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COVID-19 hitting the hip-pocket nerve in Australia

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Amidst the effects of COVID-19, the RBA announced an interest rate cut of 0.25% (Screenshot via YouTube)

COVID-19 has hit Australia with increasing cases of illness and a share market drop causing fresh jitters about the political hot potato of retirement incomes, writes Lee Duffield.

AS IS KNOWN, the germ believed to have jumped across from bats or other animals in China has claimed thousands of lives and caused fright in the human population worldwide. It has thumped the already lingering world economy, a global enterprise hooked on constant growth, stalled on failing natural resources, never recovered from the financial crisis over a decade ago. It has raised obvious questions about overdependence on China and its drive for global power as a world hub of commerce, the new empire on which the sun never sets.

VIRUS, REAL ECONOMY AND FINANCE

Once again, a glitch in the “real economy” has brought on insecurity and bulk losses in the financial world. And given the financialisation of life this century, this will come back with more damage to that “real economy”.

The trauma of the 1930s Great Depression is usually remembered at times like this. Some influence in the “real economy”, thought to possibly be the dust storms, sunspots or both, suddenly hit a financialised, over-extended, unregulated, money-mad population, especially in America, playing hard on the stock exchange. Stocks plunged, saw small rallies, plunged mightily once again. Companies failed. Millions were put out of work and went hungry.

The Australian Stock Exchange this year saw steep falls in seven successive trading sessions, getting just a pause when a small interest rate cut was announced by the Reserve Bank. In those losing sessions, $240 billion came off the value of shares in a week. The bank said it could not do much more, the official cash rate now down to 0.5%, leaving it to the Government to perhaps govern.

POLITICAL BLUES

The share market losses mean some “real economy” political blues for the Government, especially due to the sensitivities of that key group of investors — self-funded retirees. The great drive for Australians to become a nation of investors, helped along by the Howard era cancellation of taxation for retirees on super, has seen total super assets build up to $3 trillion. All wily political leaders remember the Federal Election of 2019, and retirees up in arms against Labor’s plan on franking credits and on negative gearing, reducing the capital gains tax discount — a constituency easily capable of changing sides if provoked.

The fact of a Federal Government review going on, into retirement incomes, has stirred up attention even more. The review was recommended by the Productivity Commission, inquiring whether the system was sustainable and is being treated as a signal to get ready for trouble.

To begin, the Commission said the review should happen before next year’s scheduled rise up to 12% from the present level of 9.5% in the Superannuation Guarantee — the amount employers are required to pay into individual workers’ super accounts. The major political parties have committed to the rise, but there is a campaign to try and block it, getting oxygen in articles set up in the News Corp press, contested by industry super funds.

The line of argument rejects the original proposition that this money is an employer-supported investment, with the effect of reducing eventual demand for state pensions and therefore taxation on companies. It is being represented instead as income and, as the argument goes, is out of step with the prevailing flatline state of wages growth. Wage growth is low so there should be no additional super payment — so the argument goes.    

SCOTTY GOES MARKETING

It would be a severe test of the spin-doctoring instincts of Prime Minister Scott Morrison to engineer and survive cancellation of the 12%, but he is always one to try on a line, actually doing it a few times during the last few weeks. Take the “sports rorts” affair, the resetting of the list of grants to sports clubs on party-political lines, he told Parliament that far from back-dating the list of grants to sports clubs finalised on 11 April, inside the pre-election “caretaker” period, this had been finalised and presented a week earlier – not so according to Sport Australia’s record of how it happened.

Moving on, the marketeer in the Prime Minister responded to the suggestion of the Reserve Bank that perhaps some fiscal action was needed. He proposed to spend money, to aid businesses and there’s a slogan for it: “What we are focusing on is jobs, cash flow and investment.”

This has raised a question: what about the Budget surplus? What about free-market economics and “small government” — no public revenue and no spending? Wily political leaders who remember the 2019 elections, again, remember also the cocksure claim that a Budget surplus had already been clinched. There had to be a slogan and there was: back in black.’

Was there a Plan B, in case of something like a pandemic, floods, bushfires breaking out during holiday time? Whatever form of positive or negative balance arrives, there should be some spin to make it sound great — watch for that.

POLITICS OF INVESTMENT — AND RETIREMENT

Just as COVID-19 struck its blow, political battle lines had already been drawn up over superannuation and retirement incomes. The $3 trillion held by super funds has been intriguing to several parties who would be interested to lay hands on it. How could Mum and Dad investors get that much? How could they and their organisations, the modern-day mutuals in the industry funds category, being the largest and most successful, get that kind of economic power? How might they be relieved of the heavy responsibility of management and the burden of owning so much money?

In response, the industry funds and the Australian Council of Trade Unions (ACTU) have embarked on a campaign in defence of superannuation on several fronts:

  • they have to deal with demands being entertained by the Government to displace union-nominated members of boards overseeing the leading industry funds. The funds came out of employer-union agreements, but employers pay and might like more pliable employee “representatives” sitting with their own nominees. That particular bid for control over money might be dressed up, somewhat arrogantly, as putting “better qualified” personnel there, except that the funds have been out-performing their commercial competitors;
  • they say they are pressing to “kick the banks out of default super”, so industrial awards don’t automatically nominate commercial “friends of the company” to handle the workers’ money;
  • they want extension of the superannuation guarantee to all workers, including some of the lowest-paid currently not part of it; and
  • hard at work on unpaid super, classing it with wage theft, they pushed hard for the Superannuation Guarantee Amnesty bill that cleared Parliament last month after a difficult, two-year tussle. It will give employers, behind in their payments to staff, up to two years to catch up without incurring penalties.

Industry Super Australia Chief Executive Bernie Dean, heading a national tour to back the legislation as it was coming up for a vote, said:

‘While most employers do the right thing and pay the full entitlement some exploit legal loopholes and lax enforcement to short-change workers.’

NOT GETTING YOUR MONEY

Speaking in Brisbane, he said that in Queensland alone, unpaid super was costing average workers $1,994 per year, which could have accumulated strongly towards retirement. Just to underline the political impacts, he cited unpaid super debts of $40 million in each of three government-held electorates — Brisbane, Dawson and Herbert.

One more skirmish getting stirred up is the “give us our money” campaign — the idea of releasing superannuation earnings while the owners are still in the workforce, for example, to try and buy houses in a heavily-priced market. Such funds are treated as neither income nor conventional savings, for example being subject to special tax provisions and if used would not be there for retirement. However, union leaders concede that with a sometimes desperate need for cash, the demand for access is difficult to answer.

Media editor Dr Lee Duffield is a former ABC foreign correspondent, political journalist and academic.

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