Yesterday morning, before the national accounts for the December quarter were released, I listened to a discussion on Sydney’s ABC 702 radio between Ross Gittins, George Megalogenis and compere Deborah Cameron, about the role of economics journalists in influencing “sentiment” – that is, confidence (or lack of) in the economy. If a writer over-emphasised the doom and gloom, they agreed, they could contribute to a gloomy reality, by influencing people not to spend or invest. They were being very careful with their words, calling it a “downturn” rather than a “recession” and insisting that Australia is still well placed to ride out the storm. Rather than the US’s “near-death” experience (as it was named by one caller), Ross Gittins said that Australia was in for a dose of the flu – after three days in bed we’ll be up and at ‘em.
The accounts indeed showed that Australia is doing less badly than most other developed countries – a lot less badly than the US and UK. But having spent the last six months in the UK, I have to laugh at the Australian media tippy-toeing around whether or not to use the word “recession”. The rest of the world has gone way past that. They’ve been talking “depression” and “slump”, not to mention “total collapse of financial system” for months now. I mean, in the US there are even serious suggestions that they nationalise the banks. In the USA!
But let’s not get too gloomy. Just because I’m in my 50s and my superannuation has dropped by almost a third with no sign of an end to the fall and I haven’t got a job as my company just made big redundancies (but as I was a contractor I was laid off without any payment), there is little need to worry, apparently. Because … well, the theory seems to be that if we all just carry on as usual, the system will recover and we can all carry on as usual, ad infinitum.
I’m not an economist but I don’t buy it. This is the time to be having a national conversation about the purpose of the economy. It’s a conversation that has started about the payouts to the banking and corporation chiefs but it has to go beyond that. We’re in a globalised world and as well as resisting the push towards protectionism, we have to look at extending regulatory and ethical frameworks across national barriers (and I’m not only thinking about China but the USA). Australians can’t pretend we’re immune to the storms elsewhere – economics journalists can’t talk as though there’s no good reason for people to be cautious. Damage has already been done and people are only being realistic when they stop spending and try to save – after all, millions of dollars worth of savings have already evaporated and I for one am not confident that will be recovered.
Don’t worry, suz.
There’ve been plenty of items in the Australian media about “recession”, “depression”, “The Great Depression”, collapse, etc. Your two radio commentators are not the only chaps who’ve been holding forth.
suz: yes, your superannuation has dropped like a rock in the past year. How much did you superannuation go up in the last decade?
What happened to the “share prices are in part rising because all that superannuation money has to find a home somewhere” notion that I heard several times over teh last few years?
The money is still going in each pay, where does it go? Why does it evaporate? Who is stealing 9% of my salary each fortnight!?
Suz, until the US reform their banking and markets that contributed to the subprime crisis – your right the rest of the world will have to pay for it, every time the US banks fails. It may only happen every 30yrs, just enough time for the newer generation to forget the previous pain of their excesses, but the US have to be consistant with the rest of the world on this. With the repugs having fits over it’s “socialism” and “nationalising”, even after this crisis, I still think that the congress will water it down after heavy lobbying from the financial sector. The average person in every country effected by US banks, are being told to lump it.
Robert, in my case, hardly at all, as the bulk of my super came from inheritance, just two years ago. I was told putting it into super was the sensible thing to do with it! Typically for a woman who’s been a freelancer and part-timer and had time out of the workforce to have kids, I made very little super myself.
Nobody is. The compulsory employer contribution to your super is set at 9%, but it’s not part of your salary. It’s just a cost to your boss.
Call me an optimist (possibly due to being in the ‘never has experienced a decent recession’ generation, clearly in a vastly different situation than the author) but i think Australia is genuinely in a better state than countries like America and the UK. However i do think we should be considering a re think along the lines of ‘having people spend less money on useless crap/plasmas from China etc.’
I appreciated the discussion on the radio as i think George and Ross were providing a reasoned, sensible and calm commentary, i would hate for reactionaries in the media to start predicting doom and gloom only to see said reporting cause doom and gloom. I’m sure there are many jurnos who would like nothing more to see their narratives about the economy and linked political ramifications come true.
I think the accounts yesterday demonstrated that that is exactly what people are doing, perhaps not with thought for the long-term as was alluded to.
If you’re going to express it that way, rf, it’s really 8.25% of your salary (9/109).
rf
It’s not like a bank account. Your past contributions purchased (for example) shares, part-ownership of real estate, etc. The values of some of THOSE assets have fallen. Values could fall further. No’one’s “stolen” your money. Well, maybe someone creamed off a small % in fees. In better times, you’d hardly notice that creaming.
If I bought a flash car for $50,000 and ten years later it’s value had dropped to $14,000, should I say “who stole my $36,000?”
There was a report circa early 1990s that said the average long-term annual increase in real value of a super account in Australia was about 2%. That’s not huge. It’s just ahead of inflation. As far as I can see, it’s the preferential TAX treatment that makes super attractive. That and compound interest over a long period. I think the 2% sounds paltry because in several recent years many holders of super accounts had very handsome returns: 8%, 10%, more? Say 4%, 6% in real terms (adjusting for CPI).
Sorry to hear of your large loss, suz.
Actually, Liam, the 9% was traded off against a wage rise that was due, if you’ll recall. (This is why it pisses me off when employers whinge about it being an additional burden. It isn’t. It’s a forgone wage rise that they would’ve been paying anyway.)
Suz, I feel your pain. I had about $100K left from my late mother’s estate and was advised to put it into a super scheme (so it would grow enough to build my dream
hovelrural retreat). At last look, it’d grown to a shade over $70K …In my view, financial advisers should be the first against the wall …
thewetmale, this morning there was a similar discussion from one of the guests and the news journo, skynews, about media having to watch over doing the doom and gloom reporting. This morning I woke up thinking I bet most of the news is going to be filled with recession, doom and gloom articles. I was pleasantly surprised, but I don’t get the dead tree versions, so they maybe more than online news – in that case I’m talking out of my ass.
A dose of flu? My sentiment is that the doctors know something they are not telling us ….
“If I bought a flash car for $50,000 and ten years later it’s value had dropped to $14,000, should I say “who stole my $36,000?”
You’ve had the use of that car for 10 years. It’s not like that with super. You’re hopefully going to get the use out of super at a later date.
Indeed, and in Liam’s perfectly compulsorily-arbitrated system, it’d be both.
Can I use this comment, also, to try to summon derrida derider? He’s had a few choice thoughts about Australia’s super system and its creation of a vast pool of money. Abracaderider!
“in that case I’m talking out of my ass.”
aj, you should sell your donkey immediately, as its value has fallen 47% since 1st July 2008, and its feed is no longer a claimable expense within the meaning of Section 48576539 of the online Taxation Amendment Bill.
With the proceeds, you should purchase a megaphone (batteries not included) and consult John Maynard Keynes re “the long run”.
Yes, suz.
Quite right. I meant only that not all assets appreciate in $ or real value, every year. Some depreciate. Some appreciate.
Again, suz, I’m sorry to hear you had a big loss. I reckon there must be plenty of super holders who have recently switched their super investments to “cash” hoping to avoid further losses on shares & real estate.
Of course, in switching they “crystallise” their earlier loss. But if they’re approaching retirement, why not try to build in a bit of certainty?
Ambi, are you saying that regulation reform is not needed in the US banking system.
I read a story on bankers from Countrywide banking firm, envolved with the subprime selling, have now formed another firm with the intent to buy these subprime loans.
They (US bankers) will continue to run riot until proper reform is put in place. The Australian bankers hated the four pillar rule, but it saved them from going after the subprime toxic loans.
suz: that’s a nasty turn of events; I’m sorry about the way that comment came across.
Over the last decade or so superannuation has had very, very generous rates of return. So while people may be copping it now, they’re still doing pretty well overall out of super.
No comfort if you put it in right at the top of the market, of course.
You need to be wary of the “shoot the messenger” syndrome in criticising media reporting of the financial crisis and economic downturn. If it sounds bad, it’s because it IS bad. This is the greatest financial crisis since the ’30s. And this is not a normal downturn. In this case, the engine at the heart of the system is busted. AND NO-ONE KNOWS HOW TO FIX IT.
In journalistic terms, this is a huge story. We can sit around arguing about whether we’re in recession or not, but that’s not the point. The whole system of capitalism is broken, stuffed, wrecked from within. None of the levers that normally get the engine going again are working.
If we are to criticise the media, it’s not the economic journos I’d be putting up against the wall, but the cursed press gallery. As far as this bunch of intellectual giants are concerned the crisis all boils down to whether Kevin or Malcolm has the better fiscal package. Who f***en cares?
Just like global climate change, the financial crisis is a global issue and will only be fixed if we take a global approach. You’re not going to get a handle on this thing by listening to bug-eyed Michael Brissenden or some other economically illiterate press gallery hack reporting on the economic world from cowtown Canberra. (Why does the AFR and the ABC report economics out of Canberra???)
I’ve given up reading local media on the GFC. The best analysis is in the economist blogs like Big Picture and Quiggin and Krugman. National politics has never seemed so utterly redundant.
When huge compulsory and/or tax advantaged schemes like Australia’s superannuation system is bolted on the side of equity, credit and/or property markets, it must distort asset values because of the built-in expectation of a never-ending flow of automatic money to those systems.
Superannuation schemes are compelled by the terms of their contracts to continue to pump the contributions into strategies nominated by their clients. Suz isn’t alone in deciding not to change her risk profile. Thus the schemes were unable to respond to market conditions, even if they had predicted a collapse in the price of riskier assets.
If all superannuants had simultaneously decided at the top of the market to covert their holdings into cash, then they may have saved themselves from the horrendous falls they have suffered.
On the other hand, however, such prescience by superannuants would have driven equity, credit and property markets rapidly into the ground. Collapse would have come to those markets, but by a different route.
These superannuation funds are so huge that like a sow when she rolls over she kills her sucklings.
David @ 10 – it depends a bit on the employer – remember not everyone had wage negotiations via unions or were on award wages. Some employers just paid the extra x% on top of the ordinary wage, others just reduced take home pay to compensate for the extra x% and others did a bit of a mix – reduced take home pay a bit and put part in themselves.
No doubt from the employer side the extra cost of superannuation was considered for future wage rises. FWIW I consider it part of my wage. Just a part I can’t really touch for many years. My employer can’t touch it and its pretty unlikely the government will nationalise it.
“These superannuation funds are so huge that like a sow when she rolls over she kills her sucklings.”
.
Great line Katz – can’t wait to meet up with some fund managers and use that one on them.
The 9% super might technically not be part of the wage, but if you look at job ads a huge proportion of the wage-specifying ones say “XXX dollars including super”, so the marketplace very much regards it as part of the wage.
I’d love to see an economy-wide discussion of what the nation is for, because at the moment some commentators seem to think we’re not living in an economy any more. Just because Howard and Costello are not running the economy any more is no cause for alarm, and definitely no reason to pretend we’ve gone back to living in a country. Economy uber alles!
In my time in Treasury GDP figures were revised quite often, lets wait and see whether the Dec qtr is revised in Mar. The statistical discrepency was quite high, so its possible they will be revised.
The March quarter should also see a good deal of the stimulus package start to come through so hopefully we’ll record growth.
To those bemoaning their super being stolen. You still own the same amount of shares/property etc via your super fund its just that the current paper value in the market place has fallen.
Similarly no one made any money on super when share prices were high, they still owned the same amout of shares or whatever, the market was just paying a high price for them. Those super values were only paper losses/gains. Only when you sell do you cristalise any gain or loss.
Fortunately for me my supers in a defined benefit fund and I have absolutely no money in equities or exposure to the share market.
Regards
Nick
When there’s a great big pot of dosh there’s a lot of twitching greedy fingers itching to get into it. So who,so far, has got into it?
Katz @ 20 assumes that workers are prescient enough to understand the investment strategies that are open to them
overlooks the limitations superfunds place on members changing investmnet strategies
ignores the dismal performance of superfunds over the last 15 years given they are managed by professional managers
completely overlooks the fact that modern superannuation puts all the risk onto the member, the old schemes pay indexed pensions to their recipients for life. As the recipients were public servants who in the main earnt modest salaries it wasn’t a big burden.
Then if you hunt for a financial advisor you find that
some are jumped up life insurance salesmen who get entry and trailing commissions when you sign up for a managed fund
others are all about tax minimisation schemes and send you to an investment advisor AKA stock broker who pushes all sorts of products to part you from your money
when really all you were looking for was someone who says buy this, sell that and your portfolio keeps pace with or outperforms the ASX 200.
Hmm, my facetious remark about stolen super probably got what it deserved.
On the other hand, each week, across the country, hundreds of thousands of taxpayers see money allocated out of their pay packet to compulsory superannuation. I presume it all goes into buying the same mix of shares / property / cash etc that we have elected to choose. I imagine this to be a big sum of money – why does it not have any discernible -to me at least- effect on share prices? I guess I picture lots of ‘buyers’ out there still. Is there something fundamental about this process that I am missing?
billie @ 26 – prior to compulsory superannuation many (most?) didn’t have any pension plan at all. For new public servants super is worse than the defined benefits scheme but it puts pretty much everyone except politicans on the same footing now. Also the co contribution for public servants is very generous. Pension schemes funded by private companies are pretty risky given if the company goes bankrupt so may your pension scheme – or at the very least not guarantee the returns. Its kind of putting all your eggs in the same basket.
Superannuation may not look great now and certainly some super funds are duds. But who thinks that if the superannuation money had been given to the employees directly to do as they want that pool of savings would be as big even with the recent drops in the superfund values?
@ 19
Possibly something to do with the way Keating and Costello pursue(d) the economy as the main game? Or maybe it’s just because that’s where you find Wally*.
*Substitute for your favorite commentator/pundit e.g. Chris Richardson/Heather Ridout/Union Hack
I suspect that many meeja commentators are “tippy-toeing around” the scale of the GFC because they still have whispers of Howard’s utopia fairytale echoing in their heads. We were assured for BLOODY YEARS that Australia was blessed with a Magic Pudding economy. And “per-capita” we are the greatest sporting nation on earth. etc.
Hush now…
Don’t you know that very time you say you don’t believe in fairies, a fairy dies?
So… things aren’t as bad as they appear… and even if they are, nobody saw it coming.
http://www.thisismoney.co.uk/news/article.html?in_article_id=337530&in_page_id=2&in_a_source=
I’ve a feeling we’re not in Kansas anymore. But then, we never really were.
The super comments are interesting, but not the main point. Yes, most people’s super has dropped, but only a very small percentage have “and I haven’t got a job as my company just made big redundancies” (for those people, worrying is the right response). For everybody else who still has their job, sentiment matters a great deal. If those who still have their jobs worry and save more & spend less, we’ll have a worse recession.
[the 9% was traded off against a wage rise that was due, if you’ll recall. (This is why it pisses me off when employers whinge about it being an additional burden. It isn’t. It’s a forgone wage rise that they would’ve been paying anyway.)]
Same argument they use on Leave Loading. We traded a wage increase to get it, supposedly to encourage us not to change jobs too often. Then we are expected to give it up for nothing, or even with a wage cut, under SerfChoices.
Not true.
Being prescient and understanding the consequences of different investment strategies are not the same thing.
“The super comments are interesting, but not the main point. Yes, most people’s super has dropped, but only a very small percentage have “and I haven’t got a job as my company just made big redundancies” (for those people, worrying is the right response). For everybody else who still has their job, sentiment matters a great deal. If those who still have their jobs worry and save more & spend less, we’ll have a worse recession.”
Newy stats: I agree that my point about super was just to illustrate something – which is that listening to journalists (and politicians) splitting hairs about whether we’re in recession is something of an insult to most people’s intelligence – and experience. A lot of people have already lost a lot of super and telling people over 45 that it’s just ‘paper money’ is no consolation. And a lot of people are beginning to experience signs of the downturn – you don’t have to be out of work to notice the slowdown. [For example, the move out of private schools and into the state system seems to be underway, from the word of mouth I'm hearing.] On an individual household level, even if you are still in work, it makes sense to be cautious because we are part of a connected and globalised economy – we can read accounts by Americans of the mess their economy is in and I have been in London where 100,000 jobs in finance disappeared virtually overnight, to be followed by an almost complete shutdown of achitecture and building work, an exodus of Australian and East European workers, etc. We need more than a “keep spending” mantra to restore confidence.
Chris and Moz – the 9% super was most definitely in place of a wage rise. Quite explicitly. That’s why it’s mandatory for employers to pay it, and the ATO oversees the payment.
You may not remember the details, particularly if you’re young people, but (to reiterate yet again) it was a wage rise, just not directly into our pockets.