Almighty Albanese could use his power to fix super. He won’t

Anthony Albanese doesn’t lack options for the passage of bills through the Senate these days. The Greens — pummelled by the election result and now Dorinda Cox’s defection, and freed from Adam Bandt’s policy of obstructionism — have signalled they’re open for business in being the sole party Labor needs to win over in the upper house.

The dramatically shrunken Coalition have signalled they’re open to discussing Labor’s bill to increase taxation on super accounts over $3 million — if it’s massively watered down. The Greens, in contrast, have long wanted the threshold to be dropped to $2 million but indexed. So the prime minister has options to make the bill more effective, or to scale it back.

But what all of this really demonstrates is what a Toytown our Federal Parliament is under the Albanese government.

Labor’s super tax proposal is innocuous. It will raise an additional $2 billion a year in revenue — when superannuation tax concessions cost the budget more than $48 billion a year currently. It will apply only to the very wealthy, who have managed to game a superannuation system heavily loaded in favour of the rich to stick more than $3 million into what are often their own self-managed super funds. The taxation of unrealised gains — touted by critics as some sort of unconscionable outrage against good tax practice — is, as Ross Gittins has pointed out, a well-accepted part of the tax system.

The hysterical and lie-filled campaign against it demonstrates how broken economic debate is in Australia. There’s universal agreement that our tax system isn’t fit for purpose. Everyone wants to reform it. But the moment actual reform is proposed that might harm even a narrow vested interest, it’s howled down. The very organ that constantly demands tax reform, the Financial Reviewis leading the charge against Labor’s modest changes.

That’s exactly what happened when Labor went to the 2019 election proposing a series of sensible tax changes, including directing negative gearing toward new dwelling construction, which might have substantially addressed another problem the AFR loves to bang on about: the housing crisis.

But the Labor of 2019 is no more. Bill Shorten has departed politics, while Chris Bowen is confined to pretending the government gives a damn about the climate crisis while letting fossil fuels rip. There is zero appetite within Labor for real, politically risky reform. Albanese learnt the lesson of 2019 and understands the deep hypocrisy of all those tax reform advocates who start screaming the moment their own privileges are threatened.

What’s also changed since 2019, however, is Labor’s political position. It is now electorally dominant, in a way not seen since John Howard in 1996. Albanese has huge political capital and authority; there is no longer any excuse for timidity. The case for superannuation reform is overwhelming, not merely to help strengthen the tax system so we can pay for all Labor’s spending, but as genuine economic reform.

At more than $4 trillion, our superannuation system is half as big again as the actual economy.

It’s so big that, in Australia, large superfunds have run out of things to invest in without exposing themselves to systemic risk. Much of our retirement savings are now in America in US shares and infrastructure, leaving us at risk from Mad King Donald. Thanks to consolidation, the number of $100 billion-plus funds continues to grow — and because the government forces them to participate in an annual beauty parade on their returns, their investment strategies are increasingly similar, so no-one ends up as an outlier.

While the big funds devote some money to small and innovative start-ups in the hope of getting in at the ground floor on the next Canva or WiseTech, they’re primarily interested in lower-risk returns — blue chip equities, bonds, commercial property, government-guaranteed infrastructure. As a result, actual investment in innovation and disruptive market entrants, as a proportion of Australia’s total investment, is probably lower now than a couple of decades ago.

Despite that, we’re continuing to pump more money into super. From next month, we’ll all be handing over another 0.5% of our salaries to super, as the compulsory level of contributions rises to 12%. Just over a decade ago, it was 9%. Even the Coalition couldn’t bring itself to curtail that.

What alienates voters, as we’ve seen around the world, is the perception that the economic/political system is skewed in the interests of someone else. The danger with our world-leading superannuation system is that it will come to be seen primarily as serving the retirement and succession planning of wealthy boomers and gen Xers, who enjoy most of the taxpayer-funded benefits of our super system.

Curbing these benefits by a lot more than 4% of the annual cost of the system would help prevent that alienation. It would be real Labor reform.

It won’t happen. Not under this prime minister, who regards political capital — even when he’s rolling in it — as something to be hoarded, not something to be invested in action. We’ll remain stuck in 2019.