The socialisation of super
Recent developments in the US offer clues as to the direction Jim Chalmers may take super in his brave new world of socially aligned capitalism. BY NIck Cater.
You can bet your last superannuated dollar the Albanese government won’t stop with the $3m cap on concessionally taxed balances it sprang on us last week.
In a government as spend-thrift as this one, the $2bn it will raise on paper will barely touch the sides. It will cover 21 days of interest on government debt by the time it comes into force, assuming investors meekly hand over their wallets to the Treasurer instead of finding another low-tax or no-tax vehicle.
Recent developments in the US offer clues as to the direction Jim Chalmers may take super in his brave new world of socially aligned capitalism. Late last year, the Biden administration finalised a radical new rule cunningly disguised behind the bland title, “Prudence in Selecting Plan Investments and Exercising Shareholder Rights”. It permitted fund managers to make retirement investments on “environmental, social, and governance” grounds. The ESG clause would allow the retirement savings of 150 million Americans to be dragooned into fighting climate change and other social justice causes.
Fortunately, this outrageous exercise in presidential activism has been thwarted by a Republican bill that passed congress last week preventing ESG obligations diverting investments. West Virginia senator Joe Manchin, a voice of sanity in the increasingly woke Democrat Party, voted for the Republican bill, warning Biden’s ESG rule “prioritises politics over getting the best return for millions of American retirement investments”.
Chalmers had the chance to rule out the prospect of woke super rules in Australia in the legislated statement of purpose the government has drafted. He chose not to. Instead, the Treasurer’s convoluted definition throws the door wide open. It reads: “The objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.” One can only imagine how the words “equitable” and “sustainable” might be interpreted by activist lawyers and judges were a legislated ESG rule to be challenged in the courts. The ambiguity of the word “dignified” could have been settled by stipulating that retirement should also be prosperous. The chief obligation of fund managers should be to maximise returns within the parameters of risk stipulated by the investor.
It would be odd if ESG rules in super were not part of the government’s agenda given its ideological bent. Chalmers dipped a toe in the water in December with a proposal to force large companies to report climate-related financial risks, starting in 2024-25. Similar measures have been resisted by corporations in the US who fear it will open rich new pasture on which activist lawyers will graze.
In his February essay in The Monthly, Chalmers argues financial returns should not be the only measure of investment performance. He calls for a new economic model that puts values ahead of returns and ranks social inclusion alongside economic growth. He talks of redesigning markets “for investment in social purposes” and a national wellbeing agenda that measures success by factors other than economic strength.
He cites Mark Carney, the UN Special Envoy on Climate Action and Finance, as a mentor. Carney, a former head of the Bank of Canada and Bank of England, opposes what he describes as market fundamentalism. He says we should replace the “exclusivity of capitalism” with “purpose-driven companies, impact investing and national strategies which balance resilience, fairness, sustainability with dynamism”.
Chalmers, as a criminal defence lawyer might argue, has fallen in with a bad crowd. He has come under the influence of the new economic mumbo-jumbo that sounds kind of pleasant until you work out what it actually means. It is language heard frequently in corporate boardrooms these days, wreaking havoc in the organisations those around the table are paid to govern and imposing a smothering, unproductive conformity on the workforce.
Perhaps the most serious consequence of corporate wokeism, however, is the misallocation of capital on an industrial scale. When the investment criteria becomes something other than return on equity, the economy quickly goes pear-shaped. It removes the price signal leading to supply shortages and inflation.
Its effects are acute in the energy sector. In a normal world, a rise in the export price of coal from $US80 a tonne in January 2021 to today’s price of about $US300 a tonne would have been a signal for the finance markets to invest in new mines, railways and wharves. Yet almost no such investment has been made. Indeed, larger companies, such as BHP and AGL, have accelerated efforts to rid coal from their portfolios.
Potential investors, including the big banks, are sinking money instead into the utopian dream of greening the grid and electrifying everything, a project that will cost between $US3 trillion and $US4.5 trillion incidentally, according to a 2022 study by McKinsey.
An ESG rule for super would potentially free up a lazy $3.3 trillion more to be thrown at that project. The 15.6 million Australians who own that capital might or might not think that to be a good thing. Under a government intent on removing their agency, they may find it difficult to object. As Assistant Treasurer Stephen Jones said, the government’s concern is the health of the hive, not the bees who made the honey.
The socialisation of super is implicit in the Treasurer’s rhetoric that puts fairness and equity ahead of returns to individuals. He justifies the extraction of more taxes by the rising cost of health, the NDIS, aged care and defence. His convoluted statement of purpose underlines the point. Super is a vehicle for redistributing wealth rather than merely its creation.