The Reserve Bank of Australia (RBA) released a statement yesterday in response to ‘questions on notice’ from federal MPs. Buried in this statement is the tacit acknowledgement from the RBA that lifting Australia’s superannuation guarantee (‘compulsory superannuation’) from 9.5% currently to 12% would lower wage growth [my emphasis]:
Can the RBA advise what the impact on wages would be from the legislated increase in the compulsory superannuation guarantee?
Further to the previous response, we have not done any work on how the legislated increase in the compulsory superannuation guarantee will affect wages specifically.
Contacts in our liaison program with business and other interested parties have not raised this as an issue to date. Nor have wage-setting authorities released any information on how changes in the guarantee may affect their decisions. Evidence from past increases in the Guarantee suggest wages growth could be affected, but the timing and size of any effect will depend on labour market conditions at the time and other factors. For example, when the Super Guarantee was increased to 9.25 per cent in 2013, the Fair Work Commission stated in its minimum wage decision of that year that the increase in the minimum was ‘lower than it otherwise would have been in the absence of the super guarantee increase’. We anticipate providing more information on the possible impact on wages growth closer to the time the change is implemented.
Leaving aside the absurdity that the RBA has not examined the impact on wages from raising the superannuation guarantee – given wage growth is a key component of its forecasts for the macro economy – it does at least acknowledge that there would likely be a negative impact.
However, one does wonder why the RBA did not note the findings of the Henry Tax Review, which stated unambiguously that raising the superannuation guarantee would lower wages:
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…
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 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.
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…
I understand that the RBA is reluctant to weigh into such a politically charged issue, but this should not prevent it from answering economic questions in a truthful and straightforward manner.
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.
