Super withdrawals prove the need for COVID inquiry ASAP

In August last year, Anthony Albanese was asked when he hoped to launch an inquiry into the nation’s response to the COVID pandemic.

“I would have thought that you’d want to do something as soon as practicable,” he said.

Almost eight months on since those comments, “as soon as practicable” has come and gone.

The first full academic review of the $38 billion superannuation withdrawal policy used during the pandemic, released publicly on Thursday, highlights the need for such an inquiry to get underway.

The parliament is about to debate the definition of super while it is also engaged in a heated argument about reducing tax concessions enjoyed by those with more than $3 million in their accounts.

But the paper, by academics Steven Hamilton, Tristram Sainsbury and Geoffrey Liu, shows for hundreds of thousands of Australians this is a moot point.

Given the chance to tap their super during COVID, they drained their accounts or dramatically reduced their balances.

When announced, the government and Treasury expected 1.5 million people to withdraw $27 billion. They were out by $11 billion (41 per cent) and 1.1 million people (73 per cent).

That’s a lot of unintended stimulus to a lot more people.

On top of all the other stimulus put into the economy by the federal government, the states and the Reserve Bank, it has contributed to the inflation pressures now evident in the economy.

Scott Morrison and Josh Frydenberg arrive at a press conference to announce the superannuation withdrawal policy in 2020. The true cost of the program will not be known for 30 years.

Alex Ellinghausen

The researchers found that the almost 2 million people who withdrew the full $20,000 have left a $120,000 (in today’s dollars) hole in their future super. If you index that $120,000 simply to the expected inflation rate, in 30 years time that’s more than $250,000.

The paper was put together in part to tease out the theory known in economics as “present bias”. In layman’s terms, this is how humans tend to want a small, immediate reward rather than wait for a larger future one.

It’s one of the reasons for Australia’s superannuation system. We are forced to save almost 12 per cent of income because, left to our own devices, most of us would spend the cash now.

The superannuation withdrawal policy delivered a near-perfect confirmation of the theory.

People made a beeline for the nearest ATM to withdraw more than $1000 – even as businesses moved to contactless payment systems.

The next most common use of the cash was a bet on the horses or through an online gambling account.

While it was evident early on that people had drained their super accounts, the research connects that money to what it was used for and which communities were most likely to use the program.

One of the most frightening figures of the study shows the communities who used their super the most were in low-income suburbs and regional centres, including many with substantial Indigenous populations, already facing small retirement balances.

The true cost of this policy won’t be felt for another three decades as people in their 30s retire and discover they have far less in their super (and governments will have to cover a greater call on the age pension).

The current royal commission into the robo-debt scandal is, based on the terrifying evidence delivered so far, likely to recommend major changes to the way the federal public service operates.

But there are even larger questions – how our governments operate, how they communicate, how they deal with generational crises – that need to be addressed by a royal commission into COVID.

The work of Hamilton, Sainsbury and Liu is further evidence, if any were needed, that such an inquiry needs to start as soon as humanly possible.

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