Judging by the budget reactions, there is still a common misconception that one of our biggest budgetary problems is the unfunded superannuation liability for government employees.
If there is one issue in the Budget the government addressed it was the unfunded superannuation liability for members of the now closed defined benefits scheme.
As part of its fiscal strategy the government included six strategic actions, the second one being:
“General Government debt and defined superannuation liabilities will be managed to ensure the combined annual servicing cost is less than six per cent of General Government cash receipts.”
One would have thought this may have settled the horses but few people have been deterred from continuing the misinformation.
The Greens alternative budget for instance.
Then there was an opinion piece in the Sunday Tasmanian by an prominent economist detailing one of two major criticisms of the Budget, being “that it does not indicate how the Government will fund a burgeoning superannuation liability and its failure to heed the State Auditor-General’s call for the establishment of a future fund to meet the flow of superannuation fund liabilities as the ageing of the population accelerates.”
Whilst the liability rises and falls that is almost principally due to the way accountants and actuaries convert the future stream of payments into a single lump sum for accounts preparation purposes.
As interest rates change so does the present value of the future liability.
For a full explanation of how the unfunded superannuation liability works see HERE
Whilst the liability jumps around and at times looks quite alarming, the annual cash needed each year is reasonably stable and measurable.
The Government reckons debt and unfunded superannuation servicing costs will be no more than 6 % of government cash receipts.
I would have preferred it be measured against operating receipts rather than overall receipts which may include $290 million as a capital grant to build a new hospital for instance, and which can’t, or at least shouldn’t, be used to pay super liabilities.
Excluding capital grants means the % figure would have been 7%.
Other States have higher debt and lower unfunded superannuation liabilities than Tasmania in relative terms, but the overall servicing costs are little different than Tasmania.
Am struggling to recall the Auditor General saying we need a future fund. He is usually much more circumspect. In his last two reports to Parliament on his Analysis of the Treasurer’s Annual Financial Report he mentioned the need to monitor the situation.
If he did say it, it was a dumb idea, just as the Greens reckon the goal of extinguishing the unfunded liability by 2035, abandoned 2 years ago by Labor, and one year ago by the Libs, is still a goer.
Paying the liability on an emerging cost basis, each year as has been the reality over the last 15 years as the Superannuation Provision Account (SPA) was a widely misunderstood farce, is the only way to go and it won’t cost more than 6% to 7% of outlays when it peaks in about 15 years time.
There were a lot of shortcomings with the Budget but ignoring the perils of a growing unfunded superannuation liability wasn’t one of them.