Labor vows to lower wages via compulsory super increase

By Leith van Onselen

Amid all its pontificating over Australia’s anaemic wages growth, Labor has committed to increasing the superannuation guarantee to 12% if it is elected at the upcoming federal election. From The New Daily:

Federal shadow treasurer Chris Bowen told a banking and wealth summit in Melbourne on Tuesday that Labor was committed to the legislated super increases from 9.5 per cent to 12 per cent by 2025.

“Let me make it clear that the Labor Party does not regard a 9.5 per cent super guarantee as providing adequacy,” Mr Bowen told attendees.

Mr Bowen’s emphatic guarantee came after modelling by Treasury this week reportedly showed the age pension is on track to cost the nation less than predicted…

Industry Super Australia’s (ISA) deputy chief economist Matt Linden said lifting the super guarantee will be “more impactful” for lower and middle- income earners…

“It’s particularly important for lower and middle-income workers, because that’s a group who are often not making additional savings,” he said.

Doesn’t Labor realise that compulsory superannuation is paid for by workers (not employers) via lower take-home pay (less disposable income)?

It should, because nine years ago leader Bill Shorten gave a speech when he was Minister for Financial Services & Superannuation in the Gillard Labor Government which acknowledged this precise fact:

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.

Let’s also remember that 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.

The Henry Tax Review also acknowledged that the budgetary costs of compulsory superannuation actually exceed the pension savings to the federal budget:

“An increase in the superannuation guarantee would … have a net cost to government revenue even over the long term (that is, the loss of income tax revenue would not be replaced fully by an increase in superannuation tax collections or a reduction in Age Pension costs).”

The Grattan Institute’s latest report similarly concluded that “both the short and long term, superannuation tax breaks cost the budget more than they save in pension payments”:

Labor needs to face up to the facts. Tax concessions on superannuation already cost the Budget an inordinate sum, and are growing rapidly. Raising the superannuation guarantee to 12%  would mean they become an even bigger ($2 billion a year) Budget drain over time.

Meanwhile, it would do little to boost superannuation savings for lower income workers – those most likely to become reliant on the Aged Pension – given the lion’s share of superannuation concessions would flow to higher income earners. Thus, raising the superannuation guarantee would merely worsen the inequities and inefficiencies already rife in the system.

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

Clearly, Labor cares far more for the industry rent-seekers than ordinary Australian workers and taxpayers, who would have to foot the bill for its 12% compulsory super obsession.

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  1. “The only winners from raising the superannuation guarantee would be the industry, which would get to ‘clip the ticket’ on more funds under management and earn fatter profits.”

    And the ALP who will get increased union donations via the ISFs.

    • And the big construction unions that are getting a steady stream of infrastructure work out of the ISFs.

  2. Choosing between Labor and the LNP is like choosing between firm nuggets or runny diarrhoea on your sh1t sandwich.

  3. Forrest GumpMEMBER

    There’s no point raising the super rate to 12% if you cant increase the concessional rate from its current $25K. Pointless exercise.

  4. Super is a form of tax if you ask me, especially because the way things are going none of us will see that Super in our retirement. Except instead of going to the Government to spend on services, it’s going to the pockets of private companies.

    • +1 For most, the super amounts they hold will never be enough. It is drip fed back to them on retirement in lieu of a pension. So yes, in substance it is a flat (non-progressive ) tax, that is part of a scheme that costs more to fund than the pension.

      Scrap it and give our money back.

    • It has become that for most.
      For others it is a form of tax minimisation.

      The idea of Super seemed good.
      Yet, in the Australian tradition, the execution was abysmal.
      That’s assuming that the intentions of the implementers were for the greater good.

      Cam Murray put up a post on how to unwind super last year.
      It’s definitely what I’d prefer to see instead of increasing the the compulsory contribution.

      • That’s assuming that the intentions of the implementers were for the greater good.

        Big assumption that. I’d assume the intentions of the implementers were to line the pockets of the people in the Super industry at the expense of the punters, with the inconsequential side-effect of perhaps funding some (mostly already wealthy) people in retirement, and they’ve succeeded beyond their wildest dreams. That’s how the so-called “Super” system was intended to work.

        With my previous Super fund, which was very fcuking far from “Super” I might add, when I turned 50 and started to pay attention I discovered that I’d paid $10K over a 20 year period to a “financial adviser” that I’d never even heard of or spoken to. My fault for not reading the fine print, and I fixed it the day I found out about it, but how many other people were and still are like me? Those chunts are sitting there raking in the moola for doing absolutely fcuking NOTHING!

        It should be called the “Compulsory Sh1t System”, as there’s nothing remotely Super about it.

      • @ LSWCHP

        This is not personal but I am always surprised how super and the huge fees as well as the compounding interest effect are ignored by many. I get it, not sexy when you are young to check your super.

        Agree with you on the Big Assumption, but regarding your super…..your comment,” when I turned 50 and started to pay attention” says it all. We need to educate in high school the benefits of superannuation in the long run.

        How can one begrudge someone with a healthy SMSF super balance when they chose to ignore their own retirement income ?? I paid into my superannuation the same week I started work and it was a great decision.

        I get this a lot from my mates who are still working because they neglected their personal superannuation at their peril and yet they want, and see it as their right to get a pension.

        Some of my mates saved very little, spent the lot and now with both hands out begging for a pension. ( Not saying this is you )

        Many government pension funds in Europe are finding it difficult to pay pensions and some have frozen pension payments without any CPI increases.

        Is that what we want ?? Let these politicians decide when we get paid, or get anything at all.

        I prefer to look after my own hard earned moolah and keep these public serpents on their fat DBF pensions from making decisions about my hard earned retirement income.

        The unions are losing members big time, so now they have their ticket clipping hooks into compulsory super.

        The young refuse to see this as retirement appears light years away for them. The fact that most will have + $ 1 million in super eludes them.

        Great business plan for Industry Fund Super funds managed by Labor as they stand to gain as the super balances continue to grow and the cash flow becomes Labor’s cash cow.

        Australia the dumb as country.

  5. 12% super not a bad idea of itself. super should be changed to follow the Singaporean model. …

  6. Yep, this little-black-duck has bundles in Super – in cash as I don’t trust the markets – earning 2%. Also have a mortgage and paying 4%. Seems to me, compulsory Super has been a gift to Banks of a 2% margin on all of my earnings which they can reap every year until my retirement. Brilliant!! (for the Banks)

    • @ DaHumph

      This is not investment advice; just asking.

      If your money is in the bank at say 2% why not buy shares in the same bank and get Fully Franked + 7% return on your money ?? or are you in a Industry fund that decides where your money is invested ??

      The young can ride out the ups and downs and once you reach say +/- 55 and have all funds in cash then I can see the merits/benefits of such a strategy.

      @ morgs

      My son’s mortgage is 4% and his super is earning circa 8% and he is doing nicely.

      Add to that, that all extra cash is “invested” in the Mortgage Offset account also earning 4 % Tax Free he is very happy.

      Talk to you dad.