In the past week, Pauline Hanson’s One Nation put forward what is, arguably, one of the most sensible policies to come out of Australian politics in a very long time (behind Labor’s ‘Help to Buy’ scheme).
The proposal is simple: let homeowners and renters take a quarter of their compulsory superannuation contributions and apply that money to their rent or their mortgage instead.
The policy has been met with intense criticism and yet when you look at it with an objective lens, it looks to me like one of the most sensible things anyone in government has proposed about our ‘backward superannuation system’. Particularly when it comes to the home mortgage.
The question at the core of this debate must be whose money is it?
What seems to have been forgotten is that for Australians our superannuation belongs to us. Not to the funds, or the army of people charging fees that are, in most cases, loosely tied to performance.
Not only is it our own money, but there’s also a baseline assumption baked into the whole system that Australians don’t know how to use; that we couldn’t possibly manage our own savings better than a Super fund that averages, at best, seven or eight per cent a year after fees.
Let’s put that number in perspective against a home mortgage.
The numbers
The average Australian mortgage is now sitting at around $700,000. The average household income sits a touch above $150,000. For that average household, roughly 40% of after-tax income goes straight to the mortgage.
On top of that, 12 per cent – about $18,000 annually before tax, call it $15,000 after tax – is funnelled into superannuation. A system which has grown enormously beyond original intention.
The total value of Super fund holdings in Australia is now approximately $4.8 Trillion, while the entire Australian Securities Exchange is worth only about $3.7 Trillion.
Think about what that means; there simply isn’t enough domestic market to absorb it. Generating half-decent returns has become genuinely difficult, and increasingly that money is being shipped offshore into foreign companies (and jobs) and foreign markets just to find a yield.
Now contrast that with how hard the same 12 per cent could work inside a household balance sheet.
If that 12 per cent were paid to the employee instead, I’d conservatively estimate it would halve the life of the average mortgage: 15 years instead of 30.
The One Nation policy doesn’t even go that far. It redirects just 3 per cent of the compulsory 12 per cent. For the average household that’s around $4,500 a year, or roughly $3,800 after tax.
That alone would wipe somewhere between five and six years off the average mortgage.
More than just relief; five or six years’ change to the financial pressure a household experiences.
But it doesn’t just relieve stress … it builds equity. Equity that the household can then use, borrow against, and invest.
In most cases they’ll get the same return as their super fund, if not a better one, and they’ll get it without paying a fee to someone else for the privilege.
That’s the part the critics miss. This is money moving from a fee-laden, offshore-leaking managed fund into the single most reliable asset most Australians will ever own (and not get taxed on, to boot).
Spare me the outrage
Twelve per cent compulsory superannuation is already overly generous.
Mine is not an argument that people shouldn’t be able to put 12, or 15, or 20 per cent into super if that’s what they choose to do. Contribute away. But that is exactly the point; it should be a choice.
It’s high time we gave Australians the choice about how they spend their money, how they earn it, and most importantly, how they invest it.
There is no greater investment in this country than the family home. There’s no better way to invest than to make a meaningful difference to the time it takes to pay off the loan once you’ve got it.
It’s our money. Let us use it how we please.
