The Morrison Government has taken direct aim at Paul Keating’s and Labor’s unrelenting scare campaign over superannuation, whereby they claim that not lifting the superannuation guarantee (SG) to 12% will leave people destitute in retirement, forcing people to sell their homes and unable to afford their own coffin:
“Paul Keating and Labor have seen the power of retirees’ voices; they saw that at the last election”, [Superannuation Minister Jane Hume said]. “What’s happening now with Paul Keating and his big scare campaign is he’s trying to scare current retirees”…
“The most important thing we can do is work out the tipping point that maximises the standard of living today and maximises the standard in retirement and allows for the arc of smoothed lifetime consumption”.
It is hard to fathom that Paul Keating and Labor would support a policy that would unambiguously lower workers’ take-home wages and increase inequality.
As it stands, Australia’s compulsory superannuation system has three fatal flaws that harms the working class.
First, mandating that workers must pay 9.5% of gross wages into their superannuation account automatically lowers their take-home pay (other things equal). This especially harmful for lower-income earners struggling to survive paycheck to paycheck.
Second, because most superannuation contributions/earnings are subject to a 15% flat tax, the tax benefits from superannuation are highly skewed toward higher income earners, as illustrated clearly in the next chart from the Australian Treasury:
Unbelievably, Australian taxpayers spend twice as much supporting the retirements of the top 1% of income earners as they spend on someone receiving the age pension.
Even if you look at superannuation in isolation, the top 1% of income earners are projected by Treasury to receive more than $700,000 in super concessions over their working lives, roughly 14-times the $50,000 worth of concessions that will be received by the bottom 10% of income earners.
As such, Australia’s compulsory super system really just one giant tax dodge for the rich that actually entrenches inequality, rather than reduces it. So how can so-called working class champions like Paul Keating and Labor support it?
Third, the budget cost from showering high income earners with generous super concessions is enormous, with more than $40 billion of revenue lost through super concessions each year. Australia’s compulsory super system is also projected to cost the federal budget far more than it saves in future aged pension costs, making it a giant millstone around the budget’s neck:
In summary, Australia’s compulsory super system misses on almost every mark:
- It is poorly targeted away from those in genuine need;
- It reduces workers’ take home pay;
- It costs the budget far more than it saves in aged pension costs; and
- It entrenches inequality by encouraging tax avoidance and wealth accumulation by the rich.
Obviously, lifting the SG to 12% would make every one of these failures worse by creating an even bigger rort.
If Paul Keating and Labor had any integrity and genuinely cared for the working class, they would oppose lifting the SG to 12% and support a complete overhaul of the system.