Paul Keating is a superannuation liar

Paul Keating is at it again, attacking those calling for a freeze in the compulsory superannuation guarantee (SG) at the current rate of 9.5%:

The argument that is now being put, erroneously, is that in a period of static real wage growth, any upward shift in the Superannuation Guarantee will cost workers immediate disposable income.

This is demonstrably untrue… were employees to lose the extra 2.5% of legislated superannuation, they would lose that income for the rest of their working lives, because they are certainly not going to get it in wages or somehow recover it later…

This week, the chairman of AMP, David Murray, gave a stern and stentorian warning saying a half point increase to super would be “economic madness” in the current climate…

Chris Richardson, of Deloitte Access Economics, was at it too. He went on to tell us that any further increase in the Superannuation Guarantee may not be “smart play” – arguing that even higher modest payments to super will lead to slower wages growth…

That in a period of static wage growth, an increase in the legislated Superannuation Guarantee is the only way ordinary working Australians will have returned to them, but a sliver of the labour productivity that they have provided – productivity that companies have been banking over the past seven years…

Commentators like Chris Richardson and David Murray, whether they realise it or not, are pawns in a wider game to sprag the Superannuation Guarantee, emanating deep from within the Liberal party…

The key message is this: in a period of flat to negative real wage growth, the only likely avenue to any real, though modest, increase in compensation is via the prospective increase in the Superannuation Guarantee Charge.

Recall that Paul Keating has previously point blank admitted that the SG is paid for by workers through lower wage growth:

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…

Does Paul Keating suffer from amnesia? How is it that in 2007, compulsory superannuation was unambiguously paid for by workers through lower wage growth. But in 2020, it no longer is?

The RBA recently admitted that the SG is primarily paid for by workers via lower take-home wages:

RBA assistant governor Luci Ellis said it had “shaved” its worker pay forecasts to reflect that higher compulsory super will dampen future wage growth for private sector workers, offsetting wage increase pressures from a tightening labour market.

Wage growth would have got “a little bit of a pick-up from here” if not for the legislated requirement for business to boost their superannuation contributions, Dr Ellis said.

“Historically about 80 percent of the increase in the non-cash benefit tends to show up as somewhat slower wages growth than what you would have otherwise seen.”

As has the Australian Treasury:

Though compulsory SG contributions are paid by employees, wage setting generally takes into account all labour costs. It is widely accepted that employees bear the cost of higher SG in the form of lower take-home pay. This means there will be a trade-off between people’s income during their working lives and their income during their retirement.

As has 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…

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.

As has the Parliamentary Budget Office:

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 did the Government paper announcing the establishment of compulsory superannuation in 1992, entitled Security in Retirement: Planning for Tomorrow Today:

A major challenge for retirement incomes policy is the need for current consumption to be deferred in favour of future income in retirement…

No loss of remuneration is involved in meeting this national challenge. What is involved, rather, is forgoing a faster increase in real take‑home pay in return for a higher standard of living in retirement.

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 would 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..

Are these organisations “pawns in a wider game to sprag the Superannuation Guarantee, emanating deep from within the Liberal party”. Obviously not.

Nor does Keating’s claim that “in a period of static wage growth, an increase in the legislated Superannuation Guarantee is the only way ordinary working Australians will have returned to them” make any sense.

While real inflation-adjusted wages have stagnated, nominal wages have grown at an average of 2.1% over the past five years:

This gives employers plenty of scope to cut take home wages if the compulsory SG is increased.

Seriously, why would employers voluntarily absorb the hit from increasing the SG when workers’ bargaining power and share of national income is at 50-year lows?

If bosses currently don’t feel pressured to give real wage rises, then why would they feel pressed to absorb further increases in the compulsory SG?

Moreover, the massive fall in the labour income share in Australia over the period when the SG was increasing is inconsistent with Keating’s new found suggestion that employers absorbed the cost of super.

Stop lying Paul.

Unconventional Economist
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  1. John HamiltonMEMBER

    My common law employment contract was changed before the last SG increase. Any SG increase comes from my take home pay.
    I should be the only person to decide what comes out of my pay. Not happy.

  2. he is one of the inventors of the fraud call superannuation – designed to bribe union leaders not to object installation of neoliberalism in Australia

  3. Jumping jack flash

    “Does Paul Keating suffer from amnesia?” Maybe not amnesia, but quite likely another ailment associated with growing old.

    Firstly, the increase to super needs to come from *somewhere* and we’re in the grip of a “Minsky Moment” and floundering at the edge of severe debt deflation. The money is just nowhere to be seen. The only reason we had any to begin with was because we borrowed all of it from the bank to the tune of 2.4 trillion dollars and all of that is locked up in illiquid houses.

    Secondly super is just totally inadequate to fund an entire retirement’s worth of income, living in the age of debt, unless you hold debt-inflated assets and make substantial voluntary contributions.

    But who knows, maybe Keating is stupid like a fox and realises that this debt bubble will eventually burst big time, and then having some super will be more important than ever – if it isn’t seized by the banks to recoup some of the 2.4 trillion dollars of debt as it goes bad. Last time I checked we had around 2.1 trillion super dollars, it would probably cover a fair chunk of the debt, and I don’t doubt that our fearless leaders with planet-sized brains wouldn’t hesitate to hand it all over if requested.

    • kannigetMEMBER

      When large amount of it is invested in banks stocks they dont need to seize anything, people will get cents on the dollar once the banks start collapsing.

  4. Ulrike Meinhof

    Superannuation wtf is Superannuation?
    Let me understand this, workers willingly surrender wages so that elite financial types can manage their wealth?
    A workers wealth exists primarily in his/her skills, the application of their labour is what puts food on their table.
    The collective sale of this labour is what enables workers to earn a living wage.
    Anyone even suggesting that a workers wealth is increased by willingly giving a portion of their wage over to an elite for financial management should be permanently banned from the labour movement. They’ve sold their soul and now they’re trying to sell yours too.

    Where are today’s radical activists?
    Where are today’s socialists?
    “Where justice is denied, where poverty is enforced, where ignorance prevails, and where any one class is made to feel that society is an organized conspiracy to oppress, rob and degrade them, neither persons nor property will be safe.”
    Frederick Douglass

  5. Perched atop the pecking order: lunch with Animal Justice Party MP Mark Pearson

    “Blinded by the Light was playing on a radio in the pig shed, near sows tethered by metal collars so tight their necks were bleeding.”

    “That first time he put a bike lock round his neck was in 1995, at the Parkville piggery part-owned by then prime minister PAUL KEATING. Pearson was among 33 people who chained themselves to the cages at midnight and stayed there beyond dawn, when police brought in the bolt cutters and took them away.”

    Anyone who treats animals like that is a disgrace. Paul Keating is far more than just a liar.

  6. With some quick financial modelling it will cost the Gov 17billion per annum in taxes forgone, above the current superannuation arrangements, which already cost 65billion, ignoring voluntary contributions and super fees.
    This extra 17 billion in expenditure will give the median pensioner 2 extra years at a comfortable income, as defined by ASFA, with most below median income receiving no benefit, requiring the existing pension system to remain in place. Meanwhile if you just gave a pension to all applicants those 2 years would cost at most 9 billion and wouldn’t result in the perverse scenario where those on high incomes are guaranteed 50 years comfortable retirement. “at most” because life expectancy is less than the 10 years our current super covers.
    Given the current aged pension system costs 50billion it seems very perverse that we already spend >65billion on super that does not provide any retirement income to most of the people the current pension targets and actively rewards those who would have saved regardless