Keating warns against ‘poking holes’ in super

The only way forward is “self provision,” Keating said, and to have the benefits of compounding super returns.

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However, not everyone shares Keating’s view that provision of the age pension may become more difficult for the federal government.

Brendan Coates, household finances program director at think tank Grattan Institute, says the pension is “very sustainable” and that its funding would become a smaller proportion of gross domestic product over time.

As people become wealthier through super and other savings and, because the age pension is means tested, they would be eligible for less age pension, Coates says.

The government is considering whether to defer the rise in super from 9.5 per cent of wages to 10 per cent due in July this year. It is legislated to increase incrementally until it reaches 12 per cent in July, 2025. It is also considering whether to give workers the option of taking the increase in cash, rather than going into their super accounts.

The Reserve Bank of Australia and the Retirement Income Review have stated that higher super contributions come at the cost of workers’ take-home pay.

The Grattan Institute says existing super payments of 9.5 per cent provide enough money for most people in retirement – provided they own their homes – and maintains that increases in super payments come at the cost of wage rises.

However, Keating countered the super versus wages trade-off argument, saying that there has been a 10 per cent increase in labour productivity since 2012, but “not a cent of it has gone to wages”, with businesses collecting the gains.

There is unlikely to be any real growth in wages for the foreseeable future, Keating added.

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“If the employees don’t pick up the 2.5 per cent [increase in] super, which the parliament has legislated… then ordinary working people… get nothing,” he said.

As house prices start to rise again the government is also giving consideration to how it can make housing more affordable for first-home buyers.

Some Coalition MPs are pushing for first-home buyers to be allowed to access their super for a housing deposit, which would build on the government’s First Home Loan Deposit Scheme. Under the scheme, first-time buyers require only a deposit of 5 per cent to qualify for a home loan without having to pay expensive mortgage insurance.

Keating said the remedies to the housing affordability problem are on the “tax side of housing, not super”. He identified negative gearing – where if the expenses of an investment property exceeds the income generated, the loss can be offset against the owner’s other income to reduce their tax bill – as contributing to worsening affordability.

He also cited the 50 per cent capital gains tax discount that applies on investments held for more than 12 months.

“The remedy is not in the super system. The remedy is proper changes to the tax system in respect to property,” he said.

Federal Labor is expected to dump the policies it took to the 2016 and 2019 elections to halve the 50 per cent capital gains tax deduction and limit negative gearing to new properties only. The measures would have applied to new investors only.