Lifting super guarantee won’t hold down wages, argues Labor

04 Feb Lifting super guarantee won’t hold down wages, argues Labor

John Kehoe – Tuesday 4 February – Australian Financial Review

The $3 trillion superannuation industry and Labor say new analysis showing higher compulsory super subtracts from wages is misleading, as Liberal backbenchers welcomed renewed debate on the scheduled rise in the super guarantee.

The Australian Council of Social Service on Monday raised concerns that lifting the super guarantee (SG) to 12 per cent of wages would financially hurt low income earners and called on the Morrison government to first cut generous super tax breaks for the wealthy.

The Grattan Institute’s modelling of 80,000 workplace agreements between 1991 and 2018 found that 80 per cent of rises in the super guarantee tended to be offset by lower-than-otherwise wages over a few years.

The Morrison government’s wide-ranging retirement income review is considering the merits of the Labor-legislated incremental rise in compulsory super from 9.5 per cent to 12 per cent of wages due between 2021 and 2025.

As the Reserve Bank of Australia grapples with lacklustre wage growth, Labor’s financial services spokesman Stephen Jones said the bank had identified low productivity

growth, globalisation, under-employment and a decline in worker bargaining power as drags on wages.

“Wages are weak not because of the super guarantee but because the government has no credible economic plan to raise them,” Mr Jones said.

“The original timetable has already been delayed twice costing workers who are retiring today between $60,000 and $100,000 in their superannuation balance.”

Mr Jones said it was a “very risky strategy” for ACOSS to resist lifting super to 12 per cent in the hope the government would raise super taxes on the wealthy to fund benefits for pensioners and the unemployed.

The RBA said in November the super rise from 2021 “could affect wages growth, but this will depend on labour market conditions and the response of wage-setting bodies at the time.”

Liberal backbenchers Andrew Bragg, Tim Wilson, Jason Falinksi and James Paterson, who have in the past pressed the government to consider stopping the legislated incremental rise in the SG, latched on to the calls from ACOSS and Grattan.

Mr Falinksi said: “Remarkably, I find myself agreeing with ACOSS that this policy hurts people on low incomes and benefits people on higher incomes – particularly the fund managers looking after all this money.”

“It’s an open question whether we should be putting more money into a system that doesn’t appear competitive and is not looking after the people by Keating’s own standard it was meant to look after.”

Senator Paterson said: “ACOSS joins a chorus of academics, independent experts and reports of government all of which shows higher super contributions comes at the expense of take home pay.”

However, the Liberals did not back ACOSS’s call for cutting super tax breaks for the wealthy, after Prime Minister Scott Morrison ruled out super tax changes during last year’s election.

Treasurer Josh Frydenberg said on Monday the government has “no plans” to change the legislated superannuation guarantee.

“The low income super tax offset (LISTO) helps eligible people boost their retirement savings by ensuring low income earners are not disadvantaged from making contributions into their super.”

The super industry fears the retirement income review led by former Treasury official Mike Callaghan is a “stalking horse” for halting the legislated increases.

Centre for Future Work director and economist Jim Stanford, who consults to the industry super, said there was “no consensus”  that “there is a full or mostly full trade-off between wages and SG.”

“Profits are at near-historic highs as a share of GDP; real compensation has lagged far behind labour productivity for years. Employers have plenty of economic room, if pressed, to both increase wages and pay higher SG.”

Industry Super Australia chief executive Bernie Dean said Grattan had “cherry picked” information from workplace agreements that ignored women, the self-employed and periods outside of the workforce.

“Rather than take the advice of out-of-touch academics, the government needs to keep its promise to increase the super rate, or risk robbing millions of Australians of the dignified retirement they deserve,” Mr Dean said.

“Australians will lose billions in super and be left struggling to make ends meet on the pension or forced to work until they drop.”

Senator Bragg both welcomed the retirement income review’s examination of increasing the SG.

“The super industry’s argument is always that the solution to the problem is more super,” Mr Bragg said.

“The fact is the super guarantee increase is paid for from wages and the industry itself has argued it is ‘deferred wages’.”

The Australian Council of Trade Unions called for super to increase to 12 per cent and for a “pathway” to be legislated for 15 per cent.

“The ACTU also calls for women to reach 15 per cent at an accelerated rate to help address the gender retirement gap.”

 

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