Stopping SG rate increases not a fix for low wages growth

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Stopping increases in the Super Guarantee rate is not the solution to low wages growth, and much of the arguments against increases are based on assertions, new economic research has found.

Dr Jim Stanford, Director and economist with the Centre for Future Work at the Australia Institute, says that record-low wages growth can’t be fixed by stopping the legislated increases to the Super Guarantee (SG) rate from the current 9.5% to 12%.

Some, including the Grattan Institute and several Coalition politicians, argue that there is a one-for-one offset between wages and compulsory super contributions, leading to calls for the legislated increases in the SG rate to be stopped. One Liberal Senator has proposed that low income earners be able to opt-out of receiving SG contributions, presumably on the assumption they would receive the money as wages. The Government’s Review of Retirement Income System could be used, some fear, to build a case against increases in the SG rate.

As the political debate has grown recently, so to has the economic and modelling debate around the implications of the SG rate on wages. Research by the McKell Institute found “no clear empirical evidence” that increasing the SG rate directly lowered wages. However, based on documents released under FOI, Treasury appears to agree with the analysis by the Grattan Institute.

In the latest research report, which was commissioned by Industry Super Australia, Stanford says the idea that wages and SG contributions are a one-to-one trade off is “not credible” and not supported by empirical evidence. He also criticises much of the analysis put forward to support calls for pausing or stopping increases to the SG rate as “argument by echo chamber”.

“…a circular and repetitive exercise in ‘group think’”

In the report, Stanford says proponents of a complete offset between wages and super have “only asserted that relationship – and then cited others who also assert that argument”.

Many of the reports arguing against increases in the SG rate cite the same sources. Instead of producing empirical evidence they have “simply repeated assertions to that effect in a circular and repetitive exercise in ‘group think’.”

“But on investigation, those references constitute a repetitive and self-referential ‘circle’: a group of authors who all hold a certain view, and cite others who also hold that view (including each other) without actually bringing evidence to bear on the question. Most of the cited authorities do not even claim that there is a full, perfect offset between wages and superannuation…”

The Henry Tax Review is one such report criticised for asserting that employees bear the cost of super contributions “through lower wage growth” – despite presenting “no empirical evidence”, Stanford said. However, when discussing payroll taxes, Stanford says it is interesting that the Henry Tax Review is “far more equivocal” about who bears the cost.

Work by the Grattan Institute is also criticised for assuming the full and immediate offset of super contributions and wages, backed by “citing other works that do not actually endorse that view,” Stanford says in the report.

Industry Super Australia has also been critical of the Grattan Institute analysis, producing its own which found workers would be over $18,000 better off over their lifetime if the SG rate increased to 12%.

Stanford’s analysis finds that increasing the SG rate may actually boost wages, though not in a statistically significant way. He finds that, on average, wages were more likely to grow faster at times when the SG rate increased. Though he does warn that this correlation “should not be imbued with causal significance”.

Stopping increases in the SG rate “would only further suppress the total compensation received by workers, which has been falling steadily as a share of GDP for decades,” Stanford says.

“Instead, weak wage growth should be tackled with direct wage-boosting policies; the determination of wages and superannuation contributions are largely independent policy decisions.”

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