It’s official: 12% compulsory super will crush wage growth

New modelling released by the Reserve Bank of Australia (RBA) has revealed that lifting the compulsory superannuation guarantee (SG) by 2.5% to 12% would reduce wage growth by 1.75%:

The figures are contained in documents compiled by the RBA in January – before the COVID-19 pandemic and economic slump – which forecast the increase in the superannuation guarantee from 9.5 to 12 per cent “will be largely passed through by lower wage increases from 2021″…

According to a briefing paper drafted by RBA economist Taylor Nugent, the first 0.5 percentage point increase next year will result in an immediate 0.27 per cent reduction in wages growth by June 2022.

Over the longer-term, given the “pass-through” of superannuation increases onto workers, Mr Nugent said that “long-run wages levels under each of these profiles are about 1.75 per cent below what they otherwise would have been”.

This reportedly accords with the Australian Treasury’s unreleased 650-page retirement incomes review:

[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…

[The report] repeatedly raises concerns over the “trade off” between higher super and lower wages.

Several independent analysts (i.e. not commissioned by industry) have also concluded that raising the SG will lower wages growth (other things equal), including:

From the outset, MB has argued against lifting the SG to 12% because:

  • It would lower future wage growth and disposable income, which would adversely impacting lower-income earners.
  • It would increase inequality, given higher income earners receive the bulk of super concessions.
  • It would worsen the long-term sustainability of the federal budget, since the cost of super concessions outweighs the benefits from lower pension outlays.

The main beneficiaries from raising the SG to 12% are super funds, which will earn fatter management fees at the expense of workers and Australian taxpayers.

Unconventional Economist
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Comments

  1. Display NameMEMBER

    Reduce wage growth by 1.75%? There is projected wage growth of 1.75%? Realistic projections?

    • No wage growth is coming. All this is just paper talk. I will take the 12% super thanks. Rather then say no to super and hope the boss gives me a higher pay rise. Which is not coming anyway.

  2. $70k average wage. $2k a year geared into property?

    $2k a year in growth assets all over the world in super?

    Far better with it in super. Make it 22% instead of 12%, and stopping immigration is a far better future for young Australians.

  3. Jumping jack flash

    Apart from the fact that super is moot in the New Economy unless it appreciates at least as quickly as houses.

    If it doesnt then there is no reason why we shouldn’t release those funds to go all in on houses.

    The injection of 2 trillion super dollars would all but ensure the correct amount of capital gains for the required amount of time. Also think of the debt 2 trillion super dollars could leverage at current low rates and irresponsible lending.

  4. Is a 5% growth in wages over say 2 or 3 years now impossible according to the RBA, Treasury & Grattan?

    If it’s not unreasonable for wages to grow by 2% per year, then it’s also not unreasonable some of that wage growth goes to lifting the super guarantee toward 12%.

    Framing it as only one option of all wage growth to go to super increase and therefore impossible is the same behaviour from my perspective as propping up housing while throwing workers under the bus.

  5. ErmingtonPlumbingMEMBER

    Nothing grates me more than finding the cash to pay my super bill every year.
    GST, Workers comp insurance, regular taxation and other overheads are bad enough.
    But this super money that’s supposed to be mine, but I can’t touch it till I’m 70 and If I pay it late I get financial penalties SHYTES ME TO DEATH!
    Along with all the OH&S BS it’s the main reason I don’t employ someone.