Following the Retirement Income Review’s scathing assessment of Australia’s compulsory superannuation system, the architect of the system, Paul Keating, too to ABC’s 7.30 Report to rubbish the Review’s findings with a bunch of lies and obfuscation:
LEIGH SALES: Let me ask you address the point that we heard the Reserve Bank Governor make and it is made in this report too which is that if you increase the rate of compulsory superannuation, it is going to result in lower wage growth?…
PAUL KEATING: That’s nonsense… We have had no increase in superannuation since 2013. Yet, there has been no wage increases since 2013…
LEIGH SALES: Where will the money come from to fund the extra increase in the superannuation rate?
PAUL KEATING: It will come from the profit share of companies which have now banked 10 percentage points of labour productivity unpaid as wages since 2012.
So working people have, through their efforts, lifted productivity by 10 per cent not a cent of it has gone to wages and that has legislated 2.5, a the quarter of the 10. So we’re saying to the Government, “Well, look, there is 10 per cent that the companies have sat on, why don’t they give a quarter back, 2.5 per cent back, $8 a week”…
Can I just make this other point. This is a really important point in the report. The report says that the call by the budget, the call by the pension system on the budget will be down to 15.3 per cent, 15.3 per cent. In France and Germany, it is 9 per cent.
We’ve got now, with a massive increase in the aged population, virtually doubling it. We’re going to have the lowest call by any country in the world upon the budget and this is all because of superannuation. The reason why the budget call, sorry, the reason why the pension call on the budget is going to be this low is because of superannuation – self provision…
If we don’t, the profit share will simply rise and it will cost people in the long run in terms of, in terms of their, well, you work it out, Leigh.
First of all, Paul Keating’s claim that “there has been no wage increases since 2013” is patently false. Wages have grown by more than 16% since 2013, averaging 2.2% growth annually:
Accordingly, even with low wage growth, employers have plenty of scope to cut take home wages if the compulsory superannuation guarantee (SG) is increased to 12%.
This takes me to Keating’s next point claiming that the cost of lifting the SG “will come from the profit share of companies”. How? Workers’ share of national income has been falling for decades, as illustrated in the next chart. It is not some new phenomenon that has magically appeared since 2013.
Why would employers voluntarily absorb the hit from increasing the SG when workers’ bargaining power and share of national income is at near record lows?
If bosses currently don’t feel pressured to give decent wage rises, then why would they feel pressed to absorb further increases in the compulsory SG?
Let’s get back to basics here. Employers only care about their total employee cost. They don’t care what share of an employee’s wage is paid directly to the employee, what share goes in tax, and what share is put into a superannuation account. So, if the SG is increased, bosses will simply transfer more of the person’s total remuneration into superannuation (other things equal).
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.
This brings me to Keating’s last canard that “we’re going to have the lowest call by any country in the world upon the budget and this is all because of superannuation… The reason why the budget call, sorry, the reason why the pension call on the budget is going to be this low is because of superannuation”.
Keating has conveniently only looked at the pension cost on the Budget, not the combined pension and superannuation cost.
The Retirement Income Review shows that the cost of superannuation concessions is growing fast and will pass the cost of the age pension:
It also shows that any cost savings for the Aged Pension would be far outweighed by higher superannuation concession costs:
To the extent that superannuation tax concessions are contributing to higher superannuation balances of lower- to middle- income earners, they help to reduce Age Pension expenditure. But the main influence behind the growth in superannuation balances is the SG. Tax concessions are largely concentrated among higher-income earners who are close to and above preservation age. Across the income distribution, the lifetime cost of superannuation tax concessions is projected to outweigh the associated Age Pension saving (Chart 13)…
The Henry Tax Review, the Grattan Institute and Rice Warner have all come to the same conclusion (see here).
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.