Dumb unions lobby to lower workers’ wages

By Leith van Onselen

You can’t make this stuff up. Unions are reportedly seeking to change Labor’s platform on superannuation at its upcoming national conference, demanding an increase in the superannuation guarantee to 15% by 2030. From The AFR:

The Transport Workers Union and the Construction, Forestry, Maritime, Mining and Energy Union are driving the push as part of a broader amendment to the party’s platform at its national conference this weekend…

TWU national secretary Michael Kaine said… “Low wage growth and a low superannuation guarantee are destroying workers’ hopes of a dignified retirement… This makes it all the more vital that we raise the guarantee on superannuation to safeguard workers’ futures”…

CFMEU national secretary Michael O’Connor said the guarantee needed to be raised “urgently”.

Do the unions not realise that compulsory superannuation is paid for by workers (not employers) via lower take-home pay (less disposable income), with particularly harmful ramifications for people on lower incomes?

Don’t just take my word for it, here’s the Henry Tax Review:

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.

This is why the Henry Tax Review explicitly recommended the superannuation guarantee be retained at its current level, 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 previous 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 – a former union heavyweight – when he was Minister for Financial Services & Superannuation in the Gillard 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.

While adequacy of retirement savings for workers is indeed an important issue, this would be best addressed by the union movement lobbying to make superannuation concessions progressive. This way, ordinary workers could enjoy a boost in their retirement savings without also incurring a reduction in their take home pay.

The last thing the union movement should be advocating is to lower wages growth even further.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith is an economist and has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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