Former PM lashes out as employer groups say the freeze will help lift wages but is no guarantee

The former prime minister Paul Keating has accused the Abbott government of “wilful sabotage of the nation’s universal savings scheme” motivated by “cheap ideology” after it delayed increases to compulsory superannuation as part of a deal to abolish the mining tax.

Keating, who began Australia’s system of compulsory superannuation, said the decision was “an appalling one by a government lacking any genuine or conscientious concern for the nation’s workforce”.

“The government’s connivance with [the Palmer United party] to spike superannuation at 9.5% has little to do with the budget balance this year, or in the early out years, and everything to do with cheap ideology,” he said on Wednesday, arguing the decision would leave more people reliant on the aged pension.

“The prime minister and Mr Palmer trotted out the tawdry argument that working people are better off with more cash in their hand today than savings for tomorrow. Yesterday’s decision represents nothing other than the wilful sabotage of the nation’s universal savings scheme.”

“This week, Australia’s pool of superannuation savings topped $1.87tn – larger than the market capitalisation of the Australian Stock Exchange. That vast pool of savings, which has revolutionised our capital markets and dramatically lowered the cost of Australian capital, exists, in the main, because of compulsory superannuation. You don’t expect conservative governments to believe in much but, at least, you expect them to believe in thrift. This government does not even believe in thrift,” he said.

Keating’s intervention came as the decision to delay the legislated superannuation increases for seven years dominated question time, with Tony Abbott insisting the move would mean only that “money otherwise locked up in super remains in workers’ pockets”.

Employers said the long freeze on legislated increases in the amount they are required to pay workers in superannuation will help them afford wage rises but will not guarantee pay increases of equivalent value.

The freeze will reduce Australians’ total superannuation savings by $128bn by 2025 and was part of a deal with mining magnate Clive Palmer’s Palmer United party to secure the long-promised abolition of the former government’s mining tax.

The government has justified the unexpected announcement by saying workers would “get the money in their pockets” through wage increases, and could use it to save for their own superannuation if they wanted to.

The chief executive of the Australian Chamber of Commerce and Industry, Kate Carnell, said it was absolutely true that employers who were not required to pay increased compulsory superannuation would have greater capacity to pay higher wages, but the correlation would “obviously not be linear”.

“Many factors come into the mix when employers and employees negotiate over wages, including general business conditions which have been subdued, but obviously if employers don’t have to pay the extra money in superannuation they will have greater capacity to pay higher wages … in the end employers will pay what they can afford to pay.

“I think we need to move away from the perception that the superannuation guarantee is all you are going to need for your retirement.”

At the same time small business lashed out at the closed-doors negotiations between the government and PUP because they backdated the abolition of three separate tax concessions for small businesses which were also among the savings measures the government abolished because they were “paid for” from the mining tax.

The Australian Tax Office had formally advised businesses that the tax breaks would cease on December 31, even though their abolition was not legislated until Tuesday.

But the Peter Strong, the chief executive of the Council of Small Business of Australia (COSBOA) said many small businesses were unaware the abolition had been backdated and had made investments assuming they were still in place. He said the government had indicated it was now looking at possible regulatory changes to fix the situation.

He criticised the decision-making process in the new Senate, where last-minute deals are struck and presented as a fait accompli.

“We had three years of the hung parliament and now we have a hung Senate and I have got to say this is worse. At least the crossbenchers in the lower house during the last parliament had a strategy. PUP is all over the place.”

The Financial Services Council calculates working Australians will have $128bn less in superannuation savings by 2025.

“With increasing financial pressures of an ageing population, now is not the time to slow down on superannuation,” the council’s chief executive, John Brogden, said.

Asked on the ABC whether that amount represented a “big dent” in the nation’s retirement savings, Hockey said “but they get it in their pockets … I’m sorry, they get it in their pockets.”

The finance minister, Mathias Cormann, said “increases to compulsory super don’t come out of thin air, they come out of people’s pockets...We have ensured people have more of their own money pre-retirement. They can use it to save more through voluntary contributions to super.”

The education minister, Christopher Pyne, suggested workers would receive the same amount in their pay packets as they lost in superannuation rises.

“What this will mean is the superannuation contribution will stay at 9.5% in the foreseeable future, and the extra that would have gone up to 12% will stay in their pay packets every week. They can make the decision about whether they invest in their mortgage or whether they invest it in superannuation or whether they spend it on living expenses now and I think that’s a much better outcome,” he said.

The prime minister, Tony Abbott, insisted the change did not break his election promise that there would be “no adverse changes” to superannuation.

“It’s not an adverse change. No one is going backwards. No one is going backwards. We did take into the election a two-year pause. This is a somewhat larger pause, a somewhat longer pause. But nevertheless, what we have done is delivered on one of our most fundamental commitments of all, which was to repeal the mining tax,” he told the ABC’s 7.30.

But the government did repeatedly say on Tuesday that the superannuation freeze was not its preferred option, and had only become necessary because it had been forced to negotiate with PUP, who had insisted on changes that ate into the budget savings from the mining tax repeal.

In changes that will cost the budget bottom line $6.5bn over the next four years but leave it no worse off in the long term, the government deal with PUP means Australians will keep the schoolkids bonus, the low income superannuation contribution and the income support bonus until 2016 or 2017, after which they will be abolished.

But it will also freeze the amount employers are compelled to put into all workers superannuation accounts. It is currently legislated to increase to 10% in 2015-16 and then by 0.5% each year to reach 12% in 2019-20. After this deal goes through it will be frozen at 9.5% and won’t reach 10% until 2021, rising by 0.5% a year after that.

Palmer defended the sudden changes to super, saying “Australian families are doing it tough and it is more important Australian families have access to those funds for their purchasing power now while they are bringing up their children, not in 50 years time, and we know it is a statistical fact that over 50% of Australians will be dead by the time they get access to their super.

“Super is just the way to allow merchant banks to make large fees out of the Australian population, or many union movements that manage their own super to have a good time, and workers don’t get access to their own money, so I am sure most Australians will like the fact that they can bargain stronger for wages,” he said.

The chief executive of Industry Super Australia, David Whiteley, said he was deeply disappointed that “significant changes to superannuation are being made to achieve a short-term budget fix without any public debate at all.”

He produced calculations showing the changes could leave workers’ retirement savings up to $70,000 worse off.