Tom Valcanis
Life-long politics tragic, digital marketer and writer. Articles in the Age/SMH, the Big Issue, the Spectator, and editor of alt lifestyle mag Hysteria from 2016–2020. An advocate for free speech, free markets, and small government.
I don’t have to tell you we’re in the midst of a housing crisis. If you’re a renter and unlucky enough to find yourself rental hunting in a capital city, the competition is fierce. If you’re trying to buy, be prepared to settle for a lot less than you bargained for.
A lot of wealth is tied up in property. Four of the richest 10 Australians made their wealth in the property industry. The combined value of the property market in Australia is $11.032 trillion, With a T. Compare this to our Gross Domestic Product which stands at $1.970 trillion. About a quarter of that stock is tied up in investments – and a large portion of that is directly or indirectly held by superannuation funds.
In a libertarian utopia, we would choose how to fund our retirement. Any investment would be purely voluntary. Perhaps you’d get tax breaks to invest for your retirement; but you would also be able to use your hard-earned income to spend however you wanted.
Professor Gigi Foster, economist at the University of New South Wales, author of many economics and pro-freedom books, Economics Society of Australia Young Economist of the Year 2019, and occasional voice of sanity on ABC’s Q&A program, says that the superannuation system as it exists today is a classic Australian “rort.”
They may want to buy a house; they may want to save for their kids’ education. They may want to support their mothers and fathers who may need help.
“It is billed as helping people to avoid a poor old age and taking pressure off of the government system,” she says. “But it’s not at all voluntary in those sectors. And it’s a massive chunk of people’s wealth that they can’t access until they’re 65. That’s one of the issues that has helped to propel real estate values so much over the last 20 or 30 years.”
Compulsory employer contributions started at three per cent of employee income in 1992; it’s now ballooned to 12 per cent. If we could keep that 12 per cent as untaxed wages (I know, I dream big) and invest it elsewhere, it could take pressure off property as being the “be all, end all” investment strategy.
“We should dismantle the superannuation system: grandfather it out,” Professor Foster says. “We should move to a system that enables people to make freer choices about what they want, how much they want to save at what times in their lives [and] give them some tax advantages for saving for retirement like they do in the United States.”
“You can put in a certain amount every year gross tax free. Then you can withdraw it. If it’s for retirement, then you have benefited from this tax-free growth for a long time. We could do something like that and not compel people to save at particular times of their lives and then force them to take out the money at other times of their lives, because that creates a poor young-adult class who have all sorts of expenses right now that they can’t cover.”
Notwithstanding scolding from Boomers that we Millennials and Zoomers are too addicted to avocado toast or Fortnite skins to buckle down and save for a house, the last 30 to 40 years has created two classes of “already haves” and “possibly never will haves” in terms of property ownership.
According to Real Estate Business, since 1970 the average house price in Melbourne has soared by 3,435 per cent, while wages have only increased by 1,183 per cent. In 2020 you could have bought 5.2 houses at 1970 prices for every one median-priced house in Sydney.
“We have people who have houses who were lucky enough to buy 20, 30 years ago in particular areas and saw the prices skyrocket over that time,” Professor Foster says. “If you were born into the right family, you might be in the market for really nice houses in really nice places, spurred on by all this excess wealth people have got partly due to the superannuation system which is generationally transferred.
“Then you get the poor schmucks who weren’t as lucky. They didn’t buy at the right time or be born into the right families. They just have to deal with these massively high prices and are probably renting until they’re 50.”
We can only imagine what Australia would look like if we reclaimed the theft of our wages under the guise of ‘super’ over the last 40 years and redirected it into inflation-beating investments instead.
Our of the richest ten Australians made their wealth in the property industry. The combined value of the property market in Australia is $11.032 trillion.
However, the great economist Thomas Sowell reminds us that there are no real solutions, only trade-offs. Once (and possibly future) Liberal member for Goldstein Tim Wilson has advocated for young people to use their super to fund property purchases. He was lambasted by Industry Super Australia and the ACTU for proposing such a lark (imagine our shock.) They fear ‘raiding’ super would create an eight to 16 per cent spike in median property prices. However, a brand-new Centre for Independent Studies research report says that allowing people to access their super to help buy homes can overcome stiff barriers to finance and see young people enter the market sooner and/or purchase homes of better quality and location, all while producing a net positive effect on retirement outcomes.
Even so, a short-term ‘raid’ on super would still leave the system intact. Ideally, the entire scheme would be abolished over time. The bottom line? Professor Foster says we need to get the government out of our investment decisions.
“Give the power to the person on the street who can see the signals of what's worthwhile investing in,” she says. “They may want to buy a house; they may want to save for their kids’ education. They may want to support their mothers and fathers who may need help.
“Let them decide for themselves.”
This article was originally published by Liberty Itch.
