The architect of Australia’s compulsory superannuation system, Paul Keating, has once again demanded the federal government to raise Australia’s superannuation guarantee (i.e. compulsory superannuation contributions) from 9.5% to 12%, claiming it would ensure workers retire with dignity:
Mr Keating told 7.30 that super payments had to be raised to 12 per cent, though that would “barely cut it”.
“When I introduced super 32 years ago, people retired at about 65 and they died about 83 or 85,” Mr Keating said.
“In the 30 years since, people are living three to five years longer, so people now live into their late 80s and the superannuation pool isn’t large enough to maintain the sort of standard of living we wish for them.”
Raising the superannuation guarantee would lower worker’s take home pay, given the cost of compulsory superannuation contributions unambiguously falls on the employee, not on the employer. It would also cost the Federal Budget another $2 billion a year, while heightening inequities already rife in the superannuation system.
Indeed, the Henry Tax Review explicitly recommended against raising the superannuation guarantee, since it would lower take home pay and have a particularly adverse impact on lower-income earners:
“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…
The retirement income report recommended that the superannuation guarantee rate remain at 9 per cent. In coming to this recommendation the Review took into the account the effect that the superannuation guarantee has on the pre-retirement income of low-income earners”.
Keating’s oft-repeated claim that raising compulsory superannuation would relieve pressure on the federal budget is also patently false. The budgetary costs of compulsory superannuation actually exceed savings to the federal budget – a point explicitly acknowledged by the Henry Tax Review:
“An increase in the superannuation guarantee would … have a net cost to government revenue even over the long term (that is, the loss of income tax revenue would not be replaced fully by an increase in superannuation tax collections or a reduction in Age Pension costs).”
The Grattan Institute’s latest report similarly concluded that “both the short and long term, superannuation tax breaks cost the budget more than they save in pension payments”:
As have actuarial consultants, Rice Warner, who recently warned that Australia’s compulsory superannuation system is costing taxpayers more than it saves in Aged Pension costs.
Paul Keating needs to face up to the facts. Tax concessions on superannuation already cost the Budget an inordinate sum, and are growing rapidly. Raising the superannuation guarantee to 12% would mean they become an even bigger ($2 billion a year) Budget drain over time.
Meanwhile, it would do little to boost superannuation savings for lower income workers – those most likely to become reliant on the Aged Pension – given the lion’s share of superannuation concessions would flow to higher income earners.
Raising the superannuation guarantee would merely heighten inequities already present in the system. It would rob younger (and lower paid) workers of much-needed disposable income and worsen the long-term sustainability of the Budget.
About the only winners from such a policy would be the superannuation industry, which would get to ‘clip the ticket’ on more funds under management and earn fatter profits. Paul Keating seems to care more about feathering the nests of the superannuation industry than ordinary workers and the long-term sustainability of the federal budget.