Paul Keating’s superannuation lies swell

Paul Keating continues to scaremonger against freezing the superannuation guarantee (SG) at 9.5%, claiming it would leave Australians destitute in retirement:

“You cannot have a decent income in retirement without self provision. Otherwise, you would have people on the pension which is now what $23,000 or $540 a week?,’’ he said…

Mr Keating said if workers failed to save enough super now more will be forced to survive off the aged pension.

“Well. The thing is there’s no economic case for it not to go ahead. None. There’s a prejudicial case from some of these baby-faced Liberals,’’ he said.

“These first term senators, a particular modest form of political life.”

As usual, Paul Keating has failed to mention that superannuation concessions cost the federal budget more than they save in aged pension costs.

The Henry Tax Review was abundantly clear on this point:

“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 has also shown that over “both the short and long term, superannuation tax breaks cost the budget more than they save in pension payments”:

As has actuarial firm Rice Warner:

Actuarial firm Rice Warner said that lifting compulsory super contributions to 12% would not have much impact on the age pension for many years, and would save the budget only about 0.1% in lower age pension spending in the second half of this century.

In contrast, extra super tax breaks from higher compulsory super would cost an average of 0.22% of GDP “through this century”…

Superannuation concessions were projected to cost the federal budget $45 billion a year this financial year and a whopping $49.3 billion next financial year:

This extraordinary cost necessarily means there are less funds available in the federal budget to lift the aged pension.

In turn, lifting the SG to 12%, as advocated by Paul Keating, would rob the federal budget of more money, making it even harder to raise the pension.

If Paul Keating genuinely cared about the welfare of future retirees he would argue to unwind the compulsory superannuation system altogether and shift the enormous budget savings into lifting the aged pension rate and expanding its eligibility.

Because ultimately, it is the enormous cost of superannuation concessions that prevents the aged pension from being lifted to an adequate level.

Leith van Onselen

Comments

  1. Keating likes super for one reason and one reason only. He claims it as “his” idea. That you would think he would be swayed by commonsense is interesting.

    The sooner this 76 year old tastes the “pangolin’s kiss” the better!

  2. – The entire “superannuation” is a Ponzi scheme which has fattened a whole range of (finance related) companies.
    – It worked well as long as there was a net inflow + capital gains. But now with people withdrawing money from their “super” and a “weakening” property market it only confirmed/convinced me more that “super” is a Ponzi scheme and has been a Ponzi scheme.

  3. Its enforced savings. People are taking from their super to appease the situational angst.

    Its a stupid argument against because there is no alternative. Its so easy to cast stone… especially when you run one yourselves!!! Australia is a world leader, its economic strength in part from it. And yet we want to tear it down. Well done.

  4. Whilst it might be correct that super costs the budget, that isn’t a fair analysis of the whole picture.

    Without super and the enforced saving that it provides the budget would have to find massive amount of extra money to fund peoples retirements.

    Lets take two hypothetical 24 year olds, Bill and Jane, both entering the workforce and earning $80k a year. They will both work 41 years (retiring at 65 years old) and remain on a constant salary (salary growth is not important to the example).

    Jane lives in mysteryland where there is no super (or forced retirement savings system) and apart from saving to purchase a house (which she does) she spends every cent she earns over her working life. At retirement mysteryland government has to fund her retirement income to the tune of $38k a year. If she lives until 85 this is a total of $760k over her retirement.

    Bill lives in the real world where his employer contributes 12% of his salary to a forced savings program, lets call it Super. Apart from buying a house and this forced saving through Super Bill also spends everything he earns over his working life. When Bill retires at 65, unlike Jane, he has $526k (assuming 7% annual growth and “default” fees) in his super account. Whilst the government of real world also has to contribute to Bills retirement income stream (which is also $38k / year), when Bill dies at 85 they have only paid out $234k in pension.

    So the question is. Did the tax breaks for Bill’s Super cost the real world government budget $526k or more. The answer is of course no they did not, to be clear that is no they did not!!

    By forcing Bill to save for his own retirement, the government of the real world, has decreased the retirement income stream burden on the budget. Yes it costs something, in both tax breaks and some pension, but they are still better off.

    Super is a good system, sure it isn’t perfect (nothing is), and to those that rubbish it. Provide a better alternative. Don’t just beat it down, where is your alternative proposal. Come on, money where your huge mouths are please!!!