‘Super is not to blame for rock-bottom wages’

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June 03 2021
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“It is preposterous for the government to blame rock-bottom wage growth on the superannuation guarantee system,” an expert has said, after the government appeared to pin the blame for Australia’s non-existent wage growth on the relative super guarantee hike.

The government has been pretty consistent in blaming the lack of wage growth on a lift in the superannuation guarantee, but Treasury Secretary Dr Stephen Kennedy has now gone a step further by providing new insights into how the federal government calculates its current expectation around wage growth.

At the most recent Senate estimates, Dr Kennedy noted that “we have upgraded our wage and inflation forecasts to reflect the stronger labour market and a stronger economy”, but acknowledged that “short-term wage expectations remain low”.

“All things considered, we have taken a relatively cautious view and forecast a pick-up in wages from 2022-23,” he said.

More interestingly, Dr Kennedy judged that without the upcoming super rate rise – from 9.5 per cent to 10 per cent on 1 July – Treasury estimates for wage growth would be higher.

Asked by senator Andrew Bragg whether the Treasury agreed with claims by the Grattan Institute and the Reserve Bank of Australia that the legislated super rate raise would have a suppressive impact on wage growth, Dr Kennedy conceded that this “is consistent with the approach we take.”

“Roughly speaking a 0.5 [per cent] increase in the super guarantee means wages are less by about 0.4 [per cent],” he said.

Following the estimates hearing, Grattan Institute called out Dr Kennedy’s comments.

In a blog post on their website, the policy think tank advocated for the abandonment of increases in compulsory super beyond 10 per cent.

According to the group, “It’s clear that increases in compulsory super reduced the pace of wages growth relative to where it otherwise would’ve been.

“And for Australian workers today, that’s the difference between seeing their wages rise faster than inflation next year, or go backwards.”

But The Australia Institute economist Jim Stanford completely disagreed.

Speaking to nestegg, Mr Stanford said, “There is absolutely no Australian historical evidence that workers could get stronger wage gains by giving up their super. All they would end up with is less of both: lower wages and less income in retirement.”

“Wage growth since 2013 has been consistently weaker than any time since the 1930s. In that time, the super guarantee hardly changed at all.”

According to Mr Stanford, “It is preposterous for the government to blame rock-bottom wage growth on the superannuation guarantee system”.

“The government’s own policies are the main culprit in wage stagnation: attacking unions and collective bargaining, freezing pay for public sector workers, and opposing minimum wage increases. On wages, this government lives in a glass house – it really shouldn’t throw stones.”

“Workers deserve both higher wages and stronger retirement incomes, and there is no economic reason why they can’t have both,” Mr Stanford argued.

He took particular issue with the Coalition’s suggestion that workers must give up wages if they want better super, calling this statement “a political assumption, not an economic reality”.

“By strengthening wage supports in our economy (through strong collective bargaining and higher minimum wages), we can lift wage growth back to normal levels at the same time as we strengthen superannuation. Workers deserve both – and employers can absolutely afford to pay both.”

About the author

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

About the author

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

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