The biggest liability in Australia is the $90 billion that the Federal government already owes its current and retired public servants in superannuation but has failed to provide any funding for – until now, it seems.
Crikey has been banging on about unfunded super for years and was therefore delighted when Peter Costello announced on Friday that future budget surpluses would be placed in a “Future Fund”. Just an hour before it was announced, Crikey was sharing a taxi on the Sunshine Coast with the CEO of the biggest government scheme and lamenting the lack of decent public debate about the failure to fund it.
But while the detail was vague and the implementation not immediate, Cossie was also speaking a load of gargabe as he spun the decision.
Try these quotes for size: “This means that our children and our grandchildren will be paying off debts left by previous generations. The government does not consider that such intergenerational transfers should occur.”
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So, if Cossie really believes that, why has the Howard Government allowed unfunded super to blow out by $15 billion to $90 billion since 1996? Truth be known, Cossie’s claims of endless budget surpluses is a furphy because ever year he has refused to account for rising superannuation liabilities accrued in THAT YEAR.
The PEFO update on Friday revealed that the unfunded liability even blew out by another $869 million in the four months since the budget – yet even that wasn’t taken off the reported burgeoning surplus figures. If Cossie had bothered funding the schemes properly since 1996, the last 4 months would have instead been fabulous as equity markets surged to record highs.
Imagine the outrage if BHP-Billiton allowed $1 billion plus blowouts in its super fund every year whilst claiming big profits. It is actually illegal to do this under Federal law.
The other furphy from Cossie was his line that it would have been too risky for the government to fund the scheme because the money could have been squandered in equity markets and this would have generated some bad headlines. Hello, isn’t that what virtually every super fund in the world does?
Besides, with such wonderful economic management by his government since 1996, Cossie should have been confident equity markets would perform well, as they have.
And with interest rates so low, it was a perfect time for the government to do the right thing, borrow up big and make some serious inroads into the biggest liability in Australia today.
Instead, the government did diddly squat for eight years. The contrast with the Kennett Government is stark indeed.
Jeff Kennett inherited a $33 billion debt, unfunded super of $18 billion and a $2 billion budget deficit. When he left office, the surplus was $1.8 billion, debt was just $6 billion and unfunded super was only $11 billion. In other words, Jeff Kennett substantially improved the net worth of the Victorian Government, even though much of this came from flogging $40 billion of assets.
The Howard Government has performed far worse because it has allowed unfunded super to continue blowing out. The net worth of the Commonwealth is still negative and has barely improved at all over the past eight years, especially when you consider future lease liabilities.
It is time to have a very detailed debate about unfunded super and a solid look at all the different federal government schemes.
For instance, why does the Reserve Bank have a $65 million surplus on its $605 million super liability, yet no money is set aside for federal judges who are owed more than $400 million? And why has there been no actuarial studies of the liability of the scheme for federal politicians for several years?
Check out Crikey’s earlier package of material on these subjects here: http://www.crikey.com.au/politics/2004/01/11-0002.html