Labor’s superannuation lies fail evidence test

Labor’s Shadow Assistant Treasurer and Shadow Minister for Financial Services, Stephen Jones, has launched another attack against the “dirty dozen” group of Coalition MPs seeking to freeze the superannuation guarantee (compulsory superannuation) at 9.5%:

Jones said the “primary target” of the ‘dirty dozen’ – referring to the 1967 movie – MPs is the legislated increase to the Super Guarantee rate, in increments, so it reaches 12% in 2025.

“Few of the Dozen have broken cover of anonymity. We do know that included among their ranks is the one time warrior for retirees the Government Chair of the Economics Committee Tim Wilson who has turned his attack on those whose only hope of saving for a decent retirement lies in superannuation.”

“It also includes a gaggle of precocious new Senators from Queensland, Tasmania and the newly minted Senator for NSW, your very own Andrew Bragg who used his first speech to Parliament to suggest that superannuation should only be a feature of our payroll system for workers earning over $50,000 a year”…

It is “heroic” to assume that freezing the Super Guarantee rate will lead to wage rises, Jones told the conference…

“We are expected to believe that if we cancel those increases (not set to take place for another 2 years), then wages will increase today. It is fanciful. It is not a claim that is borne out by the evidence, or by common sense.”

“When the scheduled increase to 10 per cent in 2015 was cancelled, wage growth did not rise. It fell.”

“And to claim that employers are going to pay workers more in wages when they don’t have to – in a time when private and public sector wages are as stagnant as they’ve ever been – simply isn’t plausible.”

We know we have entered ‘Bizarro World’ when Coalition MPs are representing ordinary Australian workers far better than the ‘Labor’ Party.

The evidence overwhelmingly shows that compulsory super is paid for by workers through lower wages. Thereby, abandoning the 2.5% lift in the superannuation guarantee to 12% would raise workers’ wages, other things equal, and improve their standard of living over their working lives

The Henry Tax Review made this point clearly:

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 Henry Tax Review explicitly recommended against raising the superannuation guarantee because it would adversely harm lower-income workers (which Labor is supposed to represent):

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 Parliamentary Budget Office came to a similar conclusion in April:

“The increase in the superannuation guarantee to 12 per cent will likely lead to lower wage increases, shifting a greater proportion of earnings into the superannuation system”.

As has the Grattan Institute:

Even slower wage growth will be the result of increasing compulsory superannuation contributions from 9.5 per cent to 12 per cent…

If compulsory super contributions go up, wages will be lower than they otherwise. And the cut to wages from raising compulsory super is big. Really big. By the time it’s fully implemented in 2025-26, a 12 per cent Super Guarantee will strip up to $20 billion from workers’ wages each year, or nearly 1 per cent of GDP…

Former Labor leader, Bill Shorten, has also explicitly acknowledged that compulsory superannuation is paid for via lower wage growth:

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.

As did former Labor Prime Minister Paul Keating:

 The cost of superannuation was never borne by employers. It was absorbed into the overall wage cost… 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.

Clearly, the Labor Party cares more about lining the pockets of industry rent-seekers than ordinary Australian workers, who would have their wages cut to foot the bill for its idiotic 12% compulsory super obsession.

As a minimum, Labor should support the Productivity Commission’s explicit recommendation for a public investigation on whether the superannuation guarantee should be lifted:

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.

Let the Productivity Commission settle the compulsory superannuation debate once and for all.

Unconventional Economist

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

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Comments

  1. The Traveling Wilbur

    A clarion call for sensisble policy making based on decisions informed by data analysis and carefully defined modelling. A call for the ages!

    Shame it’s asking for that in Straya. Yeah, nah.

  2. So the hypothesis is that if we don’t increase, the 2.5% will flow to wages.

    How can we validate this.

    We will need a control group.

    A portion who do not receive the 2.5% super but get the money via pay. (Or are supposed to).

    Then conduct an evaluation.

    We won’t be able to advertise this as the very idea it will be observed could cause compliance whereas otherwise employers would NOT pay the 2.5%

    • My contract specifies my salary including super, so it seems pretty obvious if super goes up the remaining part would go down by the same amount.