Queensland turning back the super clock

7 September 2016 Australian Financial Review.

The latest casualty of our muddled economic debate with its creeping pro-protection and anti-competitive skew is emerging in Queensland.

Queensland's proposed Revenue and Other Legislation Amendment Bill 2016 permits two government-owned super funds to compete with the private sector by allowing public servants to choose their own fund.

Unfortunately the new legislation also grants monopoly "default" fund status upon those same two government-owned funds which receive super contributions from 200,000 Queensland Government employees. These government-owned super funds have been awarded a virtual monopoly on the $1.5 billion in annual contributions, as Queensland Treasury expects only six per cent of public servants will select a different fund from the default.

The practical effect of this is that two government-owned funds, QSuper and LGIA Super, will compete in the private market knowing their protected government market is assured. Meanwhile, the private sector must compete on merit.

Federally, this the same concept used by the discredited Fair Work Commission (FWC) which allocates compulsory "default" funds in federal awards, conservatively estimated to be worth $10 billion per annum to those named funds.

Surely, uneven playing fields and monopolies should be unacceptable in 2016.

It is emblematic of the reversal of the 1980s benchmark of pro-competition, free market reforms and runs counter to the Federal Government's plans to break down the protection barriers in the broader superannuation market which prevent the best product from getting to market.

Three things should happen. First, we must accept Australia needs better competition policy– not more protection and restrictions. Second, the uncompetitive provisions for government-owned super funds in the Queensland bill should go. Third, the federal government should bolster competition and choice in super at a national level.

We know restrictions on competition have a negative impact on the economy. Australia has just received a trifecta of warnings from the credit rating agencies, the Productivity Commission and the Reserve Bank.

Moody's, Fitch and S&P warned Australia a failure to achieve fiscal repair will jeopardise our AAA credit rating. Shane Oliver, AMP's Chief Economist said: "It's not a good sign because it seems like we've gone full circle back to the 1980s." 

In other words, we are contemplating doing things we did before the 1980s reform era delivered 25 unbroken years of growth.

The Productivity Commission, for example, says the high level of protection given to manufacturing was effectively worth $15 billion in 2014-15. And that's only one of the obvious, open costs.

Policies which restrict competition should be completely discredited. Bob Hawke said in 1985: "We can all now see that the inward looking post-war development strategies were a mistake."

Outgoing RBA Governor Glenn Stevens reckons we have a selfish culture: "When specific ideas are proposed that will actually make a difference over the medium to long term, the conversation quickly shifts to rather narrow notions of 'fairness', people look to their own positions, the interest groups all come out and the specific proposals often run into the sand."

Too much policy is based on subsidies and sectional interests.

Superannuation needs to be exposed to the cleansing light of competition. The Murray Financial System Inquiry recommended barriers to competition be eliminated.

Two barriers were identified: one, enterprise agreements which can remove workers' choice of fund rights. These stop employees from selecting their own fund.

The second is the FWC process which gifts "default" status to super funds where 80 per cent of workers' retirement savings are sent. Super funds which receive "default" status are not subject to effective competition.

While the Federal Government has moved to ensure employees can select a fund, collapsing the FWC process which prevents the best value super funds from becoming default funds should be a higher priority.

The legislation for less competition in super before the Queensland Parliament serves as a reminder that daylight savings is not the only time when clocks are turned back in the Sunshine State.

The Queensland legislation does little for a more open market in superannuation as it rests on the contention that the government can do a better job than the private sector.

So far there is no sign the Queensland proposal will change: a parliamentary committee report aired technical problems but recommended no substantive changes.

The Queensland's retrograde policy is anathema to 25 years of bipartisan pro market competition policy. The bill must change to promote competition in the default superannuation market. It is a great test of competition policy in Australia in 2016.