The most important take away from the PC’s super review

By Leith van Onselen

Last week’s final report on the efficiency and competitiveness of Australia’s $2.8 billion superannuation system was scathing, noting a multitude of failures ranging from a proliferation of poorly performing funds, excessive fees, unnecessary and costly insurance products, and multiple accounts.

While these issues are all important and require urgent reform, the biggest recommendation for mine was the below [my emphasis]:

RECOMMENDATION 30: INDEPENDENT INQUIRY INTO THE RETIREMENT INCOMES SYSTEM

The Australian Government should commission an independent public inquiry into the role of compulsory superannuation in the broader retirement incomes system, including the net impact of compulsory super on private and public savings, distributional impacts across the population and over time, interactions between superannuation and other sources of retirement income, the impact of superannuation on public finances, and the economic and distributional impacts of the non-indexed $450 a month contributions threshold. This inquiry should be completed in advance of any increase in the Superannuation Guarantee rate.

As regular readers will know, Labor and the union movement has been agitating to increase Australia’s compulsory superannuation rate (the Superannuation Guarantee) to 12% or beyond as a matter of urgency.

For example, last month unions demanded an increase in the superannuation guarantee to 15% by 2030:

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…

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”.

Whereas former energy and climate change minister in the Rudd and Gillard governments, Greg Combet, also recently demanded an urgent compulsory super lift to 12%:

Greg Combet, now one of the most powerful figures in the $2.7 trillion superannuation system, says.. the government needed to bring forward moves to lift compulsory employer contributions from 9.5 per cent to 12 per cent…

Mr Combet yesterday assumed the chairman’s role at the peak policy body for industry funds and at its jointly owned funds management company, the $113bn IFM Investors, placing him at the top of a major chunk of the national savings market…

From years MB has opposed raising the Superannuation Guarantee because it would directly lower employee wages, and would particularly harm lower income earners.

We are not alone. The Henry Tax Review explicitly noted that compulsory superannuation is paid for by workers:

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.

Accordingly, 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 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”.

As has the founder of Australia’s compulsory superannuation system, Paul Keating:

“The cost of superannuation was never borne by employers. It was absorbed into the overall wage cost. Indeed, in each year of the SGC growth between 1992 and 2002, the profit share in the economy rose…

“In other words, had employers not paid nine percentage points of wages as superannuation contributions to employee superannuation accounts, they would have paid it in cash as wages”…

And for anyone still with doubts about who pays for super, consider this 2010 speech by Bill Shorten – a former union heavyweight – when he was Minister for Financial Services & Superannuation in the Gillard Labor Government:

Because it’s wages, not profits, that will fund super increases in the next few years. Wages are the seedbed of the whole operation. An increase in super is not, absolutely not, a tax on business. Essentially, both employers and employees would consider the Superannuation Guarantee increases to be a different way of receiving a wage increase.

The absolute last thing the union movement and an incoming Labor Government should be advocating is lowering wages growth even further by lifting compulsory superannuation.

About the only winners from such a policy would be the superannuation industry, which would get to ‘clip the ticket’ on more funds under management and earn fatter profits.The Productivity Commission’s key recommendation must be heeded by a Shorten Labor Government.

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