Features Australia

Keating does loopy

Who really benefits out of the changes to super?

6 February 2021

9:00 AM

6 February 2021

9:00 AM

The professional life of Paul Keating comes in three parts: he was an excellent treasurer, very mediocre prime minister and completely loopy post-politics commentator.

It’s been a downhill ride culminating in his hysterical defence of the system of compulsory superannuation which he fathered in the early 1990s.

I use the verb ‘father’ deliberately: it’s as if superannuation is his fifth child, to be supported irrespective of that child’s traits and behaviour. Got in with the wrong crowd, taking time to grow up – you know the sort of thing.

Of course, Keating has always done a good line in invective. He was a very entertaining parliamentary performer.

Objecting to the possibility that the superannuation contribution rate might not increase to 12 per cent – it has been legislated, it must be conceded – he absurdly declares that we will ‘die battling to have afforded your own coffin’.

In other words, he’s not keen on the idea that people might actually have to use their superannuation balances and other assets to fund their retirement.

In this third phase of his career, ‘efficiency’ is now considered a dirty word and which he takes to mean that people should not ‘hoard capital but burn through the income and the underlying superannuation capital, so you die without a dollar to your name or your spouse or dependants.’

This is surely a very strange point for a Labor man to make. He wants people to be able to conserve their superannuation balances (which have been subsidised through hefty tax concessions, by the way) so they can leave them to the next generation.

Of course, those with the larger balances are best placed to do this. But what’s a bit of intergenerational transmission of inequality based on substantial bequests if the cosseted position of the superannuation industry is at stake?

Let me just return to the price of coffins for a minute. Keating may not know that Costco sells cut-price ones these days. Of course, Potts Point is a long way from the nearest Costco store in Sydney.

But here’s the thing: Keating actually quotes figures on the current median super balances of 75-year-olds – $200,000 for men and $126,000 for women. Those sums would buy a hell of lot of coffins, plus a top-of-the-line funeral.

Illustrating the point that even famous people can change their opinions over time – and this is not a case of a better argument emerging – Keating now denies that there is any trade-off between wage increases and superannuation contributions.

Of course, the facts actually speak for themselves. This is why the system was introduced in the first place, with the unions agreeing to forego a wage rise of three per cent in exchange for a three per cent compulsory contribution to superannuation.

This trade-off continued to be accepted by Labor leaders, including Bill Shorten, who stated in 2012 that ‘a portion of what would have been employees’ increases will go into compulsory savings.’

And just to be picky, the Fair Work Commission (and its predecessor body) has always explicitly discounted increases in minimum wages for any increase in the rate of superannuation contribution occurring over the same period.

It now doesn’t suit Keating to think there is a trade-off in the context of low wage growth. Evidently, we can have it all – wage increases as well as mandated super contributions. His logic is both simplistic and bizarre.

He thinks because wages haven’t grown strongly in recent times when there has been no increase in the super contribution rate, his point is somehow proven. Sadly for him, he ignores the possibility that wages growth could have been lower again had the super rate been increased.

As for his idea that productivity has risen over eight years (why he would chose this time frame is unclear) and firms across Australia are so cashed up they can pay higher wages and super without any noticeable effect on profits or employment, he’s just dead wrong.

Indeed, there was a major wage overhang from just before the GFC that had to be worked off because wages had risen much more strongly than productivity. And since then, annual changes in unit labour costs have mainly bounced around zero. (Unit labour costs measure the ratio of wages to labour productivity.)

The Covid-era figures are impossible to interpret but one thing’s for sure: there are very many businesses that are struggling to survive and are not in a position either to fork out pay rises or a higher superannuation contribution rate.

Where once Keating might have taken notice of well-reasoned empirical research, his only response now is to slag off at those who have taken the time to do or commission the research about the relationship between wage growth and superannuation.

He particularly has it in for Brendan Coates and John Daley of the Grattan Institute and Mike Callaghan, who chaired last year’s Retirement Income Review.

In that review, the results of some careful research using tax records by ANU academic Professor Bob Bruenig were reported. The key finding was that close to 100 per cent of increases in superannuation are passed through into lower wages.

The most interesting aspect of Keating’s recurrent incursions into the superannuation debate, flowery language and all, is why he is so motivated to re-prosecute his weak arguments.

What’s clear as day is that he seeks to advantage the superannuation industry itself; in particular, the industry super funds that are owned by the unions and employer associations, and indirectly the Labor party.

It’s not about the welfare of the super members themselves, most of whom will do very well with the current contribution rate. And if they feel they are underinvested in super, they can always make voluntary contributions.

It’s about increasing the flow of dollars to the funds and with it the proportional (excessive) fees and charges they levy. The shift from 9.5 per cent to 12 per cent might not seem big but it will lead to an additional $8 billion per year in fees and charges for the funds for essentially no extra work. It’s the deal of the century.

Whether Keating is really promoting the self-serving interests of the funds by talking about coffins is unclear, however.

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