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Paul Keating on why super relies on “not draining the bath”

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.


December 03, 2020

greatest savings plan for your own future ever invented. Put some of your own money into it as well and you can build a tax effective investment. Well done Paul Keating.

December 03, 2020

I am a small business owner. Sometimes business is good, sometimes not so.
My employees all get the super they are entitled to.
So what about the unemployed, sure they get a pension of some sort,
Super is a tax on business, the cost is passed on to 'us', the cost is part of what we buy, because we get 'super' we can justify the extra cost but what about the unemployed who have nowhere to go.
They don't get super, we pass the cost of super onto them, we have Keating's super in our old age, the unemployed, well who cares, certainly not Mr Keating

SMSF Trustee
December 04, 2020

That's BS Redge. Super is a cost to business, yes, but it's not a tax. The wages and salaries you pay your employees aren't a tax - they go to the employees, not the government (which actually foregoes tax it would otherwise have collected in case you hadn't noticed).

And to accuse Paul Keating of all our leaders of not caring about the unemployed is a most uninformed comment.

Malcolm Wilson
December 02, 2020

Government policy has sent the value of the home soaring. Firstly, by targeting inflation of 2%. Secondly, by massive immigration creating huge pressure on land. The homeowner has done nothing more than buy a house and live there. And for that they are considered wealthy. Ridiculous!

March 10, 2021

Ahhh matey Malcom you conveniently forgot the tax deduction for investment costs (i.e. negative gearing) that make profitable to own an investment property even when the rent doesnt cover the mortgage. Australia is the only country with anything like that.

November 27, 2020

Why do politicians have to exaggerate to make a point?
e.g. Keating: "for every $10,000 allowed out in the early release programme for someone in their 30s, it costs them $100,000 later"
OK, so lets assume he is talking about a 35 year old with 30 years to go before nominal retirement. For $10k to become $100k over that 30 years requires an average return of 8.5% p.a after fees and tax. When has that every been achieved within super funds and how will it be achieved over the next 30 years in the typical 60/40 portfolio mix given 30 year Government bond rates are barely 1.5%? Are equities expected to return an average well over 10% p.a. to compensate? Keating also assumes that $10k withdrawal is pissed up against the wall and not used to any economic advantage. And what will $100k actually buy in 30 years? I guess Keating expects zero inflation for that long. Pull the other one Keating.

November 28, 2020

Well, Australian Super's Balanced option has averaged 9.40% after fees and taxes since 1987 and 7.8% since the year 2000. There are other funds too...

Are you assuming interest rates will never increase again?

November 26, 2020

1. The quality of being fair and impartial. e.g. "equity of treatment"
2. In finance, equity is ownership of assets that may have debts or other liabilities attached to them. Equity is measured for accounting purposes by subtracting liabilities from the value
of an asset.
" implicitly argue that the tax payer should subsidise the passing on of the Centre-link
exempt family home to inheritors while the inheritors outsource the seniors' welfare to the taxpayer is bizarre." [ Why not ! They worked for it after all ! and were TAXPAYERS no doubt ! ]
"The idea of having the family home somehow recognised for the age pension
is all about equity. " [ is about the correct allocation of resources...and discretion ! ]
"A feeling of discontented or resentful longing aroused by someone else's possessions,
qualities, or luck."
"desire to have a quality, possession, or other desirable thing belonging to (someone else)."
"The state of being equal, especially in status, rights, or opportunities."
There will always be "unfair and inequitable outcomes"....not because of any prejudice or advantage....but because of differences in people . Some are just a lot smarter , or luckier or fortunate than others ! "The poor will be with you always" was a Biblical evaluation of the human condition....and it urged the fortunate to be generous towards the poor and needy [ not the greedy]. If you require "wealth distribution" from the wealthy to the poor.....then FIRSTLY you
will NEED to have the WEALTHY ! Self sufficient people don't need they should be
appreciated for their contribution to society ! They are the ones that PAID ALL THE TAX along the
way to becoming "self sufficient" ! That seems to be overlooked in all these criticisms. won't make a society better by making the wealthy just have more poor
people to look after ! Communism proved that , time after time !
Australians are just so ridiculously well-off , by World standards and any other standard you care to mention , that this discussion should not even be occurring !

November 26, 2020

If Paul Keating was serious (and we could take him serious) he and other ex-politicians would argue that they should not be entitled to Superannuation benefits beyond the general population. It seems we are "not all in this together" but the entitled are happy to be on the public gravy train while pontificating to the rest of us on what is good for us.
The Future Fund could also be providing benefits for all the population and not just Federal public servants and politicians!
Can we increase the scope of the Report?

November 26, 2020

For the one-time Labor visionary to implicitly argue that the tax payer should subsidise the passing on of the Centre-link exempt family home to inheritors while the inheritors outsource the seniors' welfare to the taxpayer is bizarre.

Leigh Sales does not highlight the truism: to get to eventual retirement, you need to navigate the intervening period by paying for basic necessities. So why not let those at the lower rungs opt out?

The battle is presented as between the government and industry super. Retail super that extracts fees are equally interested in the SG pump not being slowed down.

Why cannot the Government be true to the guarantee in SG and guarantee an inflation+ annual retun for say the fisrt $500k of conscripted savings?

Mick Prest
November 26, 2020

I’m self-funded (for a few years yet) and if I still believed in prayers would say one of thanks for Keating’s Super Dream every night!

November 26, 2020

The argument that increasing super results in reduced wages is Paul Keating's own argument from the 1980's when he brought in industry super.
The idea of having the family home somehow recognised for the age pension is all about equity. People with higher value houses tend to live in Liberal voting electorates in the largest capital cities. I thought Keating represented the battler.
If the value of the family home above say $3m was included as an asset for the age pension, its hard to not argue that has some equity in it.


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