Super misdirection

Simon Cowan

09 August 2019 | Ideas@TheCentre

Misunderstanding and misdirection abounds in the current superannuation debate.

It is an incontrovertible fact that superannuation is ‘paid for’ through wages forgone. It is not, and never has been, an additional ‘bonus’ from businesses to workers that would be pocketed by employers but for legislation.

Leaving aside for a second the economics of the situation – or the number of economists and politicians who have made this exact point – even the internal logic of those arguing otherwise is irrevocably flawed.

Their argument goes: businesses have all the power in the relationship with their employees. For most employees, they simply have to take whatever wages businesses choose to pay or are forced to pay by law. So when it comes to super, why would business pay more than they had to?

First, real wages are increasing. They may not be increasing by much, but they are unquestionably going up. Even the ACTU admits this, noting in a February press release that the annualised wage growth of 2.3% was “barely above inflation.” This means real wage increases could absolutely be redirected to pay for super increases.
Second, even if real wages were flat, workers’ wages would still be going up by the rate of inflation (around 2% a year).

The argument that super doesn’t come from wages depends on ignoring this 2%. In the real world, if nominal wages were not rising at all it would certainly be harder for businesses to reduce take home pay to fund additional super payments, than it is to offer smaller pay increases.

However, given wages are increasing (at least nominally) this must mean the bare minimum that businesses have to pay is that 2% a year increase (on average).

In two years’ time, businesses will have to pay an extra 0.5% super. Where will that money come from?

Well, if you accept the logic that businesses have all the power, wouldn’t it come from the 2% increase? Why would businesses pay workers an additional 2.5% when they only have to pay 2%?

This is the key point: it’s not that wages will now increase by 2.5% if the super guarantee is cancelled, it’s that wages that would have increased by 2% in the absence of the increase in super contributions, will increase by just 1.5% if super goes up 0.5%.

If there is a case for even greater paternalism in super it should be made using facts, not papered over with incorrect assertions. After all the money is coming from workers wallets.

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