A (temporary) triumph of political reality over economic principle as the Morrison government seeks to avoid a very loseable electorally damaging stoush over superannuation? And bringing with it a consequential test of backbench loyalty in the run up to next year’s federal election? When, last month, the Morrison government by quiet inaction increased the fiscally significant compulsory superannuation levy on employers from 9.5 per cent of workers’ salaries to 10 per cent (sending the levy on its previously legislated gradual way to 12 per cent by 2025) it was ignoring its own high-level advice – and rejecting backbench demands – not to do so.
There was no official announcement; no press release; not even a mention in Treasurer Frydenberg’s budget speech, despite repeatedly having told questioning journalists they would get their answer in the budget. The economic justification for making the political decision to ‘wave through’ the July increase to 10 per cent despite all the advice to the contrary was provided by what now looks to have been a short-lived economy upsurge before the latest round of economically disruptive lockdowns demonstrated that happy days (where de facto wage rises do not lead to job losses) are a long way from being here again.
The calendar tells us why the government went to water. The next legislated levy rise to 10.5 per cent is due next July, six weeks after the last possible date under the constitution for a normal house/senate federal election (which may also be held at the government’s discretion on any Saturday from next weekend). Whether that rise will go ahead will be up to the next government; and whether Prime Minister Morrison can avoid it becoming a decisive election issue depends not only on the extent to which it is pursued by Labor and its multi-billion-dollar co-campaigners in union-dominated industry superannuation funds, but also by a renewal of public pressure by the government’s own backbench either to cancel further rises or make them optional, thereby potentially giving oxygen to any Labor attack.
But will the backbench reformers keep shtum? Under the heading ‘Coalition MPs won’t let up on opposing super increase; Labor warns of annual fight’, the AFR reported that, after this July’s rise to 10 per cent, a group of Coalition MPs will ramp up pressure on the federal government to scrap legislation to increase the super guarantee to 12 per cent, or make it optional. It listed Gerard Rennick, Jason Falinski, Tim Wilson and Andrew Bragg as among those who say they will not back down from their criticisms of increasing the rate. In last month’s Investment Magazine, Tim Wilson renewed his calls for abandoning the legislated levy rise to 12 per cent, noting that even with superannuation assets under management at more than $3.1 trillion, this had failed to significantly reduce the demand on the pension. So Prime Minister Morrison’s only hope of avoiding a superannuation assault next year is for other issues to be seen to be more pressing.
The government has already this year had a glimpse of the potential for expensive and very effective emotive television and social media advertising campaigns from Industry Super Australia that it will likely face at next year’s election – all paid for, indirectly, out of workers’ superannuation funds. One campaign, which aired nationally portrays a 40-year-old worker earning an average wage who would stand to gain more than $85,000 extra in super on retirement – if the rate is increased to 12 per cent. ISA also launched a social media blitz attacking proposals to ditch any increase in the superannuation rate and claiming that, if so, ‘you might have to sell your family home to fund your retirement’. The rational economic case against further levy rises is no match for this populist appeal which fits Labor’s rhetoric that the government’s ‘real’ intention is to reject the move to 12 per cent. ‘This is the latest in a never-ending series of Liberal ideological attacks on workers’ retirement incomes’ with workers being asked to give up their already-legislated right to have their employers lift their superfund contribution to 12 per cent over the next four years, in exchange for the faint hope that there will be more money in their pockets during their working lives via wage rises instead.
It is almost as if the overwhelming economic evidence against further super levy rises is irrelevant. Last November’s Retirement Income Review by former IMF director Michael Callaghan said pressing ahead to 12 per cent would cost the budget more in tax breaks than it saves in aged pension costs, would reduce wages and that the July 2021 rise was poorly timed during the Covid-19 months (years?) of economic uncertainty. The Reserve Bank agrees with Callaghan and so does the Grattan Institute. Responding in Senate estimates to questions from rise-opponent Andrew Bragg, Treasury Secretary, Dr Steven Kennedy, agreed that wage increases would be lower if the super guarantee were increased.
So it is not only the government’s own advisers and those business lobbyists with a vested interest, along with the Australian Council of Social Service (concerned that future rises benefit the rich and disadvantage the poor and women) that have opposed increasing the compulsory levy. Last year, the Economic Society of Australia’s survey of 44 of its members found that two-thirds wanted the legislated increases either deferred or abandoned; ‘now is not a time to encourage saving for retirement, being far more concerned about spending power today’. And 70 per cent believe these will hit wage growth and several are concerned they will hit employment. But two reckoned that stagnant wage growth would continue anyway and that increases in super contributions might be one way for employees to get something. Inevitably, John Hewson joined former Labor minister Craig Emerson in wanting the rises to proceed.
The government embraced all this advice before ignoring it. Treasurer Frydenberg publicly agreed that, ‘The weight of evidence suggests an increase in the superannuation guarantee rate will result in lower wages growth, impacting standards of living’, but then went ahead with increasing the levy. Speaking to ABC News Breakfast in March, Superannuation Minister Jane Hume said the rise could result in slowed wage growth. ‘The additional cost to employers when they pay that extra 0.5 may come at the expense of potential wage rises.’ And last month she asserted that the evidence always has pointed to a trade-off between providing more superannuation and wage increases, in line with Paul Keating’s intention in establishing compulsory superannuation more than 30 years ago and evidenced by the latest rise causing a loss in take-home pay for those workers with super included as part of a salary package
But don’t worry, be happy in the knowledge that the left-wing Australia Institute’s Dr Jim Stanford has no concerns about the impact of the Covid-19 crisis: ‘Workers deserve both higher wages and stronger retirement incomes, and there is no economic reason why they can’t have both’.
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