Ignore industry superannuation propaganda

Industry Super Australia (ISA) has released another propaganda report arguing that lifting the compulsory superannuation guarantee (SG) to 12% is vital to kickstarting the post-COVID economic recovery:

From July 2021 employers will increase payments to workers from 9.5 per cent to 10 per cent, and by July 2025 it will be 12 per cent.

An ISA economic survey shows the superannuation increase would provide nine of the group’s industry funds with an additional $33 billion in forward capital expenditure…

ISA believes the additional inflow of funds would stimulate business activity and create hundreds of thousands of jobs in all facets of the Australian economy, assisting in alleviating the country’s rising unemployment rate.

ISA chief economist Stephen Anthony said funds were able to invest in major public projects that assist in boosting productivity within the economy…

Of the projected $33 billion, ISA’s report anticipates $19.5 billion of capital expenditure will generate more than 200,000 jobs between 2020 and 2023.

What hogwash. Lifting the SG by 2.5% would act like a flat income tax increase, draining household disposable income via lower wage growth. This, in turn, would cripple household consumption – the biggest driver of Australia’s economic growth – at a time when it is already historically weak:

RBA Governor, Phil Lowe, noted similar concerns last month:

‘The evidence is that increases of this form do get offset by lower wage growth over time,’’ Dr Lowe told a parliamentary hearing on Friday…

‘‘If this increase goes ahead, I would expect wage growth to be even lower than it otherwise would be.

‘‘There will be less current income and if there is less income, there may be less spending, and if there is less spending, there may be less jobs’’…

As indicated by the ISA above, industry superannuation funds stand to gain massive fund inflows and fee revenue from a SG increase, which explains their incessant lobbying. They are not impartial agents in this debate and have their snouts buried deep in the compulsory superannuation trough.

Anything ISA says with regards to the SG needs to be taken with a large pinch of salt. They are usually talking their own book and rent seeking.

Unconventional Economist
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Comments

  1. These clowns would do better to focus on the real threat. The LNP want to wreck super due to the industry fund/union connection, but they’ve exhausted the limits of looking responsible with the 10k releases. What’s their responsible way to wreck it?

    Well this is Australia, what else could they drive the money into…

  2. MB’s position on superannuation is as biased and irrational as its almost daily attacks on Foxtel.

    Our superannuation system is justifiably lauded globally.

    The Libs’ attack on super is pure culture war stuff: a proxy attack on unions and erasing the legacy of Keating’s Labour.

    Do you seriously think the Liberal Party will ever increase the pension to offset the loss of savings being accrued through superannuation ?

    And ask yourself, why isn’t the Liberal Party doing more to encourage wages’ growth, instead of trying to fudge it by removing increases to the super guarantee ?

    If you’ve got an issue with the low growth in consumption, then keep your focus on the drivers for that: increased personal indebtedness, higher property costs, higher energy costs, lower wages growth, etc

    If you’ve got an issue with wages’ growth, then keep your focus on the real drivers for that: a phony skilled immigration program, capital misallocation into non-productive sectors, the neutering of collective bargaining power, etc.

    If you’ve got an issue with the burden of tax concessions in superannuation, then keep your focus on that.

    But I see absolutely no viable alternative to compulsory superannuation which is being proposed by MB.

    People need to save and defer consumption, and there needs to be a mechanism in the system to account for the fact that people don’t generally do that of their own volition.

    Giving people back their superannuation funds before retirement is just capitalised into property prices, more non-productive investment, and short-term consumption.

    The superannuation system is not the problem here.

  3. MB you are right on this point. However, you MUST always declare your conflict of interest here in regard to your competitors.

  4. I learnt all about superannuation in March 1987 whilst travelling overland to take up a secondment in London. Having five days in Beijing I went to visit the Peking Man site.

    Being the only person on the tour, I got talking with the guide about how much people in China earned and how much things cost.

    After a few quick calculations I said to him: “That means you could buy a television with half a month’s salary.”

    “Oh no”, he replied. “I don’t get to spend all of that.”

    “You mean taxes?”, I said.

    He looked at me in horror. “We don’t have taxes!!! But we have to save half of it in bonds.”

    “That’s alright”, I replied. “You can sell the bonds and whip round to the Friendship Store and buy yourself a television.”

    “Oh no”, he said solemnly. “You can’t sell the bonds.”

    And at that precise moment I understood how the (then new) superannuation system in Australia would work.

    It’s been a great scam for Sydney fund managers who rip off more than $30 billion a year in fees: one of the most expensive pension systems in the world.

    It’s been a great scam for Boomers who’ve been given tax benefits at the expense of later generations.

    It’s been a great scam for politicians who sold generations of accumulated public assets to the funds, then pissed the proceeds up against the wall without appearing to have run a deficit.

    But for anyone under the age of 50 it is a vast inter-generational confidence trick.

    They’re never going to see their money again.

    • If those assets currently in super were being saved outside the system, and being invested into similar structure (and why wouldn’t they if they have the same objectives?), then those fund managers are still going to be ripping fees out of the savings pool.

      The point about tax concessions is fair, but remember who put those concessions into place to let boomers gain the system.

      The existing public assets sold into super is actually a very small proportion of overall superannuation assets.

      I still don’t see any alternative model being proposed anywhere which addresses the fundamental issue of getting people to save more to fund their retirement.