Super is changing our economy — and the way power works in Australia

Superannuation is one of most crucial areas of public policy in Australia — and it has the lowest profile. There is no issue that will have as great an impact simultaneously on the economy, on every Australian’s retirement, on infrastructure and its funding, and on how power is used in Australia.

Yet the politicking primarily happens out of the media spotlight and is reported only in the business pages. The current fight is over the already long-delayed increase in the compulsory super levy to 12%, but that’s only the latest front in a decades-long war.

One part of that fight is over policy: the Grattan Institute has repeatedly argued that increasing the levy will hurt the long-term incomes of a substantial section of the workforce. Grattan’s modelling is strongly contested by, funnily enough, industry super. Another part is about self-interest: some sections of business, which has traditionally been sanguine about the level of compulsory super, have worked out that the wage stagnation they’ve imposed on workers is starting to hurt the economy, and any increase in the compulsory level will exacerbate that.

Then there’s the government, which is motivated by both self-interest and ideology. The industry super model is a direct threat to the Liberal Party business model, which is to represent the interests of its corporate donors (as Labor’s model is to represent the interests of its union donors). Industry super represents a rival form of political power, created via substantial holdings of the shares of major Australian companies and being a major source of investment for infrastructure.

And that power is growing rapidly: not merely has the industry super sector dramatically expanded as a result of the well-deserved smashing of retail super by the royal commission, but compulsory super means the entire sector will continue to expand at a rate of knots: one recent estimate projected the super sector would reach over $5 trillion by 2029; another that super would own 20% of all Australian listed companies by 2034. Even in the unlikely event the industry super sector remains at its historical level of one third of super, that represents colossal power for the unions and employer groups who jointly manage it.

And if that power is used for goals that are at odds with the Liberal Party, it’s a colossal, perhaps existential, threat. What’s the point of the Liberals trying to block and stymie any action on climate change, for example, if industry super funds can use their shareholdings and board positions to direct companies to divest from carbon polluting industries? That’s why the Liberals have been panicking about so-called “activist” industry super funds and threatening regulation, cheered on by the Financial Review.

But ideology is also crucial to the Liberals’ view of super. Industry super threatens to undo entirely the success of coalition governments since the 1990s in attacking and undermining the union movement. While deunionisation has been driven by broader social forces than any one government, the Howard, Abbott, Turnbull and Morrison governments have all done their best to encourage the process, which has been enormously successful: unions are now a tiny fraction of the workforce they once dominated.

But what if the Liberals win the deunionisation battle only to lose the war on superannuation? It’s bad enough that compulsory super was created by Labor, but what if it cements the trade union movement into the very heart of Australian capitalism, putting — in the nightmare scenario conjured by one Liberal earlier this year — the ACTU president in every boardroom?

However, while no one doubts the Liberals’ hatred of industry super — the current minister for superannuation, Jane Hume, has repeatedly attacked industry super as “unholy” — it’s their strategy that has been the problem. The long-term Liberal goal was to encourage workers to shift to the retail super funds controlled by the big bank, encouraged by financial advisers clipping the ticket via commissions. That turned out to be one of the biggest own-goals in Australian political history, as the abandonment of retail super by the banks, the collapse of the financial advice industry and the tens of billions now flowing from retail to industry funds, illustrates.

Plan B for the Liberals had been to rewrite the rules around the flawed default super system to encourage workers to put more money into retail funds. Kenneth Hayne, and the Productivity Commission’s findings about how industry super outperformed retail super put the kybosh on that. Plan C was to try to neuter industry super by imposing retail fund-style governance arrangements on it; that came a cropper in the Senate but may yet come back to life.

There was, briefly, a plan D driven by the now-retired Kelly O’Dwyer to make Peter Costello’s Future Fund, or some other government fund, the default super option. That was stymied by Mathias Cormann, who suspected, rightly, that a government-controlled super fund would be politically on the hook for any losses it incurred from the inevitable stockmarket crash.

Halting the compulsory levy — Hume thinks 10% is a “nice round number” — is plan E, which has seen Liberal backbenchers who normally would ignore and deride the Grattan Institute lauding its work.

As the Grattan Institute makes clear, there’s a genuine policy debate somewhere in all this. But it’s much bigger than whether workers will or won’t benefit from 12%. It’s also about how effective our financial system is at converting the vast ocean of cash in our retirement funds into productive capital — there are real concerns that it is simply a vast mechanism for recycling equities, rather than driving productive investment.

And at the heart it’s about power, about the emergence of a new centre of power in Australia outside the democratic process but which can argue, rightly, it is more directly driven by the long-term interests of its millions of members than any political party or trade union.

Will the Liberal Party be able to hamstring super? Will it continue to shift Australia’s economy? Let us know your thoughts at boss@crikey.com.au. Please include your full name to be considered for publication.