New research released by Industry Super Australia (ISA) has admitted that lifting the superannuation guarantee (compulsory superannuation) from the current 9.5% to 12% will lower workers’ take-home pay compared to what they would receive without the superannuation guarantee increase:
ISA found that… an average worker would see a reduction in prospective weekly wage rises of 30 per cent if the SG rose from the current 9.5 per cent to 12 per cent.
That would mean they would receive a 2.5 percentage rise in super payments while wages would still see an increase of 70 per cent of the total they would have received with no SG increase…
Of course, being a superannuation industry lobbyist that benefits directly from increasing the superannuation guarantee (via more funds under management and bigger profits), ISA has underplayed the wages impact and argued that the gain in retirement incomes far outweighs the loss of take-home pay over one’s working lives.
This is at odds with the findings of the independent Henry Tax Review, which explicitly recommended against lifting the superannuation guarantee because of its pernicious impacts on lower-income workers:
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“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 Henry Tax Review also warned that raising the superannuation guarantee would cost the federal budget more than it saves in Aged Pension costs:
“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).”
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…
[Moreover] both the short and long term, superannuation tax breaks cost the budget more than they save in pension payments:
So who should we believe: an industry rent-seeker that benefits financially from the policy in question, or independent analysis that does not stand to benefit financially?
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
