Another day, another attack on the Coalition’s decision to pause the increase in compulsory superannuation (the ‘superannuation guarantee’) from 9.5% to 12%, arguing that it will rob ordinary workers. From The Guardian’s Van Badham;
The deal negotiated by the government with Clive Palmer’s party to freeze increases to worker superannuation illustrates how Abbott’s conservatives, and their antecedents in the Howard government, politically consider the future – and what that means for those of us who have neither Palmer’s riches or a politician’s privileges to accompany us towards it…
Where we find ourselves as of last week is that the last Labor government’s re-initiating of the increase schedule for super contributions from 9% to 12% – and 20 years out of time – was scuppered again by the Coalition, with Palmer’s support. As a direct result of the deal, the super industry estimates that retiring Australians will be collectively $128bn worse off by 2025.
Presented with this statistic, treasurer Joe Hockey’s retort was “How do you know?” Well, because they’re the super industry, Joe…
It’s in this context that Hockey’s empty promise that somehow the super contribution freeze will lead to more “money in the pockets” of workers should be considered with alarm. It’s not merely that the trickle-down treasurer himself admits he doesn’t have tangible evidence to back this claim; it’s that the Abbott government is making decisions within the Howard-era mindset that short-term cash is enough to distract the present electorate from the future consequences of present decision-making…
We have a growing aged population. The government’s loyalty to big business will not allow the superannuation system the stretch to meet the retirement needs of that population.
Let me state from the outset that Ms Badham does also make sensible comments (not quoted) lamenting the generosity of superannuation concessions to wealthier Australians, which I obviously agree with.
My issue with her article is that, like many other commentators, Badham ignores that superannuation concessions are ultimately paid for by employees, not employers, and to raise the superannuation guarantee would effectively reduce workers’ take home pay, with potentially harmful implications on lower income earners.
As noted last week, the Henry Tax Review was very clear about who pays for super:
Although employers are required to make superannuation guarantee contributions, employees bear the cost of these contributions through lower wage growth. This means the increase in the employee’s retirement income is achieved by reducing their standard of living before retirement.
Which is why the Review explicitly recommended the superannuation guarantee be retained at 9%, not raised to 12%, so that it didn’t adversely impact lower income earners:
The retirement income report recommended that the superannuation guarantee rate remain at 9 per cent. In coming to this recommendation the Review took into the account the effect that the superannuation guarantee has on the pre-retirement income of low-income earners.
Fair Work Australia has also acknowledged that workers pay for super, which is why its latest minimum wage decision explicitly stated that the wage increase was “lower than it otherwise would have been in the absence of the superannuation guarantee increase”.
And for anyone still with doubts about who pays for super, consider this 2010 interview with Bill Shorten when he was Minister for Financial Services & Superannuation in the former Labor Government:
NEIL MITCHELL:
Okay. When superannuation goes up from 9 per cent to 12 per cent, who pays?..
BILL SHORTEN:
What happens with superannuation is that people’s pay goes up anyway. It goes up each year, by and large. What will happen is that superannuation, the increases to superannuation, will be absorbed as part of people’s pay rises.
…they get a pay rise, of which some will probably go in super, yes…
Between 1992 and 2002, that was the last time super went up, from 3 to 9 per cent… What happened was that real wages increased and super went up. But if you have a look at the years when the super went up, wages didn’t spike. It’s not an extra tax on employers, because the only way that could be is if you assume that employers will never increase the wage of their employees ever.
NEIL MITCHELL:
Okay. So you’re saying that the superannuation increases will be paid for by absorbing money out of the wage increases.
BILL SHORTEN:
That’s the evidence…
NEIL MITCHELL:
Well, so, just to get it clear, business will not be paying an extra dollar, right?
BILL SHORTEN:
No, I can’t see that business will be paying any more in the future than they otherwise would have been if the superannuation changes hadn’t gone through. But what I do recognise is that a portion of what would have been employees’ increases will go into compulsory savings, which is concessionary taxed.
Viewed in this light, Badham’s claim that the Coalition’s “loyalty to big business will not allow the superannuation system the stretch to meet the retirement needs of that population” does not make sense. The decision to freeze the superannuation guarantee at 9.5% will have no baring on business, who merely acts as middle-men in paying super on behalf of employees.
What it will do is slow the flow of funds to the superannuation industry, which derives its profits from clipping-the-ticket on compulsory contributions. Less funds under management means less fees and commissions.
Contrary to Badham’s claim, the Coalition’s actions cut back entitlements to the financial sector, and fly in the face of its purported “loyalty to big business”.
