Paul Keating has dramatically added his voice to those of industry and finance experts warning the Turnbull government against allowing superannuation savings to be used for house purchases, branding the idea scandalous, ideological and designed to "pull the backside out" of super.
Writing exclusively for Fairfax Media, Mr Keating has linked what he calls the "policy bankruptcy" of the idea with the Coalition's treatment of Medicare, calling the programs the two great community standards that the Liberal Party "has done everything in its power to either thwart or destroy".
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Housing affordability - the options explained
Buying a house is increasingly out of reach for young Australians - Eryk Bagshaw explains the options being considered.
In a savage assault on the housing affordability measure under consideration by Prime Minister Malcolm Turnbull and Treasurer Scott Morrison, Mr Keating said it is a triple threat because it would drive up prices, would permanently gut retirement nest eggs for the under 40s and would compromise the optimal investment profiles of the super funds themselves.
Financial systems inquiry head David Murray has also expressed concerns over the suggestion, even as it appears to be gaining supporters on the crossbench.
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"There are many issues in the tax and superannuation systems, but to allow savings to be withdrawn to be used for other investments really defeats the purpose," he said.
He agreed that the proposal would likely add to demand and therefore to higher prices, and would present problems because funds would need to maintain greater levels of liquidity to facilitate withdrawals, thus earning them lower returns.
Financial Services Council chief executive Sally Loane urged the government to think again.
"Allowing young Australians to use super for housing would undermine efforts of the RBA and APRA [the Australian Prudential Regulation Authority] to cool the housing market," she said on Sunday.
Mr Keating, who is regarded as the architect of Australia's roughly $2 trillion superannuation sector, strafed Liberals promoting the idea as ideologues intent on wrecking a retirement income system that is the envy of the developed world.
"As an economic idea, this is scandalous. But, of course, for the Liberal Party, this is an ideological proposal," he said.
"You don't expect conservative parties to believe in much, but you do expect them to believe in thrift. And when a Labor government comes along and, in a co-operative way, encourages the workforce to save for their retirement, you would think any true conservative party would be eternally grateful.
"Instead the Liberal Party, limited by its ideological snakiness, continues biting at superannuation, as it does, periodically, Medicare."
While the government is yet to determine its final position, some backbenchers believe accessing wealth locked up in superannuation could solve a worsening housing affordability gap for the under 40s.
Mr Morrison has fuelled expectations of significant change in the May 9 budget, by talking up the severity of the affordability problem while calling Labor's proposals for limits on negative gearing and the capital gains tax discount "ridiculous".
"The problem is being able to save quickly enough to get a deposit which is big enough to actually get yourself into the market," he told 2GB's Ray Hadley last week.
"That is a big challenge, particularly for young people, and people are putting off when they buy their house. They're even putting off when they have kids so they can save more ... that's why it's a very important issue, and that's why we'll be addressing it in the budget."
Under an option reportedly being considered, superannuation trustees would take an equity stake in an account holder's property, rather than the previously advocated method of allowing a simple cash withdrawal.
That equity, and presumably the risk if house prices were to fall, would sit on the fund's balance sheet, with the capital returned to the fund when the property is sold.
Speaking on Sky News last week, Assistant Treasurer Michael Sukkar, who has prime carriage of the housing affordability package for the May budget, appeared to lend the proposal qualified support, while also warning that any such approach would need to be part of a bigger plan, because it would otherwise be counter-productive.
"We've got to be a bit more sophisticated about it and I'm confident we will be," he had said.
However, on Sunday he told Fairfax: "I have not been prepared to say one way or the other because I will not get into ruling things in or out ahead of the budget."
In recent days, influential independent senator Nick Xenophon has expressed support for the superannuation housing plan, conditional on it not fuelling house prices.
But Mr Keating believes it would be a disaster, warning that the people preparing to tinker with superannuation, either do not understand what they are doing or do not care.
"Only the most reckless and wilful government would abort the policy settings to put the system at risk," he writes.
He argues the system relies on two foundational principles: "a preservation of contributions to age 55 and the compound earnings on those contributions.
"If the preservation rule is breached and savings, especially those of young people, are allowed to drain away, the loss of the accumulation and its compounding would rob them of a large block of savings at the end of their working lives."
He said that with the average balance for the 25-40 age group hovering below $50,000, the loss of critical mass for compound earnings would be felt right through to an impoverished retirement.
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