Australia’s Superannuation Scheme Is Pushing An Economic Crisis Onto Young People
The impact of the coronavirus pandemic on Australia has been huge but the generation it might affect the most, at least economically speaking, is young Australians.
Thousands of young Aussies could be left with no super and massive debts as a result of both the pandemic, and the Government’s response to it.
But why is there such an economic disparity between generations, and what does it mean for the financial future of our young people?
The Economic Impacts Of The Pandemic
Australia is in debt. The type of debt that will take a generation or more to pay off.
According to economists, going into 2020 we were so close to having a balanced budget where government expenditure was the same as its revenue.
Then COVID-19 hit, and everything just went out the window.
The Government’s response has kind of been a mix of both good and bad. But for young Australians, and vulnerable Australians, it’s mostly been bad.
Back in March, Treasurer Josh Frydenberg brought in a new scheme that allowed people to withdraw up to $20,000 from their personal super, to help with the financial hit of the pandemic.
But now 600,000 young people, mostly under the age of 35, have literally no superannuation left for when they want to retire.
Professor Robert Breunig: “That’s an example of how these kind of government responses can actually increase inequality between those who have assets and those who don’t, and you can think of that being between older people and younger people.”
That’s Professor Robert Breunig, an economist and director of the Tax and Transfer Policy Institute.
RB: “Mixing up pandemic relief with retirement funding is the wrong thing to do. If we want to give people extra money to cope with the pandemic then we should give people extra money. And what we’ve seen is that the number of people who have accessed their superannuation is about three times bigger than what was predicted.”
Former Prime Minister Paul Keating who famously introduced superannuation in 1992, has said that the new scheme places an unfair burden on the young, who haven’t seen a pay rise since 2013 and are just generally worse off than the generations before them.
And he’s right.
According to Monash University, on average people should retire with roughly $200,000 in their super.
But financial advisers have highlighted that if you take out $20,000 now at the age of 25 it will cost roughly $120,00 down the track.
Young people alone have funnelled roughly 32 billion dollars into the economy, since the scheme started back in March, which is more than what the government has paid through their own stimuluses JobSeeker and JobKeeper.
But how can this be happening?
Well, Professor Breunig told me that government policies generally protect those with assets (like older and wealthier people) because they’re most likely to vote for them.
Essentially, the government are placing the heaviest burden on those that are least likely to vote for them, making Australia’s widening generational wealth gap a bit more about politics than sound economics.
Sure, once we reach the age of retirement the age pension will be there for those who need it. But Professor Breunig warns that we will still be paying this debt off for a long, long time.
RB: “It is hard to imagine in the next 20 years that we will have government services as generous as the ones we’ve had in the past 20 years and also that we’ll have taxes as low. I mean, I think that the way we are going to be paying this back will be both through increased taxes and less government services.”
The pandemic has thrown the world into unprecedented territory, and there’s no guidebook for how to navigate it.
But Professor Breunig argues Australia should really be creating a fairer tax system for all and especially for the younger generations – because if we’re the ones paying the price now, we’ll need this sort of planning and support for the future.