Ownership For All: Citizen or Super Fund Capitalism

Author: Mark Latham MP is Shadow Assistant Treasurer and Minister for Economic Ownership

I've spent most of this year talking to people about economic ownership, the new and innovative ways in which a Labor Government can help Australian families to save and accumulate assets.

The response from the general public has been positive. People know that in an affluent society like ours, assets are all-important.

For families, they provide a sense of security, something to fall back on in the tough times. For young people, they offer opportunity ­ a flying start to life, especially in the business world.

For the working class, assets are the key to a dignified life. They tap into the traditional values of pride, effort and thrift.

Most importantly, they allow people to leave something better for the next generation ­ our natural urge to create a nest-egg for our children.

These are the values of working Australia, the dignity and opportunity that come from a lifetime of hard work and ownership. Last month I received a letter from a lady in southern New South Wales, who wrote as follows:

Your proposal for developing a way for poorer people to invest in shares is interesting. As a part-time worker, part-pensioner I am probably typical of the person you are thinking about. I have over the last few years accumulated a small number of shares through AMP and NRMA and I am holding on to them. When I was growing up, my father accumulated a quite impressive nest-egg over the years by investing in government bonds. You could put as little as $20 in some of these and the interest was quite good. My father would build up $100 or so, often from the interest payments and buy more. We need more opportunities for families to save and own things.

This is the purpose of Labor's assets agenda ­ more opportunities for families to save and own things.

In recent decades, Australia has been through an ownership revolution. In the 1950s, 60s and 70s, the ratio of household wealth to disposable income never moved. It flat-lined at around 400 percent. Then in the mid-1980s everything changed.

The deregulation of the financial system opened up a new generation of economic opportunities ­ share ownership, business ownership and bigger and better home ownership. Australia¹s wealth-to-income ratio is now 650 percent.

Assets have become a regular part of our economic culture. People are no longer content to leave their savings in passive bank accounts. They want their money to work for them, turning over and trading up as often as they can.

Even the family home has become a tradeable economic asset, especially in this city. Every time I flick through the TV channels at night, I seem to find a new home auction or renovation show. The Sunday papers have become a weekly real estate guide, with a suburb-to-suburb breakdown of property values.

This reflects the changing nature of aspiration in Australia. We live in a more dynamic and mobile economy, where people with skills and determination can quickly climb the ladder of opportunity.

Working Australians have had a taste of economic ownership and not surprisingly, they want more. Not the cars and refrigerators that their parents aspired to but real economic assets: equity investments, business ownership and financial nest-eggs.

 

Economic Equality

Currently, around 60 percent of Australian households are significant asset owners. For Labor, this is not enough. We believe in universality, the ideals of a stakeholder society. This is why we want ownership for all ­ not 60 but 100 percent. The problem with the ownership revolution is that there are not enough owners.

This is the key to economic equality in Australia. While much of the public debate deals with income-related issues ­ such as changes to the industrial relations system, taxation policy and social security ­ the real action is on the assets front. The distribution of wealth is a far bigger problem than the distribution of income.

While the top 20 percent of Australian households earn 38 percent of the nation¹s income, the bottom 20 percent earn eight percent. The distribution of assets, however, is twice as bad. The top 20 percent of households own 65 percent of Australia¹s wealth, while the bottom 20 percent owns nothing at all.

Asset inequality has a huge impact on people¹s life chances. Ownership gives people a stronger sense of self-esteem and belonging. It provides the economic security from which people can take risks and accumulate further wealth. Internationally, research studies have linked asset effects to stronger health outcomes, education levels and community participation.

While, self-evidently, asset deprivation is a cause of poverty, the problem runs far deeper. Without a sense of ownership and self-esteem, poor families lose direction and hope for the future, thereby entrenching the poverty cycle. The problems of one generation are passed onto the next. I can take you to suburbs in this city where families are into their third and fourth generation of poverty and despair.

At the other end of the scale, it¹s a different world. Ownership is taken for granted, as family inheritances pass on the benefits of asset accumulation and an expensive education. In a buoyant economy, these inter-generational differences are wider still. Inheriting a home in Sydney or Melbourne, for instance, has become the equivalent of winning Lotto. As asset prices continue to grow, people outside the ownership tent are left further behind.

Generational effects are a primary source of inequality in our society. It is impossible to achieve social justice without first tackling this issue. Government policies need to break the asset poverty cycle, the absence of inherited wealth in disadvantaged families. They need to replicate for the benefit of poor people a process similar to the asset transfers of wealthy families.

New strategies are needed to fight the injustices of the market system. In the past, the welfare state has accepted high levels of inequality in the distribution of assets and ownership. Instead, it has concentrated on income flows, the redistribution of money through the tax/transfer system.

Stakeholder democracy, by contrast, aims to reduce the underlying causes and extent of inequality ­ that is, the distribution of assets. If the market system produces less inequality to begin with, the task of income redistribution is not so severe. The welfare state can be more preventative and enabling, rather than just reactive and passive.

Recently NATSEM produced a report highlighting the equalising role of stakeholder policies. If the money from Australia¹s superannuation scheme is removed from the nation¹s asset base, then wealth inequality has increased sharply over the past 15 years. When the super assets are included in the calculations, however, inequality has not moved. Against all the international trends and expectations, the situation has not worsened.

This is a bell-ringer for my side of politics. Social justice relies on giving Australian workers an ownership stake. Not just in their retirement years, but through all parts of the lifecycle. A nation of asset-owners is an egalitarian nation.

 

Labor's Agenda

Economic ownership is an important part of Labor¹s policy review. Already this year, we have announced a number of new initiatives to help people save and accumulate assets:

... Jenny Macklin has announced our commitment to Lifelong Learning Accounts, a new way of helping workers to save for their future education and training needs.

... Nick Sherry has announced a new superannuation policy, to reduce the contributions tax and grow the retirement savings of the nation.

... Earlier this month, I outlined our commitment to greater employee share ownership ­ Australian workers owning and controlling the means of production.

... Work is also underway on a Housing Green Paper to address Australia¹s housing affordability crisis, both in the ownership and rental markets.

Today I can outline two further initiatives, both of which have been referred to the Chifley Research Centre for detailed policy development.

The first is the creation of Nest-Egg Accounts ­ a savings plan by which families can provide for the future needs of their children. Labor wants to ensure that as young Australians turn 18, they have a nest-egg or endowment of resources behind them.

There can be few things worse in our society than moving into the adult world without skills, without savings, without hope for the future. Yet this is the prospect thousands of young Australians face every year. It is one of the reasons why inequality is so entrenched.

Some families pass on BHP shares to their children. Others have nothing more to offer than a lift to the nearest Centrelink office. Nest-Egg Accounts aim to break this cycle, to give young people a flying start to their adult lives. The endowment can be used for a range of purposes, such as higher education, home ownership and small business start-ups.

This is a program that takes young people seriously, providing adult resources as they move into adulthood. It also backs the strong desire of parents to pass on assets and resources to the next generation. It follows the principle of mutual responsibility ­ government provides an endowment for each newborn child but then the families themselves are expected to add to the accounts.

This is the youth equivalent of superannuation, a long-term savings plan at the other end of the lifecycle. Just as we want older Australians to be secure in their retirement, we need to give younger Australians some peace of mind and encouragement for the future.

Based on the British experience, it is envisaged that Nest-Egg Accounts will be developed around the following principles:

... Provision of government seed funding for newborn children, with some top-up funding later on.

... Eligibility for the accounts will be means-tested (as per family payments).

... Additional contributions will be payable by family members, with strong tax incentives.

... Assets will be invested in the managed funds industry, enjoying the benefit of diverse portfolios and compound interest.

... There will be no access to the accounts until maturity at age 18.

... Financial education will be provided as the accounts develop, creating a culture of savings and financial responsibility among young people.

A second initiative concerns the establishment of Matched Savings Accounts ­ a new way of encouraging poor people to save for home ownership and their children¹s education.

In the past, governments have under-estimated the capacity of disadvantaged people to save. Programs overseas, however, have shown that the poor can save and invest, once they receive the right support and incentives. Most promising of all, is the success of Matched Savings Accounts in the United States.

This program involves the creation of parallel savings accounts. In the first account, low-income families aim to reach a savings target over several years. Matching contributions are paid into a second account, funded by governments, community groups and even companies. In the US, the average matching rate is 2:1 (two dollars for every dollar of family savings). It is not possible to access the second account unless the participants reach their initial savings target.

So far, the accounts have had a 67 percent success rate, raising average net deposits of $US300 per annum ($900 when matched). This is enough to purchase a home computer and Internet access. Over five years, it can provide a home deposit (plus a decent credit rating). Moreover, Matched Savings Accounts are having substantial spin-off benefits in terms of self-esteem, household budget management and labour market outcomes.

By Australian standards, the participants are very poor, with income levels at 50 to 200 percent of the American poverty line. There is no reason to believe that the accounts would not succeed here. Already, the Foresters ANA Friendly Society in Brisbane has established a small program with early signs of success. One of Australia¹s leading banks is also working on a pilot scheme.

Labor wants to develop a national program of Matched Savings Accounts. We want to work with the welfare and corporate sectors to find new solutions to poverty. Asset-based welfare is achieving results in other parts of the world. It¹s time for Australia to catch-up. It¹s time to tackle the root causes of poverty, fostering self-esteem and self-reliance through savings.

 

Conclusion

More than ever, ownership matters. It is a fundamental part of working class culture ­ all our aspirations for a better life and the transfer of assets and opportunity to the next generation. This is why Labor exists, to break down the power of the Tory elite and to open up new opportunities for our people.

The Tories, of course, hate the idea of workers owning assets. John Howard has done everything he can to limit the success of Labor's superannuation scheme, including the abolition of the government co-payment. In Opposition, he attacked superannuation as bad policy, calling it "the theft of employers' money."

In practice, super has liberated the nation's asset base, giving Australian workers ownership of $500 billion of institutional capital, rising to $1 trillion in 2010. Labor aims to build on this achievement, to extend the reach and purpose of institutional investment.

The objective is to provide savings and asset opportunities across the lifecycle: as families plan and provide for their children¹s future, as young adults enter the home ownership market, as people meet the costs of lifelong learning, as workers move in and out of jobs and then into retirement. We want to create a new era of mass ownership and equality in the Australian economy.

Sixty years ago, the Chifley Labor Government set a great national goal for the attainment of full employment - ­jobs for all Australians. Thirty years ago, the Whitlam Labor Government committed itself to education for all, the massive expansion of skills and qualifications in this country.

The next Labor Government should be no less ambitious. We can create a stakeholder society in which all Australians have access to the good life ­ social capital, human capital and financial capital. We can build self-reliance and security by helping people to help themselves in the accumulation of assets. It is possible to achieve ownership for all.