Labor flogs superannuation dead horse

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Labor leader Anthony Albanese yesterday gave a speech to the Queensland Media Club where he confirmed Labor’s unwavering support for lifting the superannuation guarantee to 12%:

The pension is just one pillar of the retirement income system.

The second pillar was built by the Hawke-Keating Labor Government, which is universal superannuation.

This further extended Australians’ financial independence in retirement, extending over time access to the financial security that was once the preserve of business executives and high-ranking public servants.

Our political opponents don’t share our aspirations for our fellow Australians.

That’s why we established and entrenched superannuation – to empower Australians and bolster their independence.

Superannuation was never designed to be a mere safety net. We established superannuation to give working people a fuller and richer retirement.

It is also working for the Australian economy: $3 trillion worth of superannuation savings is being invested both here and abroad, creating jobs and ensuring Australians get more of the wealth of our great country.

Like Medicare, universal superannuation is a great Labor legacy. Sadly, support for it is not universal.

At the moment we are witnessing an unholy coalition attacking the increase in the Superannuation Guarantee.

They want to see super wound back or abolished.

The prescriptions of ACOSS and others play into the hands of the Liberal and National parties.

The parties of trickle-down economics, lower wage growth and less security.

Labor supports the legislated increase in the Superannuation Guarantee to 12 per cent by 2025.

With economic growth and productivity you can have both higher super and higher wages.

Having established the universal superannuation system we will not stand by and see it chipped away.

By supporting the increase in the superannuation guarantee to 12%, Labor is supporting lower wages for working Australians. Don’t just take my word for it, the Henry Tax Review, the Grattan Institute, the Reserve Bank of Australia, and Labor itself have all unambiguously shown that compulsory superannuation contributions are paid by workers, not employers.

Raising the superannuation guarantee to 12% would also increase inequality, given the lion’s share of superannuation concessions flow to high income earners, according to the Australian Treasury:

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As shown above, the top 1% of income earners will receive more than $700,000 in taxpayer contributions to their personal superannuation accounts over their working lives under current superannuation settings, which dwarfs the $50,000 received by the bottom 10% of income earners. Labor’s policy would obviously make this imbalance even worse.

The extra superannuation concessions arising from lifting the superannuation guarantee to 12%, most of which will flow to the already wealthy, would also punch a bigger hole in the federal budget, thus making it harder to fund increases in the Aged Pension, Newstart, or other worthwhile social programs.

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Indeed, the Grattan Institute estimates the cost of lifting the superannuation guarantee to 12% at more than $2 billion per year:

The enormous cost, alongside its deleterious impact on wages, is why the Henry Tax Review (here and here) explicitly recommended against lifting the superannuation guarantee:

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…

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).

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Finally, increasing the superannuation guarantee to 12% would increase funds under management and likely make the industry even less efficient than it already is:

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The typical fees charged by superannuation funds in Australia dwarfs other developed nations, as illustrated clearly by the Murray Financial System Inquiry:

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This is why Australians spend twice as much each year managing their superannuation than they do on electricity. But because these fees are hidden from view, few realise it.

Given the above evidence, there is no justification in lifting the superannuation guarantee to 12%. All this would do is rob workers of take-home pay, cost the federal budget billions in lost revenue, and increase inequality.

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The only beneficiaries would be the superannuation industry itself, which would get to ‘clip the ticket’ on more funds under management.

It is astonishing that a “Labor” Party could support a policy that unambiguously harms the working class. But this is what you get when you pander to inner-city progressives.

About the author
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.