Labor must not lift compulsory super to 15%

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The superannuation guarantee (SG) is slated to incrementally rise to 12% by mid-2025. However, Financial Services Minister Stephen Jones has indicated that the federal government will look at increasing the super guarantee to 15%; although he says this will not be on the policy agenda for its first term in office:

“We’ll look at the pathways beyond 12 per cent towards the backend of this term, but there’s no present plans for that,” Mr Jones said in an exclusive interview with The Australian Financial Review…

Fifteen per cent superannuation is part of Labor’s official platform, with the document committing the party to set out a pathway to increasing the superannuation guarantee to 15 per cent once the rate has increased to 12 per cent on July 1, 2025.

Lifting the SG further is unambiguously bad policy.

The Retirement Income Review stated that lifting the compulsory SG would harm low-income earners and reduce workers’ lifetime incomes:

A rate of compulsory superannuation that would result in people having an increase in their living standards in retirement may involve an unacceptable reduction in living standards prior to retirement, particularly for lower-income earners… This is based on the view, supported by the weight of evidence, that increases in the super guarantee rate result in low wages growth, and would affect living standards in working life.

The weight of evidence suggests the majority of increases in the super guarantee come at the expense of growth in take-home wages. The view is based on empirical research, economic theory, evidence across a number of countries and the original policy intent of superannuation guarantees.

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Australia’s compulsory superannuation system already exacerbates inequality by handing the bulk of tax concessions to high income earners:

Superannuation concessions

Most superannuation concessions flow to higher income earners.

Accordingly, the Retirement Income Review noted that inequality would worsen if the SG is lifted:

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Increases in the superannuation guarantee rate will increase lifetime government support for higher-income earners by more than lower- and middle-income earners.

Lifting the SG to 15% would also worsen the long-term sustainability of the federal budget, since the cost of superannuation concessions outweighs the benefits from lower pension outlays, according to the Retirement Income Review [my emphasis]:

The cost of superannuation tax concessions is projected to grow as a proportion of GDP and exceed that of Age Pension expenditure by around 2050. This is due to earnings tax concessions. The increase in the SG rate to 12 per cent will increase the fiscal cost of the system over the long term…

As the superannuation system matures, the cost of superannuation tax concessions is projected to grow as a proportion of GDP such that by around 2050 it exceeds the cost of Age Pension expenditure as a per cent of GDP (Chart 12). This is the result of growth in the cost of earnings tax concessions…

Cost of superannuation concessions

Tax concessions are largely concentrated among higher-income earners who are close to and above preservation age. Across the income distribution, the lifetime cost of superannuation tax concessions is projected to outweigh the associated Age Pension saving (Chart 13)…

Cost of superannuation concessions breakdown
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The primary beneficiary from lifting the SG to 15% would be superannuation funds, which would earn fatter fees on larger funds under management. However, their gains would come at the direct expense of Australian taxpayers and workers.

Labor should junk its 15% SG policy. It is as anti-worker and you can get.

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.