There are two parts of that policy suggestion that Gruen and co have made (see here http://petermartin.blogspot.com/2008/12/cut-super-levy-pm-told.html) that I don't like:

1) It's pretty clear to anyone with a pair of brain cells to rub together that now is the time to be keeping super contributions up, if not increasing them, for the simple reason that superannuation unit prices are very low at the moment. (I agree with the statement that they should be increased over time)

Simply put, putting the same amount of money in today will buy you more units in your super fund. As the share market (the predominant investment vehicle of most super funds) rebounds (and it will), these extra units will scale up the dollars invested by the investor and the investor will be better off in the long run.

2) Super funds pay out money to retirees, and if to fund these outflows they have to have a 'fire sale' (rather than relying on inflows) then that could magnify the losses in the super industry.

This is pretty poorly thought out. What I don't understand is that there are some smart people behind this so how could they miss such obvious problems with their suggestion?

*our over-reliance on foreign borrowing*

Ah, they are the key words. I gather that our banks need to go begging
for around 80 billion $ from overseas this year. It shows in
our current account figures.

Perhaps the author should ask those people around him, why they
don't save more? Why do they prefer to borrow, to negatively
gear a house etc?

Its quite simple, people are not silly. If they are gaining 6%
on their bank deposit, inflation takes at least half, marginal
rates of tax take a good proportion of the other half.

So if saving is pointless, they might as well live it up, buy that
plasma screen or whatever, or negatevely gear a house, to make
saving worthwhile.

If Govt allowed for inflation in taxing bank deposits, it would
make saving worthwhile and give people a reason to save.

It would also be about fiscal honesty, for clearly those savers
who do tuck away for a rainy day, are having their hard earned
pennies eroded by inflation.

We might then finally see a savings culture, rather then our
present borrowing culture.

Fiddling with superanuation is not going to solve our
fundemantal economic problems, nor will giving away 10 billion$.

Personally I don't want to see employer based superannuation schemes because at times like these companies dip into [steal] their employees super fund contributions to prop up their operating expenditure.
An employer based super fund assumes that employers grow and remain in business, that patently isn't so.
Last night Alan Kohler explained that GM in the US has 3 times as many pensioners as it has workers and the bail out plan will pay the pensions. Perhaps GM should have developed a sustainable business model.
The ATO has sent companies into receivership when they have stolen their employees superannuation contributions, examples include Bradmill - National Mills and recently Johns Valves.
The French owners of Australian subsidiaries are asking that all moneys be remitted to the parent company risking the subsidiaries ability to meet its superannuation and long service leave obligations.

The related danger with Super Funds (Units) and much more so with Provident Funds (Garanteed Retire Income) is that with the employer making a contribution, the Fund can be come under subscribed, wherein the employer will asset strip the fund or avoid paying-out now, for future commitment, by retrenching middle managment with long-service. Westpac did this in 1992. In so doing, the Bank turned a $500 million dollar operational loss into a $200 million dollar profit. So, if you are 40-45 y.o., on a good salary package, and, have twenty years of service - watch out!

*Last night Alan Kohler explained that GM in the US has 3 times as many pensioners as it has workers and the bail out plan will pay the pensions. Perhaps GM should have developed a sustainable business model.*

There is an interesting history to that scheme. It was originally
offered to employees by management in the 50s, when GM reigned
supreme. Times change and numbers change. When the scheme
started, there were 10 workers for every retiree. Southern US
States offered Toyota and others huge subisidies to set up new
plants. 50 years later the cost of the scheme is so large that
it could well bankrupt GM, certainly prevent them from competing
with non union plants.

The point is, GM on the stock exchange basically hardly has
a value. If they go broke, it won't be shareholders who have
much to lose. It will be creditors, workers, suppliers etc.

The unions have simply pushed too hard for too long and now the
golden goose is nearly dead. So now the taxpayer will be milked
for a while. Sometimes workers are their own worst enemies, but they
don't twig, until its far too late.

My point was that employer based super schemes are not effective,
because employers might not remain in business like GM,
actively target older workers for retrenchment to reduce their super liabilities like Coles-Myer or GE
actively target long term workers for retrenchment to avoid their long service leave liabilities like Sunicrust Bakeries or GE

In the case of GE they decided in the 1970s to stop manufacturing consumer electrical goods, fire the workers and reinvent themselves as GE Money, the people behind the Money GEnie, store credit cards.

So do workers
1. work until they drop dead or get to sick to work
2. save for their old age through the employer-based super fund
3. save for their old age through taxation system
4. save for their old age through insurance company based funds

Clearly option 2 doesn't work, option 1 is not socially acceptable. Option 4 operates in Australia at the moment but needs to be regulated so workers get their pensions

How do we expect those workers that are surplus to manufacturing requirements to live. Do we put them in the Soylent Green plant, place them in the Poor House or prison or expect them to rob the fortunate burghers who will be living in gated suburbs?

What is it about the left that they seem unable to see the obvious?

The first unpalatable fact is that we are living way beyond our means. This is evidenced by our level of foreign debt.

The second is that we have a rapidly ageing population, and need to build foreign assets to maintain our retired population when there are not enough local workers to support them.

Instead of wasting money on handouts, a farseeing government could seize the opportunity by:

1. Announcing that it would lower the standard of living by doubling the cost of transport. This would be achieved by raising the tax on petrol to european levels, and doubling fares on public transport.

2. The reserve bank interest rate would be set at 5% above the inflation rate.

3. The revenue form these measures would be used to fund infrastructure throughout the country financed from current revenue without the need for any more borrowing.

4. The keynesian bias against saving would be removed by only taxing real interest earned, and only allowing a deduction for real interest costs.

It is no wonder that people do not save. You do far better encouraging them to save rather than forcing them, as the latter will just be looked on as another form of taxation.

Those who complain that these measures would increase the gap between rich and poor need to remember that having our foreign debt called in would be far more devastating than any of these measures, and would put Labor out of power for a generation.

I agree that a company should not directly run its own super scheme,
for obvious reasons.

What we do have now however, are what I think are called industry
based schemes, which are at arms length from employers and are
doing very well, at far less cost then those schemes run by banks
etc. For instance Westscheme is one that comes to mind.

Manufacturing only makes up a small % of the workforce. Even then
we seemingly can't find enough people to work in the meat industry.

So in Queensland in the beef industry, or in WA in the sheep meat
industry, they have little choice but to rely on 457 workers.

Meantimes WA still has a shortage of policemen, nurses, doctors,
dentists, vets, teachers, etc. Migrants are about the only way
these positions can be filled, for Australians clearly don't
want the jobs.

The very idea of reducing the employer compulsory superannuation levy from 9% downwards to 6% is to my way of thinking a load of rot.
If the percentage of the levy is reduced I think that come the magical year that we get out of this economic mess, that there will be a different clamour from economists to leave it at 6% and not increase it.
After all many economists produced new economic theories whilst being funded by corporations during the 70s and 80s which have proven to only benefit corporations.
To my way of thinking, economists should declare any conflict of interest or face ICAC or better still a Federal Government Commission just like anyone else who engages in conflcit of interest because of corporate funding to them.
Reduction in superannuation is only to benefit business sales.
Government should do back to Keynes, tarrifs, home industries and govt bonds to fund our future. It works.

plerdsus, why am I left wing for not wanting you or your unqualified mates to control the retirement savings of workers. My 20 something financial advisor tried to get me to buy more equities in March because no body needs 3 years income in cash reserves, and he gets a bigger bonus if I buy equities through him. What is Alan Kohler saying in December?

I would be very happy to purchase debentures to rebuild Melbourne's public transport and reopen train and tram factories rather than importing rolling stock from France and Italy.

I can't see why you believe that we are better served by having a French owned insurance company like Axa controlling industry super funds than it would be to have a government run scheme. Private employers are not so strict about employing qualified personnel, government departments will not employ people without the qualification.

Why should governments privatise the risk of old age and socialise Macquarie St losses.