Frozen Super Guarantee rate has cost median worker $4,333 so far

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Having the the Superannuation Guarantee rate frozen at 9.5% has cost the median worker more than $4,000 over the past five years, and the losses are likely to continue, analysis by Per Capita has found.

The Superannuation Guarantee rate has been frozen at 9.5% for several years, though it’s legislated to gradually increase and reach 12% in 2025. Under the previously legislated timetable it would have already reached 12%. Some in the Coalition want further increases to be paused, if not stopped completely.

The Government has initiated a Review of Retirement Incomes, which is not meant to provide recommendations, but provide a ‘fact base’ for policy. Though Labor is concerned it may be a stalking horse for further delays to increases in the Super Guarantee rate.

Progressive think tank Per Capita, in its submission to the Review of Retirement Incomes, has taken a different approach compared to other recent work on the subject. Much work has been released recently trying to answer the question of to what degree is the cost of a higher Super Guarantee rate borne by workers as slower wage growth. Research by Dr Jim Stanford, from the Centre for Future Work, found increasing the Super Guarantee rate would have no negative effects of wages growth, where as the Grattan Institute found 80% of the cost was borne by workers.

“This debate is veering into a war of econometric modelling, which is based on assumptions that do not reflect the reality of economic life in Australia,” said the Per Capita report.

“This paper is not another argument for or against the proposition that superannuation contributions come from wages; rather, we have looked at what has actually happened to wages and superannuation savings since the current government froze the SG rate in 2014, on the promise that the money saved would result in higher take home wages for workers.”

The analysis by Per Capita finds that, since the Super Guarantee rate was frozen, the median wage of a full time worker, while increasing in nominal terms, has fallen by $1,092 adjusted for inflation. Freezing the Super Guarantee rate at 9.5%, instead of increasing to 12% as previously legislated, has cost $4,332.99 in superannuation, for a total of $5,424.99.

“We find that, on any objective measure, workers have suffered a significant loss in net income, calculated as changes to wages and forgone superannuation contributions combined, over the five-year life of the SG rate freeze.”

“Further, we find no reason to expect that these losses would not compound over the next five years if the SG rate is again frozen at 9.5% instead of increasing incrementally to 12% by 2025, as currently legislated.”

Per Capita also disputes the claim by some that further delays to increases in the SG rate would lead to higher wages.

“Let’s leave aside the overly cynical assumption that some business owners and the politicians who count them as their electoral base simply want to drive down the costs of labour by any means possible, and take at their word the majority of advocates for a further freeze on the SG rate when they say they believe workers would be better off with the money in their pockets now.”

“The problem with this argument is that there is no evidence whatsoever to show that a freeze in the SG rate will deliver bigger wage increases. It is one thing to show that previous increases in superannuation have come partly from wages; it is quite another to prove that holding down the rate of superannuation will result in bigger pay packets in future.”

Per Capita points to comments from 2014 – when the SG rate was frozen – by then Treasurer Joe Hockey, who said the money could either go into superannuation, to workers, or stay with employers.

“At the same time, employer groups confirmed that they had no expectation of passing on the money to employees in part, or even at all,” said Per Capita.

“Unfortunately for Australian workers, Mr. Hockey and his friends in the business community had the more accurate forecast, as all credible economists would have recognised.”

“We strongly urge the panelists engaged to assess the efficacy of Australia’s Retirement Income System to look beyond the competing economic models of income distribution, which can never be definitively reconciled, and to grapple instead with how to implement effective reform of the superannuation system to return it to its original purpose: that of augmenting or replacing the age pension and increasing workers’ standards of living in retirement, rather than serving as an estate planning tool for the wealthy.”

Per Capita have released a “Lost Super” calculator.

Cutting super doesn’t boost wages: Labor

Labor Shadow Assistant Treasurer and Shadow Minister for Financial Services, Stephen Jones, used the release of the Per Capita report to argue: “You don’t boost retirement incomes by cutting super.”

“The last time the Liberals and Nationals froze the Superannuation Guarantee wages growth didn’t pick up, we got record low wages growth instead.”

“Anyone who thinks cutting super again will make employers suddenly pay higher wages is kidding themselves.”

“Their Retirement Income Review should not be a stalking horse for more cuts to the pension and further delays to the legislated increase in the Superannuation Guarantee to 12 per cent.”

“Too many Australians retire without adequate retirement savings, which is why our super system needs to be strengthened and protected, not undermined.”

Labor has committed to the currently legislated timetable for a 12% Super Guarantee rate, despite the fact it was legislated under Tony Abbott and the party platform saying a 12% rate will be reached as “soon as practicable”.

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1 comment

  1. I think many small business employers struggle to pay both wages and the super contribs. If the super contrib rate is increased, it’s not a question of whether wages are reduced or not, it’s a question of whether they will be able to afford to keep the employees at all. And I wonder with so many think tanks deciding what is best for superannuation and the ensuing never-ending changes, whether the employees will ever see their superannuation at all.

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