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Nov 7, 2011

Keeping Labor's 12% -- why not the Howard-Costello approach?

Don't worry too much about the Coalition's promise to fund the compulsory super increase - it's dealt with this problem before.

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There’s a lot of heat being generated by the shadow cabinet’s decision to reverse its opposition to the increase in the compulsory super levy to 12%, as part of what appears to be a general enthusiasm for spending and disdain for taxing.

People shouldn’t get too carried away. The Coalition has been in this sort of territory before and emerged intact, thanks.

In the 1995 budget, Ralph Willis unveiled a scheduled increase in compulsory super from 9% to 12% and eventually to 15%. It was to be one of the Keating government’s major legacy reforms.

In its superannuation policy for the 1996 election, Super for all, the Coalition, which had hitherto been implacably opposed to Labor’s policies, promised it:

  • Will provide in full the funds earmarked in the 1995–96 Budget to match compulsory employee contributions according to the proposed schedule;
  • Will deliver this government contribution into superannuation or like savings;
  • Reserves the right to vary the mechanism for delivering this contribution so as to provide the most effective and equitable delivery of the funds.

So why don’t we have 15% superannuation now? Because John Howard and Peter Costello nixed it in the 1996 budget barely six months after it released its policy, insisting it was too expensive. They didn’t “vary the mechanism” so much as halted it.

So it’s no biggie for the Coalition to once again promise to honour Labor’s “proposed schedule” to increase compulsory super. It can just ditch the promise once it gets into government, insisting that fiscal circumstances require it.

There’s only one group that the Coalition pays attention to on superannuation: financial planners. They in effect have a veto over Coalition policy, which is why the opposition opposes the government’s efforts to end the rort of huge commissions for financial advice most account holders never seek or use, reflecting the view of many — though by no mean all — financial planners that getting Australians to “opt in” for financial advice will destroy the industry revenue model.

It may be up to the financial planners to put the acid on an Abbott government not to dump the promise it has just made to keep 12%.

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