A View from Canberra: Old soldiers never die... | ADM October 2011

A Special Correspondent | Canberra

As parliament resumed in late August, politicians were confronted by what organisers termed the “convoy of no confidence” – a group of citizens sufficiently outraged at the Gillard Labor government that they chose to drive big trucks to Canberra to vent their displeasure.

As convoys go, this was a very poor imitation of past events, of which the gold standard remains the 1995 loggers blockade of Parliament House, aimed at an earlier Labor government. At best, those conducting the 2011 event managed around 200 trucks with Labor dismissing it as the “convoy of no consequence”.

Modest as it might have turned out, the event still reflected some broad community concerns at the government which, if reflected at the next election according to one Labor insider, will see the party lose around 40 seats and return to the wilderness for another decade.

The attendees at this event, among them Opposition leader Tony Abbott, were motivated by a grab bag of assorted grievances – the impending carbon tax, Greens influence, the high cost of everything, Labor in general and, your correspondent was startled to hear, military superannuation.

This relates to the failure of successive governments, both coalition and Labor, to agree to change the method of twice yearly indexation of pensions paid under the old Defence Forces Retirement and Death Benefits (DFRDB) and Defence Force Retirement Benefits (DFRB) schemes.

Currently that’s done according to the consumer price index (CPI), whereas other government pensions such as the aged pension, are indexed according to the higher of the CPI, Male Total Average Weekly Earnings (MTAWE) or the Pensioner and Beneficiary Living Cost Index.

For the estimated 56,000 retired defence personnel relying on DFRDB or DFRB pensions, this is a red hot issue and one the coalition regards as a sleeper which will emerge to bite Labor come election time.

For Labor this is another broken promise. In 2007, it went to the election with an undertaking to “restore the value of compensation and prevent further erosion due to unfair indexation.” Yet the issue long predated Labor’s rise to power (the first of many inquiries was held in 1972) and the coalition didn’t touch it then or more recently during 11 years in government.

On the face of it the equity issue is compelling – former service personnel are being dudded, with the value of pensions progressively eroded. The Vietnam Veterans Association  of Australia says a $20,000 military pension in 1990 would be more than $11,000 bigger now had it been indexed at the greater of CPI or MTAWE.

On the other hand, DFRDB pensions are guaranteed. Your correspondent would be most happy if his eventual superannuation payment could be indexed twice yearly by any amount, courtesy of the Commonwealth of Australia, and not merely beholden to the global markets. Most self-funded retirees, their superannuation hard hit by the GFC, would surely feel the same way.

Yet that won’t make the issue go away and it can only escalate.

Even soapie stars are joining in with the Defence Force Welfare Association announcing that Sea Patrol star Ian Stenlake had come out fighting for fair indexation of military retirement pensions.

No government lightly antagonises the veteran community and it’s hard to see why this has remained such an enduring issue. The answer, it seems, is that if this was simple and cheap, it surely would have been done by now.

Most recently, the issue was canvassed in considerable detail when the coalition put up its very own private member’s bill, courtesy of veteran affairs spokesman Michael Ronaldson. That was introduced last November and duly rejected, meeting the fate of most private member bills.

During its course through the legislative process, the bill was examined in detail by the Senate finance and public administration legislation committee which gave a useful overview of the issues involved. The committee divided along party lines with the Labor members recommending it be rejected and their view prevailed.

In evidence to the committee, the Finance Department noted that DFRDB is actually pretty generous, with the employer contributing 33.4 per cent, compared with 21.4 per cent for Commonwealth Super and nine per cent for most everyone else under the Superannuation Guarantee. Similarly, Defence said the old scheme provided benefits well in excess of the community standard, which is why they were replaced by the less generous but more sustainable Military Superannuation and Benefits Scheme (MSBS).

The former soldiers were hardly convinced.

But fundamental to the government’s reservations appear to be the likely costs.

That’s hotly disputed. When Defence Minister Stephen Smith said it would cost the taxpayers billions, the Alliance of Defence Service Organisations retorted that this was a blatant misrepresentation and the real cost was likely to be $20 million per year over the forward estimates period (the next four years).

Since DFRB closed to new members in 1972 and DFRDB in 1990, it would seem costs would eventually fade away to nothing as the former members die off.

“Minister, the nation’s debt to both currently serving and retired military superannuants is your responsibility to uphold,” the Alliance thundered in a media release, adding that the minister’s use of such tactics was a disgrace and an insult to serving and retired ADF members.

So where does the truth really lie? It’s not easy to tell. The Finance and Defence Departments cited the Australian Government Actuary which estimated the Ronaldson bill would add $6.2 billion to the government’s unfunded superannuation  liability.

The coalition said it could all be paid from the Future Fund, an account now worth about $75 billion established by the former coalition government in 2006 to meet the future then unfunded cost of public sector superannuation liabilities.

In its minority report, the Coalition accused the government of failing to explain the $6.2 billion figure. And in any case, the Coalition had identified various offsets which exceeded even the most inflated of Labor’s cost estimates.

So what might those be? Identified savings will be achieved by reducing the growth of public servants in Defence, it said. So there.

For the government, the bottom line would be that’s it’s not about to incur any costs which might jeopardise a particular holy grail – returning the budget to surplus in 2012-13 as repeatedly promised. That will or will not occur around the time of the next election and if not achieved would likely cause far more electoral pain than could ever be inflicted by a group of old soldiers.  

Subject: ADM Editorials