The problem with providing for an ageing population is not the money, it is the real goods and services, writes Dr Steven Hail.
AUSTRALIA'S TAX-ADVANTAGED, compulsory, private superannuation system – the jewel in the crown of the legacy of the Hawke/Keating era – is an innocent fraud.
The system was introduced with the best of intentions, but it doesn’t do what it was supposed to do.
In fact, in more ways than one, it makes social provisioning for retirees harder than it otherwise would have been. It certainly doesn’t help pay for the cost of an ageing population. That is the sense in which the system is fraudulent and the reason some people think it ought to be scrapped.
That might seem a shocking thing for me to have written. Imagine if Paul Keating himself was to read this article? I had better justify myself.
What was the purpose of our super system when it was first introduced in 1993? Obvious, you might say — to ensure that as many people as possible would be able, across their working lives, to build up their personal savings and investments sufficiently to become self-supporting in retirement. This, we were told, would reduce the burden on taxpayers of the state aged pension, given the gradual but inevitable ageing of Australia’s population.
This all seems very reasonable, and through a neoliberal frame it makes perfect sense, but neoliberalism is based on a flawed and misleading model of the economy.
It is true that Australia’s population is ageing. It is true that the proportion of the population in retirement will increase in future decades, even if people do retire, on average, at a greater age than before. It is not true that tax-advantaged super will do anything at all to help with the cost of providing for the increasing proportion of retirees in the decades to come. If anything, the opposite will be the case.
Let’s switch from a neoliberal perspective, where the government is seen as a household which has to balance its books over time, to a Modern Monetary Theory (MMT, also sometimes called "functional finance") frame, where balanced budgets are rare and often destructive.
MMT, which is largely just a description of how the monetary system works, tells us that the Australian Commonwealth Government, as a currency issuing government with a floating exchange rate and a modern financial system, cannot run out of Australian dollars.
However, it also tells us – if this was not already obvious – that Australia as a country can run out of labour, skills, equipment, infrastructural, technological, natural and ecological resources.
The government can and will run budget deficits almost all the time indefinitely into the future, as it has done in the past. It is because the government runs deficits that the rest of us can run surpluses. If the Australian private sector and the rest of the world are to save in Australian dollars, the Australian Government has to spend those dollars. The government cannot run out of its own currency and is not dependent on anyone else to lend it the currency — of which it is the issuer.
So we can lay one fear to rest. The Government will not and cannot be bankrupted by the financial cost of providing a state pension to the elderly. The government cannot become insolvent in its own currency at all. This is impossible. Neither is the government obliged to balance its books. In fact, on average over time, it must run a deficit, if the rest of us are to run surpluses.
The problem with providing for an ageing population will not be – and can never be – a shortage of Australian dollars.
The problem will be providing sufficient goods and services for that ageing population to consume, without going beyond the productive capacity of the economy and causing inflation, ecological collapse and/or both.
Money is not the problem. It really isn’t.
In theory, the Hawke/Keating and Howard/Costello private superannuation system might still have been helpful if it had directed savings towards funding investments, which caused productivity growth and encouraged a more rapid transition to ecological sustainability. However, there is no evidence at all that the first of these has been the case and to suggest the second is true is laughable. Private super might be nice for you or me to have if we are among the "haves" rather than the "have-nots", but it has done precisely nothing to add to social provisioning for the aged. Nothing at all.
Indeed, it may have made matters worse.
In so far as tax-advantaged super has allowed some people to build up more paper wealth in retirement than they might otherwise have had, it will allow those people to spend more in retirement than they might have otherwise done. If we do find ourselves, as a nation, up against a real resource constraint in the future, then far from private super reducing the tax burden, this will increase it.
The purpose of taxation is not to pay for government spending but to keep total spending (private and public) below the capacity of the economy. Taxes are there to limit inflation. So it is possible that tax-advantaged private superannuation, by adding nothing to the productive capacity of the economy but adding to private spending power, might force future governments to tax more highly, to limit spending to what can be produced. The opposite of what was intended.
Perhaps a greater problem with our super system is that it has played a significant role in the growing financialisation of our economy. Research done by psychologists like George Loewenstein and anthropologists like David Graeber suggests that our attitudes to others depend crucially on how inter-personal relations are framed. If we are encouraged to view those relationships as financial and competitive and encouraged to see others as being separate from and different to ourselves, the majority of us tend to welcome advantageous inequality. If on the other hand, we are encouraged to take a communal view, where "we are all in this together" and inter-personal relationships are not financialised, then the majority of us dislike inequality — even when it is in our favour.
What a shift from state pensions for the elderly to a private superannuation system does is to shift social attitudes towards future inequality in retirement in a way which I find concerning, and which I am sure was not part of the vision held by Bob Hawke and Paul Keating, for future generations. That’s why I called it an innocent fraud. They misunderstood the constraints faced by governments with modern monetary systems. They ignored the real constraints we as a country are faced with – and these continue to be ignored – and they tried to deal with an imaginary, or at best, self-imposed fiscal constraint, which it is important to understand makes no sense at all.
What can we do?
Scrap tax concessions on retirement savings. End compulsory private superannuation. Meantime, require employers to start paying out the 9.5 per cent that is currently going into super as wages and salaries, and tax it as such.
Introduce a job guarantee scheme for those of working age and pay those of retirement age the job guarantee wage.
Conduct a national audit of the skills and the infrastructure that Australia will require in the decades to come to provide for its ageing population, and put in place the plans needed to ensure those skills and that infrastructure exists when it is needed.
Because the problem is not the money — it is the real goods and services, as it always was.
You can read more by Dr Steven Hail at erablogdotcom, follow him on Twitter @StevenHailAus, as well as on Facebook at Green Modern Monetary Theory and Practice.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License
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