Analysis of the Paul Keating’s speech on superannuation

Introduction

Superannuation is Australia’s equivalent of a pension scheme and it is basically funded through the contributions of Australian employees from their remunerations at work as well as from additional voluntary contributions that they can make to their accounts. The law compels employers to contribute 9% of the employees’ salaries into the superannuation scheme. A grand architect of this revolutionary program is the brainchild of former Australian Treasurer and later Prime Minister Paul Keating who introduced it during through legislation (Keating, 1996). The key motivation for this introduction was the fact that national savings of the country at the time were very low and this meant that majority of Australian workers did not have access to a source of adequate income when they reached retirement age (Worthington, 2008).

This program is fully supported and imposed by the Australian government. At the time of this speech, the superannuation program had been in existence for almost 15 years and over this period, it underwent a series of changes that sought to maximize on its benefit and practicality. The changes were not unilaterally decided by the government. Though it is the most powerful stakeholder, the Australian public is the most directly affected since it is their incomes that are being decided (Young, 2007; Williams, 2008). The section of the public that has always been directly affected by the superannuation program is those engaged in employment and their employers. Due to at times conflicting interests, some amendments to the program have faced opposition from different quarters but through a series of continued negotiations requiring the different parties to ‘give and take’, superannuation has elevated the status of Australia’s per-capita public savings to be the highest in the world (Ang et al, 2000).

The changes to the superannuation program will have an effect on different players in Australia’s economic landscape. These include the Australian Government’s budgetary and monetary policies, social security policy, the Australian economy, employers, employees, taxpayers and individuals as a whole.

The effect of the changes on Australia’s Budgetary and Monetary policy

One significant effect that these changes will have on the Budget is that there will be an increased revenue on both tax and non-tax form. The largest contributor of these two will be in tax form. It was speculated that taxation to be imposed on the savings at 15% will increase tax revenue for that period by between four and five billion Dollars while the non-tax revenue was just under 500 million dollars. This will not just be as a result of the imposition of a tax regime on the savings and interest earned but also a direct result of the increased rate of contribution to 9%. The levying of this tax on withdrawals however excludes people who are above the age of 60 years if the source of those funds was initially taxed.

Effect of the changes on Australia’s monetary policy

The changes that were made to the superannuation program essentially made it mandatory for formally employed Australians to save from their incomes. At the same time, the authority over the monies that are saved will be exclusively controlled by an independent body. This will help to protect the savings from being used to make up for the budgetary shortcomings that may come up. This means that it is impossible for the politicians, even through legislation to grant the government access to the saved monies (Kelly et al, 2002).

Effects of the changes to Australia’s social security policies

A direct impact of reforms to superannuation on the economy of the country will be an increase in the number of assets that are held within the economy (Newell, 2006). This is because the superannuation system takes into account the demographic shifts that are expected in Australia and this will ultimately improve the economy’s performance given that the assets will also be generating income.

Effects that the changes will have on employers

Even in the period prior to the reforms, the law placed the obligation of deducting the employee contributions on the employers. This amount is known as the superannuation guarantee and it is equivalent to 9% of the employee’s total remuneration for ordinary time earnings meaning monies earned during overtime are excluded from this calculation. The money is to be paid to a recognized superannuation fund that is in operation. The effect that this has on the employers is that it will increase their costs of operation. Higher costs imply lower levels of profitability for the different firms that employ Australians to work for them (Drew and Stanford, 2003). As a result of this, employers will have to embrace various strategies that will enable them to survive in the market. This may mean charging higher prices, paying lower salaries (and wages) or even having to work with a smaller work force (Freebairn, 2004).

Effect on the Employees

The main beneficiaries of this system will be employees. The first reason for this is the fact that they are guaranteed a steady source of income when they retire or lose their employment for one reason or another. This grants them a sense of financial security. At the same time, the changes also allow employees to boost the amounts of money they are saving up in their superannuation through voluntary contributions that they can deposit. The employee is exempted the burden of deductions that are part of the conventional pension scheme and this arises from the obligation for contribution being placed on the employer. Last but not least, it is important to note that the benefits will be spread to employees of all walks of life and not just top-level management employees who were beneficiaries of the initial instances of privately managed retirement programs.

Social Security

Social security will receive the biggest boost given the fact that a number of would-be needy people will now have an established source of income to sustain them in the absence of employment. What this mean is that there will be more money available to take care of the different groups dependant on social security.

The effect on taxpayers

The taxpayers will benefit two-fold. Both of these are in form of significantly reduced taxation burdens. The first removal of the burden came when Australia shifted from a process of tax-funded retirement schemes to one that is funded largely by the employing bodies. The second way in which this burden will reduce is due to increased revenues for the governments through taxation of the contributions by employers (Bateman and Ablett, 2000).

Individuals

Individuals will benefit from the financial security of having income after employment and also from the fact that these funds will be invested in various profit-making ventures. This will also be a good form of long-term savings (Connoly and Konler, 2004). Savings will also increase since households will be no longer have to dedicate large sums for the care of retirees (Bingham, 2003).

Conclusion

Under the leadership of Paul Keating in his various positions in the management of Australia’s financial sector including the premiership of the country, it is beyond doubt that his greatest and most far-reaching contribution is the superannuation system. This is because of the holistic approach that has been taken to ensure that as many working Australians as possible are guaranteed a post-retirement income at a reasonable level. The flexibility with which its reforms are handled means that it will be able to withstand various unpredictable financial conditions that are bound to happen in the international and domestic economy (Pierson, 1998). The fact that the amendments are reached through a consultative process means that participation in the program is guaranteed.

References

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