Lies, damn lies and superannuation

It’s fair to say that Industry Super Australia (ISA) has a vested interest in raising the superannuation guarantee (SG) from the current 9.5% to 12%, since this would result in more funds under management to ‘clip-the-ticket’ on, and more fee revenue.

This vested interest helps to explain why ISA’s chief economist, Stephen Anthony, has put forward more flimsy arguments in favour of raising the SG:

…the SG is said by some to retard growth and living standards by leaving lower-paid Australians worse off. The irony in that argument is that working Australians in the aggregate have not been receiving “productivity” wages for a decade.

In an era when labour productivity is not feeding through to real wages (which once was automatic), employers have the capability to pay SG while not impacting wage increases…

Those who are against an increase in the SG claim that growth in employees’ take-home wages today will be offset by close to the full amount of the SG rise. Given the complexity of the labour market (and the myriad interactions and wage-setting mechanisms it involves), such an argument is broad and simplistic.

There is also no guarantee that there will be a wage rise if the SG does not go up. Recent history shows us employers have not been returning labour productivity gains to employees, with wages only rising with the CPI. The critics of the SG haven’t explained the transmission mechanism for how a full pass-through of productivity will occur (either to catch up for a lost decade or in the future).

Thinking about the macroeconomics, there must be a theoretical upper limit to SG contributions, but that number is higher than 9.5 per cent, based on how many Australians are still relying on the aged pension to some extent.

Provided that the superannuation system is efficiently converting deferred wages into an adequate stream of retirement income, that number could be well north of 12 per cent, even as high as 15 per cent as was originally envisaged by the system’s architects…

So, the clear-cut lesson is that the SG needs to be higher than it is now.

Stephen Anthony’s arguments around wages do not make sense.

Employers only care about their overall wage cost and don’t care what proportion of their wage bill is paid directly to workers or into a superannuation account. The cost to them is the same regardless.

Moreover, while real wages have stagnated, nominal wages have in fact risen by 14% over the past six years. Raising the superannuation guarantee from 9.5% to 12% (or even 15% as championed by ISA) would simply ensure that nominal wages grow by less than they otherwise would, with the difference going into workers’ superannuation accounts.

This wage trade-off is non-controversial and has been documented by the Henry Tax Review, the Grattan Institute, the Parliamentary Budget Office, among other places (see yesterday’s post).

Second, Anthony conveniently fails to mention that the way superannuation concessions are structured is highly inequitable and is set up to harm lower income earners.

This is because the flat 15% tax on contributions and earnings ensures that those on lower incomes receive minimal concessions (or are penalised), whereas those on higher incomes receive the biggest tax breaks on contributions/earnings:

Accordingly, the Australian Treasury last month revealed that high income earners are receiving the lion’s share of benefits from Australia’s compulsory superannuation system:

Therefore, lifting the SG without first fixing the concessions system would amplify these inequalities and inefficiencies, thereby robbing lower-paid workers of take-home pay while also depriving the federal budget of much-needed tax revenue from higher-income earners.

Indeed, unless the concession structure is fixed, the cost to the federal budget from further increases in the SG will exceed any cost savings from the Aged Pension:

Lifting the SG is unambiguously poor policy. Instead, focus should be placed on fixing the concession structure, as well as ensuring the existing system works equitably and efficiently.

Leith van Onselen
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  1. “This is because the flat 15% tax on contributions and earnings ensures that those on lower incomes receive minimal concessions (or are penalised), whereas those on higher incomes receive the biggest tax breaks on contributions/earnings”

    If you say it enough times it’s true even when it isn’t?
    Are you aware of the government’s Low Income Superannuation Tax Offset that effectively means that those earning up to $37K have their concessional contributions tax repaid into their super accounts, so in net terms pay no concesssional contributions tax?

    • This is increasingly the pattern here. Repetitive, tendentious and often inaccurate or incomplete material rehashed day after day in the quest for an ideological goal.
      It makes Scomo jealous.

    • do you know that minimum full time wage in Australia is $40.5k
      so this offset works for people who choose to work part time on a high wage (those who don’t need much more money)
      others, who struggle to find more work and have trouble to survive will be penalized because their take home pay will be reduced (these people don’t care about super because they’ll never be able to live off that money)

  2. This stuff is boring.

    You know what broken superannuation? The low interest rates that everyone has been cheering so loudly here.

    Good luck “saving” for retirement when your funds yield 2%-4%

    • You know one thing that would contribute to low yields, ever increasing funds looking for investment returns.
      In a world with fixed investment opportunities adding more and more funding for investment will lead to a reduction in returns from those investments.
      I’m not sure exactly how making super compulsory would have increased the pool of available investments, but it sure as sh!t increased the pool of money looking for investments.

      • This is true in theory.

        But Australian super is a tiny pimple on the body of the world’s speculative capital. Us and Eu and Sino money printing are orders of magnitude bigger.

        Enter pfh’s thesis that allowing that fake money into Australia to buy our assets is a BAD BAD idea. That horse has long bolted, of course.

        • But that flood of cheap money has subsidised the costs of our imports for decades. Think of inflation!!!!!
          And at least for the flood of chinese money, hopefully we get a real, honest to god shooting war soon and can simply reclaim all the chinese owned stuff directly back into australian ownership. Win/win I say 🙂

          • A war would be great.

            It would give our young people the chance to make the ultimate sacrifice and actually die to protect the overconsumption by boomers and the government’s decades of acquiesce, appeasement and pandering to the same.

            BecIse now they are only being financially raped for that cause. And that is not sacrifice enough.

        • Your boomer nonsense is crazy. Look at Leith’s Fig. 4 above. The only real winners in that generation are in the top 20% and especially the top 10%. Most baby boomers own little more than a modest house, if that. If they live in a major city, the land under that house may be worth a lot of money, due to misguided government policies, but for most of them, their revealed preference is to live modestly and stay in their familiar neighbourhoods, near their friends and family. Reverse mortgages are a scam. The real winners from those houses will be their children or their nursing home proprietor, if they are unlucky.

          Baby boomers (born 1945-1964) are outnumbered by more than 2 to 1 by younger voters. If you people wanted to get rid of the neoliberal politicians, who really are responsible for your problems, they would be gone, even if the baby boomers voted for them as a bloc. If the politicians are pandering to them, as opposed to just their rich mates (the source of their election funding and lucrative careers after politics), then they are too stupid to know where the votes are.

          • Yeh well. Most non-boomers don’t even own a modest house. And they’d also like to live in a familiar neighbourhood…. but they have to move all the time because they rent.

            So boo hoo to the boomers.

          • So why are they voting for the neoliberal politicians, who have flooded the country with permanent and temporary migrants to compete with them for jobs and housing? Who have allowed most of the jobs and development to be concentrated in a few big cities? Who are giving property developers special tax breaks to compete with families for housing? Who are tolerating money laundering and allowing foreigners to own real estate and controlling interests in our companies? Who are responsible for grossly unfair laws on the rights of landlords and tenants? Apart from all that they have done to trash our environment? I have been voting against those [email protected] for decades, and it infuriates me when stupid, sheep-like young people want to put all the blame on the oldies and not take a good look in the mirror!

          • You’re right. Young’uns are a bunch of idiots.

            But That doesn’t change the fact that the boomers are privileged.

          • No doubt many people in the Third World would consider you and those young people privileged. Why have a race to the bottom?

          • Tania, I’m not a boomer, but you are a consistent voice of reason in this silly manufactured inter-generational conflict. I’ve encountered the stereotypical supposed boomer mentality in people of various ages and generations. Whatever a generation is, beyond a lazy and arbitrary shorthand bracketing of birth years for discussion purposes.

            Keeps the plebs at each other’s throats I suppose.

            But I don’t think you’ll find too much deep thought on it here….

          • “but for most of them, their revealed preference is to live modestly and stay in their familiar neighbourhoods, near their friends and family.”
            Living near friends and family is a luxury that only the boomers and rich can afford. That alone makes you privileged, the current generation has lost the “freedom” to choose to live near friends and/ or family. a big deal if one of the family has cancer etc.

  3. super is the best Trojan horse for working class ever invented, it bribed union leaders, reduced people’s wages and provided rich finance people with funds to gamble …