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.
News.com.au 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.