No evidence increases in Super Guarantee comes out of wages

Share this article:

There is “no clear empirical evidence” that increasing the Super Guarantee rate directly lowers wages, according to research by the McKell Institute.

As the Institute notes, there is currently a “live debate” over increasing the Super Guarantee rate. The SG rate is currently legislated to gradually increase from its current level of 9.5% to 12% in 2025. Senior members of the Government, and Labor, have committed to this timetable – though there are some in the Coalition who want the increases paused or stopped.

The McKell Institute, which describes itself as a “progressive research institute”, says such a delay to increases in the SG rate is “unwarranted”.

“A delay would be unlikely to make a significant difference – or any difference at all – to take-home wages and would assuredly damage future retirement savings.”

Earlier in 2019 the Grattan Institute said that a 12% SG rate would mean $20 billion less a year in wages.

The McKell Institute says that such claims are “inconsistent with fundamental theoretical predictions”. Instead, it says, some of the higher SG rate may be passed on consumers in higher prices, employers may adsorb some of the cost as lower profits and it may lead to an increase in productivity.

“According to efficiency wage theory, employers can run their operations more efficiently and become more productive if they pay wages above the equilibrium level because employees are putting in more effort into their work and are less likely to quit. This reduces costly turnover, and makes employees healthier, less stressed, and thereby more productive.”

“So conventional economic theory does not support the Grattan Institute’s argument. Neither, however, does Australia’s economic history.”

“The claim that a one percentage point increase in the Superannuation Guarantee minimum contribution rate will lead to a one percentage point reduction in wage growth is nothing more than speculation, as there is no empirical evidence to suggest the extent of this reduction. ”

Analysing the relationship between increases in the SG rate and wage growth between March 1992 and December 2016, the Institute finds it is “not statistically different from zero”.

“Despite some volatility in the estimates, there is no evidence to suggest that a one percentage point increase in the Superannuation Guarantee minimum contribution rate will lead to a one percentage point reduction in wage growth. In fact, there is little evidence to suggest that increases in the Superannuation Guarantee come out of workers’ wages.”

Want to be kept up-to-date with SMSF and Superannuation changes, why not subscribe to our Newsletter?

This article, as with all content on this site, is for informational purposes only, and is not legal, financial, tax or other advice. Please read our Terms and Conditions of Use.

Share this article:

Leave a Reply

Your email address will not be published. Required fields are marked *