Australia’s top economists oppose coming increases in compulsory super

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Peter Martin, Crawford School of Public Policy, Australian National University

The five consecutive hikes in compulsory super contributions, due to start next July, should be deferred or abandoned in the view of the overwhelming majority of the leading Australian economists surveyed by the Economic Society of Australia and The Conversation.

Two thirds – 29 of the 44 surveyed – want the increases deferred or abandoned. Only 13 think they should proceed as planned.

An even larger majority, including some economists who want the increases to proceed, believe they will hit wage growth. Several are concerned they will hit employment.

Compulsory superannuation contributions are paid by employers.

But ahead of the most recent increase in compulsory super, from 9 per cent of salaries to 9.5 per cent in 2013 and 2014, the then Labor superannuation minister Bill Shorten said the increase would cost employers nothing because it would be taken from wage rises.


Source: Australian Tax Office

“A portion of what would have been employees’ increases will go into compulsory savings,” he said.

That conventional wisdom has since been challenged in work funded by the superannuation industry and has been examined extensively in the retirement income review at present with the government.

The two most recent increases in compulsory superannuation in 2013 and 2014 were small by design – 0.25 per cent of salary each.

The next five increases, originally due to due to begin in 2015 but postponed to start in July 2021, are much bigger – 0.5 per cent of salary each – at a time when wage growth is much smaller.

In 2012 Mr Shorten was expecting wage increases of 3–4 per cent and “assuming that a quarter of a per cent of that 3 per cent to 4 per cent may well go into your compulsory savings”.

Wage growth has since slipped to 1.8 per cent, the lowest on record. If the best part of 0.5 per cent is taken out of that each year for the next five years it is unlikely to climb.


Wage growth has slipped to 1.8 per cent

Wage Price Index annual growth, public and private, all industries, seasonally adjusted. ABS 6345.0


The 44 members of the Economic Society’s 57-member panel who responded include Australia’s preeminent experts in the fields of microeconomics, macroeconomics economic modelling, labour markets and public policy.

Among them are former and current government advisers and a former head of the Australian Fair Pay Commission and member of the Reserve Bank board and a former member of the Fair Work Commission’s minimum wage panel.

Each was asked whether the legislated increases in compulsory super contributions should proceed as planned, be deferred or be abandoned.

Only 13 of the 44 thought the increases should proceed as planned. 29 thought they should be deferred or abandoned, nine of them preferring they be abandoned altogether.


Charts showing that of 44 economists asked Economists Society of Australia/The Conversation, CC BY-ND


Those who thought they should be deferred argued that now is “not a time to encourage saving”. In the current circumstances we should be “far more worried about spending power today than in the golden years of present-day workers”.

Economist Saul Eslake said he had changed his mind. The latest evidence (which will be updated in the retirement income review) suggests that the current 9.5 per cent so-called super guarantee will be enough to provide most people with an adequate income in retirement .

“In saying that I acknowledge that there is still a significant problem with regard to the adequacy of superannuation savings for women relative to men, but I don’t see how raising the super rate for everyone to 12 per cent solves that problem,” he said.

“Not a time to encourage saving”
Economic modeller Janine Dixon said it was not clear that the optimal contribution was 12 per cent rather than 9.5 per cent. The increase would force some households into greater debt. While this would pose a risk to economic stability at any time, Australia could “not afford to let the household sector weaken further at present”.

Economist Geoffrey Kingston said anyone who felt 9.5 per cent was not enough remained “free to make voluntary contributions”.

Among those believing the increases should proceed as planned were two former politicians, Labor’s Craig Emerson and former Liberal leader John Hewson.

Mr Emerson said 9.5 per cent was “considered inadequate by the burgeoning retiree population”. Without an increase, that population “would successfully demand increased pension levels from the Commonwealth”.

Opponents more confident
Mr Hewson said compulsory super had become a fundamental part of an effective retirement incomes strategy and, COVID and economic collapse notwithstanding, we should “finish the job”.

Sue Richardson, a former member of the Fair Work Commission’s wage panel, believed any deferral might lead to another deferral and be “hard to recoup”.

The economists were asked to rate their confidence in their responses on a scale of 1 to 10.

Unweighted for confidence, 20.5 per cent of those surveyed wanted to abandon the increases altogether. When weighted for confidence, that proportion climbed to 21.6 per cent. The proportion that wanted the increases either deferred or abandoned climbed to 67.1 per cent


Weighted responses to the question, Economists Society of Australia/The Conversation, CC BY-ND


Asked whether the increases were likely to be largely paid for via slower wage growth than otherwise, 30 of the 44 economists agreed. Only eight disagreed.

Economist Nigel Stapledon said this “should not be controversial”.

Private sector economist Michael Knox said: “Unless one lives in an unreal world, increases in superannuation guarantees are funded by employers out of the total wage the worker might otherwise receive.”

Super and wages come from the same pool
Several enterprise bargains explicitly make a trade-off between wages and superannuation, providing for wage increases that will be 0.5 points higher should compulsory super contributions not climb by 0.5 points.

Economist Alison Booth said if employers weren’t able to trim wage rises to pay for the scheduled increases in super contributions, they might “attempt to adjust on other margins”.

In a recession, when workers lack bargaining strength, “employers could coerce them to accept other adjustments to their contracts”.


Responses from 44 economists to the proposition: Economists Society of Australia/The Conversation, CC BY-ND


Two of the eight economists who disagreed with the proposition that the increases in compulsory super would come at the expense of wages thought that employers wouldn’t grant wage rises anyway. Increases in super contributions might be one way for employees to get something.

A concern among both those who agreed and disagreed was that if the increase didn’t come at the expense of wages, it would push up the cost of hiring and come at the expense of jobs.

“Inflation is very likely to be very, very low and wages to be sticky,” said government adviser Matthew Butlin.

A drag on jobs if not wages
“Higher superannuation payments in an environment where wages are unlikely to rise and cannot fall will raise real labour costs and reduce the incentive to employ.”

Dr Dixon said that while over time the increase in contributions would probably come from wages, the immediate impact would be to increase the cost of hiring, “which is an unacceptably large risk in the present climate”.

When adjusted for confidence, the proportion of those surveyed expecting the increases to be largely paid for via slower wage growth climbed from 68.2 per cent to 71 per cent. The proportion disagreeing fell from 18.2 per cent to 17.8 per cent.


Weighted responses to the proposition: Economists Society of Australia/The Conversation, CC BY-ND


Individual responses

The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons licence. Read the original article.

Do you agree with the experts? Should the super hikes set for July 2021 be delayed or abandoned?

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Written by The Conversation

36 Comments

Total Comments: 36
  1. 0
    0

    No way should there be a delay to these increases. It has been over seven years since the last increase.
    As it is, many Australians had to, or did anyway, take out up to $20 000 of their super during these COVID times. Add to that, the gov pension, no doubt, will be harder to get into the future. Let alone, the inbalance in super account balances between genders. I always find it interesting that those who seem to have prepared their super and retirement packages very well seem the most likely to tell many Australians that they do not deserve a comfortable retirement. Mind you, it would also help balances if people chose to salary sacrifice and increase their super contributions on an additional voluntary basis as well.

    • 0
      0

      Maybe they could asset and means test the employers to see whether they could afford it; after all, we all get means and asset tested at pension age. Govt employees are always assured of the increase in super but some private employers might have problems in meeting these obligations.

    • 0
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      Surely you jest.

      When non concessional amounts of 48% can be deemed only 10% by legislation you’d have to be crazy to save after tax into a Super accounts.

      Better to do it in your own name in low cost index funds where you have control and sovereign risk is far less.

      Regardless of tax. Making enough profit to pay tax is every real investors happy place.

    • 0
      0

      Garyand doesn’t understand the system, Rae.

      Why salary sacrifice, Garyand. Just so the government can deprive you of pension income later? Unless you are very wealthy, super is a massive con job. Of course for the rich it’s a wonderful tax dodge that enables them to accrue enough for a lavish tax-free retirement, at the expense of the battlers who get sweet stuff all thanks to the cruel assets test.

  2. 0
    0

    An increase in the superannuation guarantee is not a “hike” as you put it. It is a planned increase in order for the savings of workers can support them in retirement without the need for the old age pension. Yes, it originally was paid by employers, but it has become an in-leiu of wage increses payment, recently, by unscrupulous employers.
    The downside of the increase is more in pensions. It makes me wonder what this government is thinking! Maybe its plans are for us all to die before retirement? Maybe they dont think THEY (as in them personally) will be around then?
    Oh, and here’s a different slant, from another online publication with a different axe to grind! (Yes, it’s free)
    Vast majority of economists want increased compulsory super contributions.
    https://thenewdaily.com.au/finance/2020/08/31/michael-pascoe-vast-majority-of-economists-want-increased-compulsory-super-contributions/

    • 0
      0

      Let’s be honest. The politicians and economists are looking after their sources of income at the big end of town. Forcing companies to pay super was a good idea as many pay minimal tax anyway, but the problem was, the government allowed the super contribution to be traded off against pay rises.
      Before anyone screams, notice that profits have continued to increase while wages decreased and the fat cats got paid more. The whole deal was an underhanded way to force people to save for their retirement, even though they have been doing this through taxes. This allows government to use the money being collected to fund other things, many of which would not be funded if tabled.
      On the Ball maybe right. Maybe there is a plan to eliminate many of we elders, but all of the pressures seem to be about people paying for their own retirements. So let’s take off the extra tax that was introduced to fund the OAP and while we are at it, make the Politician’s super contributory.
      There is money for pre-school programs, JobKeeper (an employer subsidy), JobSeeker (people below pension age), and now let’s further weaken the compulsory super, which was supposed to augment the OAP, but in fact under means testing just means fewer people qualify for the OAP. Looks to me like the plan is to lower the nation’s age demographics. The increase in pensioners is becoming a worry for the government. Just as an example, if you were laid off due to COVID-19 and went onto JobSeeker, but then reached pension age, JobSeeker was automatically stopped and you were forced to apply for the OAP (complete with asset tests) even if you hoped to still get back into work.
      I said in another post that empathy and compassion are crucial in this COVID-19 era, but none of our government officials or their advisors seem to understand either empathy or compassion. Oddly several politicians have picked up the words, but their use of them is so shallow. Every dictator or major political shift has been as a result of politicians out of touch with the people. Looks like we have a perfect storm.

  3. 0
    0

    Just defer the increases again….keep kicking that ball down the road. It will be some other sucker politicians problem of how to pay for pensions in the future.

  4. 0
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    do not delay these rises, they have been deferred on too many occasions already.
    Abbott ( A blunder from Downunder as one British Journalist correctly said) Was the first to delay them.

    • 0
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      And look at how he has continued to prosper. The only winners have been politicians and the big business owners who contribute less and less to the people and the country.
      There are no pay rises so don’t delay these increases.

  5. 0
    0

    Ever since I began my banking career in 1958 – well, perhaps a few years after that when I had learned a bit of financial expertise – I worked out that 10% of gross income placed into superannuation was a fair figure, and sufficient to provide future needs. That was the figure I used throughout my working years. I have seen nothing in the past six decades to change my mind and would recommend that the guarantee be peaked at that level from July 2021. Proceeding above that figure would be too great a burden on employers.

    • 0
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      Have to agree Bill and there is always the option of saving more somewhere accessible if you need it before 68.

      10% has always been the figure for saving. Just one dollar out of 10 and save it first before any spending.

      When there is a pot of it then invest it.

      Superannuation is a tax minimisation vehicle for holding savings and it’s hellishly expensive.

      Personal Funds are no more risky and a lot cheaper that Superannuation and come without all those rules and changes every budget.

    • 0
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      You are right of course, Rae, but wouldn’t it be lovely to be able to save 10% of one’s income. I saved 30% after the kids became self-supporting, but until then saving simply wasn’t possible. Our income was never enough to cover essentials, let alone to permit savings. It’s a myth that anyone can save 10%, just like it’s a myth that a 10% tithe impacts everyone equally. If you have more than you need, 10% is a portion of your discretionary spending. If you have less than you need, it’s the bread and butter that keeps you alive.

    • 0
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      That said, I wish I had not put my personal savings into super. I did that late in life, on an adviser’s recommendation. It was bad advice.

  6. 0
    0

    Scumo & the the LNP are using the pandemic to rob workers of super increase, effectively a pay increase which can only be accessed after fulfilling certain criteria. 7 years since the last one with wage growth going backwards in real terms.
    This current government is disgusting to say the least. Just proves they’ll do anything to please the top end of town.
    Lets put this into real terms, $100k salary at 0.5% = $500 per year or $9.62 per week. Many many workers don’t earn anywhere near that especially casuals etc.
    Scumo even scummier.
    Let’s hope it never gets past the senate.

  7. 0
    0

    Hmmm are the younger generation even ever gonna get access to THEIR money in super?? I’m 8yrs away from receiving OAP & I worry enough about whether I’ll be allowed to access my super & even more worried that it will be stolen from me by some greedy political decision to swipe it to use for other things/other people/unemployed benefits or whatever, Justine the tax from my wages! While it’s been all rosey getting an above average return on that money (sometimes) there’s no guarantee it will be there for ME when i need it or to spend as I wish to spend (even tho it’s MINE!)
    I wonder what the balance would be now if it had been sitting in the bank in a less volatile environment/account or even a fixed term deposit etc after 20 plus years of serious contributions. I do have regrets that it is not where I can access it WHEN i need it & at the amount I wish to withdraw as is needed?? Everyone wants a piece of OUR money & I’m sure they will get even more than they already do eventually, especially in times like Covid economy 🙁

    • 0
      0

      *just like the tax from my wages not Justine- damn auto correct.

      PS instead of super increase how about a decent wage increase- at least it is accessible to spend where we need it (with the bloody cost of living being so damn high/hard/bills bills bills)

    • 0
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      The government will argue that inflation is currently going backwards so no increase just like the pension will not increase on the 20th Sept.

    • 0
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      Yes, the cost of living has gone down, Karl. Childcare costs and overseas travel costs have reduced, and you know us oldies spend a HUGE portion of our income on those items, don’t we? Food, on the other hand, has skyrocketed – as have most essentials. But us oldies shouldn’t be eating! Honestly, old people expecting to be able to afford good food? What next? After all the gripes about rent and electricity being unaffordable, now old codgers are wanting affordable food as well. It really is too much!

  8. 0
    0

    While pollies of both favours don’t comply with community standards on super, there is no pressure for them to deliver any increase. This is typical of this arrogant class. Contributions should be 12% employer and 3% employee. This will provide a sub-stainable income in retirement. They keep telling us the Pension is NOT sub-stainable at it’s current level into the future. No mention of this by Grattan or the Liberals young Hawkes. Small Business is “small business”.

  9. 0
    0

    I would favour an increase if there is some way to ensure that when someone retires they don’t have use most of their superannuation balance to renovate the house, buy a new luxury car or to undertake extensive and expensive overseas travel thus blowing their savings and then line up to take the old age pension.

    This is supposed to be savings for retirement to make people independent of the pension. We need to ensure that this happens.

    By the way I am a self funded retiree and unless I do some financial gymnastics I am not eligible for the pension.
    eligible

    • 0
      0

      No Alan, governments should not have any say how anybody spends THEIR money. Some properties may need renovating & modifications as people get older. Buy a new car or motorbike or boat, or caravan, that’s their business not yours or anyone else. Go on overseas holidays or travel Australia, good on them.
      NO ONE has the right in our society to dictate how we spend OUR money especially after 50 plus years in most cases of working, budgeting, paying taxes, being frugal for many many years raising families & giving them an education while paying off mortgages & personal loans etc and now YOU want to deny those same people of reaping the benefits in retirement.
      If people had to apply to the government to spend any of their super which is what you are implying then no one would salary sacrifice or be motivated to spend & more rorts would appear in the system as people tried to get money out of super under false pretenses to spend in non approved areas.
      It’s good that you are a SFR with a part pension but that gives you no right to tell others how they should spend & act in retirement.

    • 0
      0

      If you are a SFR you will not get the part pension, Karl. Alan does not say he’s on a part pension. I agree with you, however, that one should be able to spend one’s super the way one wants or needs to. Have always been afraid of the day one has to access one’s super on a monthly pay-out basis, thus canceling out a part pension. For that reason I took out all my super at 65 and I am happy with the part pension.

    • 0
      0

      Alan: Agreed. As I grew up I saw many examples of selfish “well-off”people accessing the pension while having more than sufficient money to support themselves and their families. Shares, trusts etc, all organised by well paid lawyers that we average income earners dont have access to. The pension is a safety net. and while anyone who doesn’t NEED it, gets it, then the real needy are going without. Simple. Ï paid taxes all my working life so I deserve it back in retirement” Really? So you didn’t go to school? didn’t drive on roads? Didn’t use the medical service? Come on. Taxes dont only pay for YOUR retirement.
      Karl: You reckon you will be able to spend your own money on yourself? What, no family to leave it to? No kids wanting a roof over their heads? Surely you want to leave something for them? (And the older you get, the more pressure will be bought to bear to make you feel even more guilty…) Yes mate, I was like you. Invested my less-than-average wage in good super. Got a few rental properties as well. No one went without (well, except me…)
      Now? Öh you must leave some for the kids, they need a roof over their heads!”. Änd what about me? I spent all my super on overseas holidays, I cant go on the pension if you die”. (wonder who said that…)

    • 0
      0

      People seem to overlook that in 1900 taxes were increased to ensure a liveable pension. Not talk of only for some. No means testing or asset testing. These were all changes introduced by incompetent governments who screwed up and raided the pension funds.
      We paid plenty of other taxes and excises to fund health, education, infrastructure etc, but this is usually overlooked as well.

    • 0
      0

      Mariner, the way I read Alan’s post is that unless he does some financial gymnastics he’s not eligible for the pension.
      So maybe he get’s a small part pension I don’t know.

    • 0
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      Yes On the ball I am free to spend every cent I have without any pressure from my kids.
      Am I feeling guilty, not one bit.
      My kids aren’t selfish & are doing the same as I did during my working career & they have mortgages & families etc to take care of the same as I, as well as my parents & grandparents did. I don’t know any of my friends you have selfish kids like that either but have read stories about it. My friends also spend, upgrade, travel etc freely without worrying about keeping it for the kids inheritance etc.
      So I conclude that those kids you’re talking about are yours or your friends selfish lot.

    • 0
      0

      Superannuation was never meant to replace the Aged Pension. It was for a moderately better retirement and as a tax minimisation vehicle designed to fund a huge Financial Sector and provide savings for the big boys to play with.

  10. 0
    0

    Bull**it

    What a representative survey presented by the Economic Society of Australia and The Conversation.

    “Two thirds – 29 of the 44 SURVEYED – 44 economists were surveyed. Falling about laughing here.

    44? Give us all a break.

    “These days we have nothing to fear but the fear mongers themselves.” Trump and Putin and Xi Jinping, and NOW the Economic Society of Australia. Paraphrasing the words of a former prime minister, “If there was a PhD for dumb, these guys would get first class honours.”

    • 0
      0

      Yes and this representative survey did not include any real people, just well-heeled people who owe the allegiance to the wealthy end of town.
      Retirement is not meant to be living below the poverty line, but respective governments and advisors have chipped away at Australia’s workers to move us from the lucky country where we could work and do well, to a country where we struggle to survive and get pitted against one another. We should have a universal old age pension for everyone, without the red tape. No means tests or asset tests. Those who are able to and do save more should be able to augment their OAP out of savings without penalty like people do in NZ. Any extra income that is earned is taxed. What could be fairer. Then there would be incentives for people to do better, if they want, rather than trying to drag everyone (other than ex-politicians) down to a minimum level.

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