Labor urged to hold off raising super guarantee

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By Leith van Onselen

The former Gillard Labor Government had originally legislated for the superannuation guarantee (i.e. compulsory superannuation contributions) to rise to 12% in 2019. However, the Abbott government, which inherited a superannuation guarantee rate of 9.25%, froze it at 9.5% until 1 July 2021 and delayed the scheduled increase to 12% until 1 July 2021.

After Labor yesterday suggested it was considering bringing forward the timetable for raising Australia’s superannuation guarantee, employer groups have cautioned against it, noting that it would dampen wages growth. From The AFR:

Opposition employment spokesman Brendan O’Connor said increasing the guarantee to 12 per cent was “ideal” but lifting the freeze was dependent on the state of the budget.

“It’s an unfinished project of Labor to ensure that we have proper retirement savings for workers and also have national savings for the country. It’s certainly something we will be examining,” he told Sky News.

Assistant Treasurer Michael Sukkar said at a time of low wages growth, the freeze had help bolster incomes.

“We’ve been vindicated that it was absolutely the right decision – for every dollar you increase in superannuation guarantee that’s a dollar less you’ve got today,” he said.

Australian Chamber of Commerce and Industry acting chief executive Jenny Lambert said businesses of all sizes needed transparency and predictability and were planning towards the schedule of superannuation increases set down in 2014.

“Any increase in the super guarantee charge across the board without either offsets or productivity improvement would be unaffordable to many businesses and would put a further brake on any prospect of wage increases that would otherwise arise out of economic growth and a tightening labour market,” she said…

Business Council of Australia chief executive Jennifer Westacott said boosting wages growth by getting economic policy settings right was the best way to raise Australians’ superannuation contributions.

“Changes to the Super Guarantee must be carefully considered at a time of slow wages growth – because higher superannuation contributions will further slow growth of workers’ take home pay,” she said…

The ACTU said it “supports moves to secure a dignified retirement for working Australians, including the expansion of superannuation contributions to paid parental leave and the removal of the Turnbull government’s freeze on super contributions”.

Both the Coalition and business groups are correct in arguing against raising the superannuation guarantee for fear that it would lower wages growth from already anaemic levels.

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As noted yesterday, the cost of compulsory superannuation contributions falls on the employee, not on the employer, and any increase in the superannuation guarantee will lower one’s take home pay. This point was explicitly acknowledged by the Henry Tax Review when it stated:

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.

As Minister for Financial Services & Superannuation in the former Labor Government, Bill Shorten also acknowledged that superannuation is paid for by employees, not employers:

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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…

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…

Further, there is a heavy cost to the Budget from raising the superannuation guarantee – each 0.5% increase is worth around $2 billion a year in lost revenue to the Budget. So any increase would unambiguously worsen the Budget deficit.

About the only winner from raising the superannuation guarantee would be the industry itself, which would get to ‘clip the ticket’ on more funds under management and earn fatter profits.

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If the ACTU genuinely cared about improving the superannuation system for its workers, it would argue to reform the underlying inequities in the system (e.g. excessive fees, unequal distribution of concessions on contributions/earnings, etc) rather than blindly seeking to raise the compulsory superannuation rate.

Because as it stands, the ACTU seems to care more about fattening the industry’s profits than it does about supporting workers’ take home pay.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.