, got up to 9, on the way to 12. So there’s no doubt it’s provided a significant benefit. The other thing it’s done, and this isn’t spoken about much. The amount of money in superannuation in Australia is $1.6 trillion.
SUSAN And this is giving Australia enormous clout, isn’t it, having that war fund, if you like, to fund businesses, to invest offshore. It’s huge for the country.
JOHN So, one of the reasons we didn’t have a recession in Australia during the financial crisis is because when listed companies deleveraged, the flow of funds that came into superannuation allowed superannuation funds to buy those shares. So it provides an incredible- I don’t even think the Labor Government when they brought it in 20 years ago though it would be so significant.
SUSAN It’s a financial buffer, isn’t it, really?
JOHN It is, and the gross domestic product of Australia, so the size of the economy, is about $1.3 trillion. The stock exchange is at about $1.3, $1.4 trillion. There’s more money in superannuation that there is deposited in banks. That’ll be $3 trillion in 2020, seven years away.
SUSAN That’s the thing. Once it starts growing and compounding-
JOHN Oh, it’s extraordinary, and up to $7 trillion in 2030, 2035.
SUSAN There’s a tax bias in this country, also, against saving, against KiwiSaver- Well, that’s slightly different. But there’s a tax bias towards property. Is that something-? I know you don’t want to tell NZ what to do, but is that something we should be addressing?
JOHN Well, look, in Australia, your family home is tax-free. If you invest in investment property, then you can claim against the tax on your depreciation. So there are tax preferences towards property. However, superannuation is tax preferred. You pay 15 per cent on the way in. Now, if your marginal tax rate’s 48 cents in the dollar, you’ll actually get a discount, a benefit, to putting money in super. And you can put up to $25,000, so you can put above your basic requirement in law. It’s 15 per cent tax when it’s in and nothing when it comes out.
SUSAN That’s a real incentive to invest, isn’t it?
JOHN So what the government said 20 years ago is we have one of two choices. We can try and pay the age pension for this incredible number of people, particularly the baby boomers, when they retire and live longer. That’s the other point, of course. We’re all living longer. The healthier we are, the medical improvements we have, the welfare system, the medical system all help us live longer. So what we have to consider is you’re retired for a very long time now. So the government said, ‘Well, we can find the money in 30, 40, 50, 60, 70 years to pay the age pension for those people, or we can take our tax benefit now, in fact, forgo government revenue now by giving a concession and forcing people to save.’
SUSAN A big part of the equation - business. Because it’s not just the employee that’s putting it in; the employer is as well. We’re a land of very small business, and we will often hear, ‘Well, we just can’t afford it.’
JOHN Look, small business in Australia hates superannuation. They see it as a tax. And it’s really a shared contribution, if you like. By law, it’s actually a complete contribution by the employer. So the employer is required to do that. So if you go for a job in Australia, it will be $50,000+ super, or it will be $55,000 including super, roughly speaking. So people understand that, and small businesses tend to see it as a tax on a small business. They hate the fact that it’s going up, but there’s never a good time to make this decision, Susan. That’s the critical thing. There’ll never be a good time for NZ or any country in the world to make this decision. Australia had the guts to make it. A Labor Government, to their credit, made that decision 21 years ago, and it has put Australia in an incredible position worldwide. We’ve got the fourth-largest private pension system in the world. That’ll be the third-largest soon enough, and it will provide Australians with an affordable and a comfortable retirement. Not exactly champagne and caviar for everybody. The other thing it does is, as we move to the future, Australia has five working Australians for every retired Australian at the moment. By 2050, that will be 2.7 to one. I think NZ’s age, you get to 2.7 to one at about 2035 or 2040.
SUSAN Yes, we do.
JOHN That means there are fewer and fewer people paying tax to pay for the pension.
SUSAN Because it becomes, I think, percentage of GDP. It doubles in the very short space of time, actually, relatively.
JOHN Correct. So, really, for people in their 20s and 30s who think, ‘Why the hell am I paying 9.25 per cent of my salary now? I should be knocking it off the mortgage or buying a car or whatever it might be.’ The reality is they are saving for their future. And the figures are extraordinary. I mean, here we are 20 years on. It is a complicated system. If you stopped 10 people in George Street in Sydney today, they’d tell you it’s a complicated system. But clearly they’d prefer to have it than simply be relying on the age pension.
SUSAN Very good to talk to you.
JOHN Thank you.
SUSAN Made me quite envious. (BOTH CHUCKLE)