Australian Treasury: compulsory superannuation increase will lower wage growth

Treasury analysis, obtained under Freedom of Information, claims that raising Australia’s superannuation guarantee (‘compulsory superannuation) to 12% would lower wage growth and would make the gender retirement savings imbalance even worse:

Though compulsory SG contributions are paid for by employers, wage settings generally takes into account all labour costs. As such, it is widely accepted that employees bear the cost of higher SG in the form of lower take home pay. This means there will be a trade-off between peaople’s income during their working lives and their income during retirement.

The main driver of women having lower balances than men are women’s lower incomes and longer career breaks. While the increase in rate of SG would increase retirement balances for women, it would likely lead to an even larger increase in male retirement balances due to their high lifetime earnings.

Nobody should be surprised by this result given it basically echoes the findings from 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…

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 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 would 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..

The Parliamentary Budget Office:

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.

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.

I could go on, but you get the drift.

While the industry’s support in raising the superannuation guarantee is understandable, given it would directly profit from the increased funds under management, Labor needs to hang its head in shame for supporting a policy that would unambiguously lower the wages of its purported working-class base.

Leith van Onselen


  1. Well I just read 39 pages of the FOI release, and other than rank tautology, there is nothing to demonstrate that an increase in SG will result in (otherwise) lower wage increases.

    It is just as credible to assert no changes in the SG, will result in the same low wage increases.

    There’s more in that FOI release talking about the cost of living for oldies, and how they have an effective $10k increase in the tax free threshold than the rest of us.

    You can tell the ‘higher SG means lower wages’ is not grounded in facts when they’ve having to ally with feminist boilerplates, this time being ‘gender gap’…

    “Won’t increase the SG help close the gender gap in super balances?” … with the answer being no, therefore an alternative has to be looked at. The ‘right’ social perspective is not being engineered here, so let’s go back to the drawing board.

    Increasing SG is not meant to ‘close the gap’, it’s hard to see how the government should have a role in closing the gap at all.

    • Here’s how you know it comes from wages. Keep everything unchanged, except let people take money out of their super account at the end of each month to spend as they please. Voila! Super is now wages.

      • Here’s how it doesn’t work.

        Current super balances are already accrued, so it is capital, not income from an individual/member perspective.

        Here’s the proposed theory why it won’t work:

        A workers full remuneration is an index of 109.5, with 100.0 being PAYG wages, and 9.5 being SG. The policy guidance moving forward is the remuneration indexation being 112.0, with PAYG being 100.0 and SG being 12.0.

        The tautology being expressed in the case for is…. if SG of 9.5 is no longer compelled to go to 12.0… then from that marginal 2.5, employers will willingly of their own free will instead pay an indexed PAYG of 102.5.

        I absolutely reject this tautology as being self evident. I base my competing theory that what makes employers pay is legislated minimums, or the need to compete for labour on price.

        If SG was frozen at 9.5 now, I do not have confidence that PAYG increases would balloon under the guise of “You know that SG increase you had factored into otherwise paying me, well let’s up the PAYG up a bit more to absorb it.”

        • Super balances are accrued, obviously. Just like bank account balances from wages.

          Regardless, there is no tautology being expressed here. I’m not saying that employers will voluntarily pay extra. I’m saying if you can force employers to pay a 112 total wage bill, you can force them to pay it into one bank account instead of two. That’s all. Do you disagree? Is there something magical about a dollar destinated for bank account A vs bank account B (which happens to be a super fund) that allows us to increase total (super plus take-home) wages further than otherwise?

        • “Regardless, there is no tautology being expressed here.”

          It is absolutely tautological. The index of 112.0 in the future is legislated, a margin up from 109.5.

          If SG stays at 9.5, the marginal 2.5 is not legislated to be paid another way, and the assumption that the 2.5% act of generosity will automatically find its way in PAYG is expressed here as self-evident, or tautological.

          “I’m not saying that employers will voluntarily pay extra. I’m saying if you can force employers to pay a 112 total wage bill, you can force them to pay it into one bank account instead of two.”

          So you’re going to force a legislated increase via PAYG instead? Well then it’s not SG increases preventing wage rises, it’s a lack of legislation. The argument here is that PAYG increases would come out of an act of employer generosity, and the lack of such is due to the burden of compulsory SG payments.

          “That’s all. Do you disagree?”

          Yes, I disagree vehemently, because….

          “Is there something magical about a dollar destinated for bank account A vs bank account B (which happens to be a super fund) that allows us to increase total (super plus take-home) wages further than otherwise?”

          Yes, to assume a otherwise legislated SG increase, will then revert to to a 2.5 PAYG increase on the basis an employer will voluntarily disperse 2.5% out of goodwill is wishful thinking. Here’s another angle…

          Let us say the SG stays at 9.5. An employer can out of goodwill just pay 12% SG anyway, they’re not bound to the legislated minimum. So tell me where these above minimum acts of generosity exist? Or can we assume it sits at 9.5 because employers are compelled to, and when an employer bargains with an current or prospective employee, the **total remuneration** is set on the basis of relative bargaining power.

          Thus, we can have SG increase from 9.5 to 12.0, and concurrently see PAYG go from 100.0 to a indexed 11.0… for the sole reason an employer has to outbid the competition.

    • The Traveling Wilbur

      As opposed to? All the exciting economics topics that are otherwise discussed, debated and measured at length on MB? I can post some of the highlights of the MMT vs Banking / Central Bank role in the ‘creation’ of money debate / blind-fury-of-copying-from-compilations-of-previous-comments, if you like, and think it will help?
      Please don’t say yes.