[djrobstep]

Australia's superannuation system is a disaster.

Compared to Norway's SWF:

- Fees are 20x larger as a proportion of AUM ($30 billion a year, nearly as much as the military budget, and 2x what the country spends on electricity)

- The assets are overwhelmingly owned by people who are already rich (Norway's SWF shares the wealth equally)

- Super has totally failed to prevent retirement poverty (elderly single women are the most impoverished demographic in Australia).

[rsj_hn]

Norway has a 1.4 trillion dollars in oil wealth. In Australia individuals save for their own retirement. Comparing these two retirement funding mechanisms on the basis of how much individuals benefit and transaction cost per AUM isn't sensible.

Obviously being given free oil money is better than needing to save.

[djrobstep]

I don't understand your point at all. Both are very similar pools of assets. Why is it inappropriate to compare management costs and distributional outcomes between the two?

[rsj_hn]

> I don't understand your point at all. Both are very similar pools of assets.

OK, let me explain it. Yes, the assets owned by both funds are financial assets that are comparable. They both own bonds and corporate shares, etc. But the issue is not what assets are in the funds.

When you are given lots of money, this reduces poverty much more than when an individual gets a tax break on saving their own money. Norway has trillions in oil reserves to support a small population. I am not sure why I need to explain this, but having a trillion dollar windfall reduces poverty much more effectively than subsidizing the savings of each individual.

Moreover, when you save each pay period you have to make lots of small little asset purchases, as opposed to making huge purchases in a SWF fund in which the money comes from selling oil, so transaction costs are higher in a 401K style system than when you are sitting on an ocean of free oil.

[djrobstep]

> When you are given lots of money, this reduces poverty much more than when an individual gets a tax break on saving their own money.

That is what I am saying - If the $3 trillion in super were shared equally, poverty would be a lot lower. Keating himself says that he could have set the system up this way, but didn't because he wanted it to be a privatized system of individual ownership.

> Norway has trillions in oil reserves to support a small population.

Norway has $1 trillion in retirement savings to support a small population. Australia has $3 trillion in retirement savings to support a small population. What's the difference? Why does what asset class the money originally came from matter?

> I am not sure why I need to explain this, but having a trillion dollar windfall reduces poverty much more effectively than subsidizing the savings of each individual.

Once again, both countries have trillions in assets, that can be distributed in many possible ways. You can either distribute them equally and reduce inequality (Norway), or individually and make it worse (Australia).

> Moreover, when you save each pay period you have to make lots of small little asset purchases, as opposed to making huge purchases in a SWF fund in which the money comes from selling oil, so transaction costs are higher in a 401K style system than when you are sitting on an ocean of free oil.

That is not how super funds work (they don't make small asset purchases each time you make a deposit, they run a combined asset pool and just keep track of your allocation) and not why super fees are high. They are high because there are so many small funds which spend money advertising against each other and duplicating admin costs, instead of simply having one big fund like Norway does.

[rsj_hn]

> That is what I am saying - If the $3 trillion in super were shared equally,

Uhh, this is private property, the result of individual households setting aside a portion of their own wages to save for the future. It is not politically feasible for the government to seize private savings it had said were previously for your retirement.

What you want is a defined benefit federal savings program (like social security), but that needs to be funded by taxing incomes, not by seizing existing private retirement savings. Some nations have that and others don't, but it's not a sovereign wealth fund. Please don't confuse the two issues being discussed.

The first issue is whether the government should tax the economy and pay out fixed retirement benefits for everyone, or whether it should promote individuals saving for their own retirement, or some hybrid of the two. This decision has nothing to do with SWFs. Australia has a hybrid system, where households are expected to save for retirement but there are also welfare programs for low income people. Most nations follow this model because it is what the public supports politically and it makes a lot of economic sense.

SWFs, OTOH, are created when a nation gets some unexpected windfall that is short lived, and it wants to smooth the life of that windfall into the future. That is why you invest. Otherwise when the oil runs out, Norway will face a shock. This way, by transforming the oil into investments, Norway can provide a stream of benefits that lasts longer than the oil. That question of transforming benefits across time for the government has nothing to do with whether the government provides defined benefit retirement plans or not for households. This is because even though every household has to plan for retirement when it earns no income, governments do not need to plan for a future when they earn no tax revenue. It is only when you get these predictable revenue bumps, such as discovering you are sitting on a pot of oil, that create a need for the government to smooth revenue across time.

Now Australia does have mineral resources and it even taxes the extraction of those resources just as Norway taxes the extraction of oil. But in Australia, the extraction of coal and iron results in a much smaller surplus spread over a much larger population, and so Australia's mineral wealth, while large in absolute terms, does not support the same level of surplus income per person as Norway's oil wealth - which is not to say that Australia's economy is less dependent on extraction than Norway's. Australia is very much dependent on all the jobs that mining creates, but that is not surplus income, it is income that has to be earned with labor. Therefore when Australia's coal and iron run out, it will be a big shock, but there is nothing Australia can do to smooth that income out, since it's not surplus income. This is why Australia does not put the fees obtained from mining into a SWF - they wont help!

Therefore Australia uses the proceeds from taxing mineral extraction for general revenue, it does not put the money into a special SWF pot, whereas Norway does. Just as Canada doesn't put the money it obtains from selling trees or rocks into a special pot. That decision to not stretch the revenue across time has nothing to do with whether the government has a defined benefit retirement system for households.

[djrobstep]

> Uhh, this is private property, the result of individual households setting aside a portion of their own wages to save for the future.

Yes - and that was a terrible decision. Australia could have put super contributions into a collective pool, and used the money to increase equality and fund above-poverty-line universal pensions, but it didn't. Instead they put it in individually owned accounts - inequality and poverty is much higher in Australia as a consequence. Elderly women are the most impoverished demographic in the country.

> What you want is a defined benefit federal savings program (like social security), but that needs to be funded by taxing incomes, not by seizing existing private retirement savings.

No, what you want is a collective fund like Norway's - you are talking like this doesn't exist. It would be very straightforward to tax super balances (particularly large ones) and move money into a collective pool.

> Some nations have that and others don't, but it's not a sovereign wealth fund. Please don't confuse the two issues being discussed.

Norway's SWF is literally a pension fund, and explicitly has the goal of creating equally shared wealth.

> SWFs, OTOH, are created when a nation gets some unexpected windfall that is short lived, and it wants to smooth the life of that windfall into the future.

No, that is one reason SWFs are created, but there are many - Australia's own SWF for instance was not created for this reason.

> But in Australia, the extraction of coal and iron results in a much smaller surplus spread over a much larger population, and so Australia's mineral wealth, while large in absolute terms, does not support the same level of surplus income per person as Norway's oil wealth

If we lack the surplus income of Norway, how have we managed to create a pool of wealth 3x as big from surplus incomes, in spite of wasting much more of it on fees each year?

> Australia is very much dependent on all the jobs that mining creates, but that is not surplus income, it is income that has to be earned with labor.

This is incoherent - both oil and mining resources require labor to extract. There's nothing special about oil or resources compared to any other type of capital - you can make a fund out of any type of capital.