It’s official: 12% superannuation will smash wages

The Australian Treasury’s 650-page retirement incomes review has been released to the Morrison Government (but not publicly), which reportedly warns that lifting the compulsory superannuation guarantee (SG) from 9.5% to 12% would crush wage growth:

Australian workers face years of lower wages if the legislated increase to superannuation in the post COVID-economy proceeds, according to a confidential 650-page Treasury report.

[The report] warns workers are facing a “trade off” with lower wages if employers are forced to increase super. has confirmed the Treasury report, which has been completed and handed to Treasurer Josh Frydenberg, does not offer any formal recommendations on retirement income policy but repeatedly raises concerns over the “trade off” between higher super and lower wages.

Grattan Institute economist Brendan Coates said it was clear that increasing super now would cost worker’s wage increases.

“While employers might hand over the cheque for super, workers ultimately pay for almost all of it through lower wages’…

“And the Reserve Bank agrees: it’s forecasting wages growth to be slower from next year than if compulsory super wasn’t rising…

“Raising compulsory super would also cost the budget $2 billion a year in foregone tax, which would vastly exceed any savings from less spending on pensions for decades to come,’’ Mr Coates said.

These findings should not be controversial. The Henry Tax Review came to exactly the same conclusion more than a decade ago and explicitly recommended against lifting the SG:

“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”.

Frustratingly, these findings and recommendation were ignored by the former Labor Government, which instead implemented legislation to lift the SG to 12%.

The Henry Tax Review also found that lifting SG would cost the federal budget more in superannuation concessions 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)”.

I look forward to the public release of this report and the robust public debate that ensues.

Unconventional Economist
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  1. Of course the elephant in the room is that if it is a bad idea to go from 9.5 to 12%, why isn’t it a good idea to go from 9.5% to 0%?

      • So how do you ensure people save enough without a compulsory scheme ? In this country, people will spend every cent they have to prop up consumption. Unless you are rebuilding a welfare state from the ground up and re-calibrating taxation, immigration, wages, house prices, etc, then taking away compulsory super is ultimately an act of malice against workers and condemning them to subsistence living in their old age.

        • The tax subsidies to the those who don’t need them will be saved to pay higher pensions to those who do.

    • Sounds all fine in the short term or now but ignores the future and demographics impacting government budgets, revenue and outgoings, and looming issues with retirement income elsewhere; Australia is in the top five of sustainable retirement income systems in the world and the LNP/IPA don’t like it….. even if financially sensible in the long term.

      How will retirement income be funded outside the state pension system with a decline in working age population vs increase in retirees? Will the government increase and broaden taxes amongst working, middle and more retirees, reduce related services or have higher NOM of net financial contributors to support budgets?

      Very simplistic notions that seem to be masking demands from business sector not to fund employees’ retirement income, ignoring that most people need enforced saving (vs. simply spending extra income now) and of course the LNP/IPA detest the idea of (well performing) industry funds with financial clout and influence in the corporate sector and society?

      Further, the proponents of no super increase make several assumptions and in particular that employers and government policy cannot walk and fart at the same time i.e. this suggests that pay rises are now contingent on paring back super versus modest increase in both gross pay and the super contribution.

      Welcome to radical right libertarian Australia, a shallow knock off of plutocratic oligopoly of the US…..