Paul Keating drowns in ocean of super lies

The architect of Australia’s compulsory superannuation system, Paul Keating, has spread more super lies, claiming that if the legislated super guarantee was halted at 9.5%, it would be “a retiree’s tax on a grand scale”. From The AFR:

“It would be a retiree’s tax on a grand scale. Right? Not the hundreds of thousands with excess imputation credits, who the Liberals call the retiree’s tax, but a 2.5 per cent tax on 13 million Australian working persons. A real retiree’s tax,” he said.

“The Americans would call it grand theft”…

Keating did concede there had been problems largely with the retail funds. “They’re underperforming chronically and they’re gouging.

But that means the remedy is to deal with the retail funds. The remedy is not to rob the Australian people of their 2.5 percentage points of income,” Keating said.

The only one seeking to “rob the Australian people of their 2.5 percentage points of income” is Paul Keating. Because 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”.

The Henry Tax Review also warned that the budgetary costs of compulsory superannuation actually exceeds savings to the federal budget:

“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 Parliamentary Budget Office came to a similar conclusion in April:

“The increase in the superannuation guarantee to 12 per cent will likely lead to lower wage increases, shifting a greater proportion of earnings into the superannuation system”.

As has the Grattan Institute:

Even slower wage growth will be the result of increasing compulsory superannuation contributions from 9.5 per cent to 12 per cent…

If compulsory super contributions go up, wages will be lower than they otherwise. And the cut to wages from raising compulsory super is big. Really big. By the time it’s fully implemented in 2025-26, a 12 per cent Super Guarantee will strip up to $20 billion from workers’ wages each year, or nearly 1 per cent of GDP…

[Moreover] both the short and long term, superannuation tax breaks cost the budget more than they save in pension payments:

Former Labor leader, Bill Shorten, has also explicitly acknowledged that compulsory superannuation is paid for via lower wage growth:

Because it’s wages, not profits, that will fund super increases in the next few years. Wages are the seedbed of the whole operation. An increase in super is not, absolutely not, a tax on business. Essentially, both employers and employees would consider the Superannuation Guarantee increases to be a different way of receiving a wage increase.

As has Paul Keating himself:

 The cost of superannuation was never borne by employers. It was absorbed into the overall wage cost… 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.

I mean, hello, is this memory loss?

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.

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