Defining superannuation's 'objective' should leave room for debate about its use for housing

The Albanese government is prodding the superannuation bear, which can be a dangerous beast when stirred.

It is throwing out multiple questions. What should we allow super to be used for? Should the highly generous tax breaks for superannuation be curbed? How can more of the enormous $3.3 trillion super pool be channelled into areas of national priority?

In policy terms, these are important debates. Politically, though, anything to do with superannuation is fraught, especially for a government already grappling with difficult economic issues.

And when there is a byelection looming. The fact Labor is happy to have this aired before the April 1 vote in Aston suggests it anticipates the seat will stay Liberal and isn’t too worried about it. Certainly the opposition is grabbing the opportunity offered to raise familiar scares.

The government’s plan to legislate next year the “objective” of superannuation has implications for the Coalition.

At the end of the last Labor government, there was talk of trying to “Abbott-proof” policy. Defining superannuation’s purpose could be seen as an attempt to “Dutton-proof” the system.

In the 2022 election, Scott Morrison promised to allow first home buyers to access a large slice of their superannuation for a deposit. Dutton has recommitted the Coalition to the policy.

The discussion paper Treasurer Jim Chalmers released this week proposes a definition that says: “The objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.”

Explaining the various terms in the objective, the paper notes that to “preserve savings restricts access to superannuation savings for a person’s retirement only”.

The paper seeks feedback on the wording, and the government will make its decision. But, on the face of it, if this wording were legislated, a future Coalition government that wanted super to be used for housing would have to alter the definition.

When Anthony Albanese was asked on Wednesday whether a definition of superannuation’s purpose would rule out the policy the Liberals had offered, he declined to pre-empt the process.

During the pandemic, the Morrison government allowed people to access $20,000 of their superannuation. This was a bad judgement. A massive $36 billion was taken out. Many, especially younger people, have been left worse off for the future as a result.

As a general principle, super should be preserved for retirement (apart from the limited hardship provisions now available). But the case of housing is arguable.

Home ownership can be seen, as much as super, as a pillar for a “dignified retirement”. Older people with their own homes are better placed than others. Many older women, in particular, with smaller nest eggs and paying rent, increasingly find themselves in dire straits.

So there is a case for the proposed objective to be flexible enough to encompass a policy allowing a limited dip into super for a first home. This would be consistent with Labor saying that, for its part, it does not believe super should be used for this purpose.

Meanwhile the government is examining the tax breaks available for superannuation.

It is constrained by what was said before the election. “Australians shouldn’t expect major changes to superannuation,” Chalmers declared. That at least left some room to manoeuvre (while opening an argument about what is “major”). Albanese was less nuanced, insisting Labor had “no intention of making any super changes”.

While the government says no decisions have been made, it indicates “tweaks” are in prospect, aimed at those with big balances.

Chalmers told Melbourne radio: “The average is 150 grand in super. Less than one per cent of people have got more than three million bucks. The average for them is about 5.8 million bucks.

"I think the country should have a conversation about whether concessional tax treatment on balances that big is the best use of the taxpayer money.”

The Retirement Income Review, reporting in 2020, noted that while tax concessions were given to support savings for retirement, “most retirees leave the bulk of the wealth they had at retirement as a bequest”.

The Grattan Institute’s superannuation expert, Brendan Coates, puts it bluntly: “Superannuation has become a taxpayer-funded inheritance scheme”. By 2060, Treasury estimates one-third of all withdrawals from superannuation will be paid out as bequests.

The concessions, with their ballooning cost to revenue, clearly should be trimmed, on the grounds of budget cost and equity.

Consider this. The Minister for the National Disability Insurance Scheme, Bill Shorten, is at present seeking to find savings in the NDIS to make it more sustainable in the long term. If that’s reasonable for the NDIS, it is more than reasonable for super tax breaks.

The other area Chalmers wants to pursue is having the government collaborate with super funds to facilitate investment in priority areas such as affordable housing.

This raises knotty issues, including the imperative that super fund members’ money should be invested in their best interests. The best investments for their financial interests and the best investments for the national interest may not align.

The desirability and viability of such collaboration – Chalmers emphasises participation would be entirely up to funds – would depend on particular circumstances. The initiative would require maximum caution by funds and government. The risks are obvious.

The renewed debate around superannuation is manna for the opposition. For his part, Chalmers is frustrated observers are overlooking the Turnbull government’s changes to super concessions. Condemning opposition “hypocritical hyperventilating”, he said on Thursday, “I call on them to explain the difference between what they did in office and what they are railing against now”.

Fair point. But there is another point too. The Liberals would remember the huge electoral blowback they ran into with their superannuation changes.

One difference between then and now, however, is that the Turnbull government’s changes hit the Liberals’ own support base.

Labor reform directed at curbing tax breaks would not target its own base. Coates says the government would “lose some political paint” in going after concessions, but less than would be lost by other measures to fix the budget.

Like the climate wars and the culture wars, the “super wars” seem one of those certainties of federal politics.