Doddering Keating contradicts himself on super

By Leith van Onselen

When the architect of Australia’s compulsory superannuation system, Paul Keating, appeared on ABC’s 7.30 Report, he argued that raising Australia’s superannuation guarantee (i.e. compulsory superannuation contributions) from 9.5% to 12% would not lower take home wages:

LEIGH SALES: There might be some Australians watching who are saying, “Well, if we are talking about 12 per cent, why can’t my employer give me that 12 per cent and it’s up to me to decide do I put it on my mortgage, do I put into super; what do I do with it?”

PAUL KEATING: Well, the thing is they’re not giving it, Leigh. You see, for the last four years, nearly five we’ve had no real wage increases. Inflation has been 1.9 per cent and wages have been 1.9 but the employers have had 10 per cent productivity in that period.

So the employers are sitting on 10 percentage points but the gift of productivity to wages growth has been zero.

LEIGH SALES: Is it greed, is it …?

PAUL KEATING: It’s the way, it’s a bargaining power changes. We never quite know why but if we were to devote 2.5 percentage points of super, 2.5 to super. In other words we go from 9.5 to 12 – that’s 2.5 of the 10.

So Daley’s point is wrong. What Daley says, and he makes these outrageous claims without any basis in fact. You know, it’s basically a nasty polemic. What he says is if you get super, you forego a wage increase.

In fact, the employers can afford to pay the 2.5 per cent this week and still only use a quarter of the productivity that they have pocketed in the last five years.

I’m not sure if Paul Keating is getting forgetful in his old age, but 11 years ago he gave a speech whereby he acknowledged that superannuation is paid for by employees in the form of lower wages:

“The cost of superannuation was never borne by employers. It was absorbed into the overall wage cost. Indeed, in each year of the SGC growth between 1992 and 2002, the profit share in the economy rose…

“In other words, had employers not paid nine percentage points of wages as superannuation contributions to employee superannuation accounts, they would have paid it in cash as wages…

“When you hear conservatives these days speak of superannuation as a tax on employers they are either ill-informed or they are lying.”

So, who’s lying now? The answer is Paul Keating.

The debate over who pays for super was settled long ago.

By the Henry Tax Review:

“Although employers are required to make superannuation guarantee contributions, employees bear the cost of these contributions through lower wage growth. This means the increase in the employee’s retirement income is achieved by reducing their standard of living before retirement”.

By Fair Work Australia, who acknowledged that wage increases were “lower than [they] otherwise would have been in the absence of the superannuation guarantee increase”.

And by Bill Shorten when he was Minister for Financial Services & Superannuation in the former Labor Government:

NEIL MITCHELL:

Okay. When superannuation goes up from 9 per cent to 12 per cent, who pays?..

BILL SHORTEN:

What happens with superannuation is that people’s pay goes up anyway. It goes up each year, by and large. What will happen is that superannuation, the increases to superannuation, will be absorbed as part of people’s pay rises… they get a pay rise, of which some will probably go in super, yes…

NEIL MITCHELL:

Okay. So you’re saying that the superannuation increases will be paid for by absorbing money out of the wage increases.

BILL SHORTEN:

That’s the evidence…

NEIL MITCHELL:

Well, so, just to get it clear, business will not be paying an extra dollar, right?

BILL SHORTEN:

No, I can’t see that business will be paying any more in the future than they otherwise would have been if the superannuation changes hadn’t gone through. But what I do recognise is that a portion of what would have been employees’ increases will go into compulsory savings, which is concessionary taxed.

Who would have thought: Paul Keating cares more about feathering the nests of the superannuation industry than ordinary workers and the long-term sustainability of the federal budget.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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