What would Abraham Lincoln think of the Productivity Commission's report into Australia's super system? A funny question I know, but amongst his charms those eight-score years ago was a lively interest in economics and an original mind – seriously.
He had his head screwed on when he said that government should "do for the people what needs to be done, but which they cannot, by individual effort, do at all, or do so well, for themselves".
In this spirit, Lateral Economics made a submission to the Commission proposing to ideologically 'complete' the idea of competitive neutrality – a term first coined right here in Australia when we led the world in competition policy reform from the early 1990s.
Competitive neutrality as currently understood requires that, if they compete with private firms, government enterprises should compete on a 'level playing field' with any unfair advantages – for instance in tax and planning – neutralised.
But as I proposed over two decades ago we should also take the converse idea seriously – that where governments are invested in providing services exclusively to some special group, anyone should have (unsubsidised) access to them.
So, given governments provide employee super schemes, we should all be able to access them. With super compulsory and the sector pervaded with market failure, this solves lots of problems.
Just as Medicare is an 'informed purchaser' and supervisor of sophisticated medical services, so government owned super schemes - like the Future Fund - can be informed purchasers of investment management services on our behalf. This interdicts many of the channels through which private financiers would otherwise feed their avarice – at our cost.
The Commission's Draft Report was none-too impressed with my suggestion, pointing to Sweden where a Government provided fund gained huge market share – by delivering strong returns. If only Australia's super system could have more policy problems like that!
In any event while restating its concerns, the Commission's Final Report reverses course, proposing that government owned funds be eligible to make the 'best in show' shortlists from which it proposes Australians choose their fund.
Still, channeling my late friend Abraham, I'd like to see two more changes. As I documented over six years ago, the regulation of self managed super funds (SMSFs) exquisitely combines vast expense with dysfunction in achieving its prime regulatory objective – safeguarding integrity.
Rather than build simple regulation around the needs of small family super funds, the regulation mandates a cut down version of the regime governing multi-billion dollar funds. This involves families disgorging thousands each year to professionals – to draft trust deeds, investment strategies and regular minutes of fictitious meetings all bemusedly signed by Mum and Dad.
Other professionals earn thousands auditing the fund each year. For most SMSFs all this could be handled at a fraction of the cost, as our taxes are, via self-assessment subject to risk targeted random auditing by the ATO.
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