Leigh Sales interviewed former Prime Minister, Paul Keating, on ABC television's 7.30 programme on Monday 23 November 2020 following the release of the Retirement Income Review the previous Friday.
LS introduction: Paul Keating has been Australia's leading champion of compulsory superannuation as the central means of funding retirement. When Keating finally claimed the Prime Ministership, he continued to drive home the imperative and eventually took to the 1996 election a promise to increase superannuation contributions to 15%. That increase was never fully realised because John Howard and later Tony Abbott were not keen. Next year, legislated increases to the rate of superannuation contributions are due to start. But the question is whether the Morrison Government may try to undo them.
On Friday, the Government released its Retirement Income Review conducted by the Treasury. It says the weight of evidence suggests the majority of increases come at the expense of growth in take home wages. The Reserve Bank Governor shares that concern. The Government says it won't make a decision about next year's increase until the May Federal Budget.
The Prime Minister Paul Keating is with me in the Sydney studio. What do you think will happen if Australia does not increase the rate of superannuation contributions?
PK: Before we do that, let's go into the main point of the Report, which has had little publicity. The Government released the Report on the day they released the Afghanistan revelations. The point was for the Government not to have people focus on the central finding. They wanted to report to say that super was sort of in trouble. But here's the first line, “The Australian retirement income system is effective, sound, and its costs are broadly sustainable.” And the second line says, “Without compulsory superannuation, middle income earners would not save enough for retirement.”
The Report has confirmed the universality of superannuation. It's compulsory nature. And of course, the Libs hate that. All those people watching us tonight who have got superannuation are often worried because of all the nonsense that runs in the newspapers but here it is: “The Australian retirement income system is effective, sound and its costs are broadly sustainable.”
LS: The rest of that sentence goes on “… but the evidence suggests there are areas where the system can be improved.”
PK: Oh, any system can be improved, of course.
LK: What would you say to an Australian who said to you, “I get what you're saying about needing money for my retirement, but I need money right now because I've got rent to pay, I’ve got kids and it's my money. Why shouldn't I have it now if I want it and let later worry about later?”
PK: The Report gave the answer. It said for every $10,000 allowed out in the early release programme for someone in their 30s, it costs them $100,000 later. It’s a tenfold increase leaving it in because of the compounding. So, we're talking about a half a percent, on 1 July it goes from 9.5% to 10%, the half a percent is eight dollars a week, two cups of coffee. For two cups of coffee, people are supposed to walk away from their future.
And of course the other thing the Libs are up to is in the Report. I'll just read this to you. “If the SG rate remained at 9.5% and people made more efficient use of their retirement savings, many would have higher replacement rates than they would have under the SG at 12%.” And what they mean by that is accessing home equity. So, the idea is this. You can do better than 9.5 but you got to eat your house by reverse mortgaging your house.
LS: People now tend to live off their investments and when they die they have their house and they have most of their super which they then pass on to their kids. Doesn't it bake in inequality because if you are rich then you've got an asset to pass on your kids but if you're poor and you actually have to run down your savings, then your kids get nothing.
PK: Well, you can’t blame the system, poor people have all sorts of choices. But the idea that a Report endorsed by the Government is putting about is that you don't pay more than 9.5% but you should start reverse mortgaging your house. In other words, give the kids nothing, eat the house, and then you don’t have to go above 9.5%. Now, just remember this. There's been no increase in real wages for eight years now. There's been a 10% improvement in labor productivity and the legislation for the super is passed. People have earned the superannuation, they've earned that 2.5%, the employers are going to pay it. And today the stock market was 6,500 on the index because the wage share of GDP is falling and the profit share is rocketing. So that's why.
The argument runs that if you get an increase in super, you don't have any wages. And if you don't have it in super, you do have any wages. We've had no increase in superannuation since 2013 yet there's been no wage increases since 2013 ... We're going to have the lowest (pension) call by any country in the world upon the budget, and this is all because of superannuation.
LS: What do you think would happen in Australia if we don't increase the rate of superannuation contribution?
PK: If we don't, the profit share will certainly rise and it will cost people in the long run. You work it. 2.5% is about a quarter of 9.5%. So, if you had 400,000 in super today, you would have 500. If you take a quarter out, you'll end up with a quarter less at the end, and for most people, that's about 150,000 bucks.
LS: Do you think that the pandemic and the drastic change in economic circumstances give any rise to an argument for deferring an increase in the rate of superannuation contribution?
PK: None whatsoever. This is the first year since Governor Phillip came into Sydney Harbour that we hold more assets abroad than foreigners hold on us. We’re going to be, with Germany and Japan, a capital exporter for the first time in history. So it's a real measure of national resilience to not have a begging bowl out funding your current account deficit. It’s as simple as this. Put more money into savings, into super, you get more investment. If we want more employment, more GDP, more investment, you make the super bowl bigger.
LS: If you want that kind of investment though, the superannuation funds need certainty, which means they presumably need to not have people able to withdraw on their superannuation funds early.
PK: Compulsion and preservation are the two keys, not draining the bath, not taking money out for housing deposits, not taking money out for education or health but leaving it in there to compound for retirement income. That's the whole point of the tax concessions.
This is an edited transcript by Graham Hand, Managing Editor of Firstlinks. Editing is done for briefness and clarity without removing any meaning. The full video is linked here.