Noel Whittaker writes exclusive weekly blog updates for the Ban Tacs Group, with IN8 Business Advisory, a member of that group. Here, he talks about the impact of superannuation in the economy of Australia.
Last week, the Treasury released the 2021 Intergenerational Report which purports to project an outlook for the economy and the Australian government budget over the next 40 years. The good news is that our population will continue to grow, albeit at a slower rate, which is positive news for both the property market and the share market.
The bad news is that there will be just 2.7 people aged between 15 and 64 for every person aged 65 and over. Within 40 years, the life expectancy of the average male will be 86.8 and for a female 89.3 years. The population will be almost 40 million and include more than 50,000 people aged over 100. In short, there will be less taxpayers providing revenue to support an increasing number of retirees. This imbalance will get worse as the ratio of dependants to workers grows over time.
Our compulsory superannuation system continues to provide major support for the economy. At 31 March 2021 superannuation assets were running at around 157 per cent of GDP – this is projected to grow to around 244 per cent of GDP by 30 June 2061. The forecast is that almost 75% of those funds will be held in the accumulation phase as the baby boomers die, and the large amounts currently held in pension phase are withdrawn and unable to be replaced due to the tightening of contributions.
The benefits of our unique superannuation system will really show value in the next 40 years. Even though people are living longer, and there are less people to pay the taxes to support the elderly, the total number of Australians of pensionable age is expected to double to over 8 million while the proportion of people of pensionable age is expected to decline in the same period. The other side of the coin is that expenditure on age care will be skyrocketing.
A budget surplus is many years in the future, which means there will not be the funds available to splash money around. A major problem is our taxation system. Currently, 61% of personal income tax is received from a mere 11% of Australians, leaving the bulk of taxpayers contributing very little. In addition, 87% of those aged 65 and over pay no tax whatsoever.
Think about a single-income couple with two children aged 14 and 16, where the primary breadwinner earns $80,000 a year. The income tax on this would be around $16,000, but the family’s contribution to the national coffers would be just $9000 after family payments of $8000 a year are taken into account. If we assume the cost of the full aged pension for a couple is $40,000 a year when healthcare concessions are factored in, it is obvious that it takes at least four such single-income families to support one pensioner couple.
A full review of our tax and welfare system is overdue with a total overhaul of the GST at the front of the agenda. But the adversarial nature of politics does not make for optimism. Right now, the federal government reminds me of a dysfunctional family. Dad and Mum (the two major parties) spend all their time abusing each other and promising the world to their constituents (us, the children) while well-meaning but inexperienced relations (the minor parties) add to the turmoil by telling the kids that their parents don’t know what they are talking about.
Until they all get their act together and unite with a common goal to get our country’s finances in order, it will continue to be all talk but little action.
Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email: noel@noelwhittaker.com.au
4 July 2021