A super argument for reducing workers’ prosperity

We’ve made dumb decisions but lifting the contribution rate is one of the dumbest.

Former prime minister Kevin Rudd says the idea extra super came from wages is a ‘bullshit argument’.

Thirty years ago Bob Hawke hoped Australia would grow out of simply being the “Lucky Country”: “Australia must become the clever country,” he said.

Surveying the scene right now, it seems we’ve become the stupid country. Most of our celebrated growth since has been via importing people.

A quarter of the nation is in a vicious, extreme lockdown, among the longest in the world, causing enormous economic and social damage that dwarfs the threat posed. Most of our states’ borders are closed, potentially illegally, and the High Court seems not to care.

The federal government is buying French submarines, which aren’t even nuclear-powered and won’t arrive until the 2050s, at an astronomical cost of more than $100bn.

We have banned, uniquely in the developed world, using our plentiful uranium reserves to provide reliable emissions-free energy yet sell the resource to other countries for that purpose.

Our universities pump out useless credentials at ever increasing rates, at enormous cost to families and taxpayers, while the measured literacy and numeracy of our primary and high school students tumble.

And we tax wage and salary income, which for the most part reflects individual effort, at pun­ish­ing levels, while inherit­ances and speculation go lightly or not at all.

Imagine the situation if we didn’t have the highest paid public servants and political advisers in the G20. It’s a strong field of idiocy but perhaps the pick is increasing the superannuation guarantee to 12 per cent across the next few years, a boon for only a sliver of the population who work in the sector.

This is a huge deal because gross wages and salaries, from which superannuation contributions of 9.5 per cent must be made, came to $945bn across the 12 months to the end of June. So an order to divert an extra 2.5 per cent, $24bn on last year’s sum, from workers’ pockets into their super accounts every year in perpetuity makes other considerations of government seem irrelevant.

Owning a home is the best way to secure a comfortable, stress-free retirement — yet, by reducing wages, super makes it harder for Australians to buy one.

That didn’t stop two of Hawke’s Labor successors, Paul Keating and Kevin Rudd, spruiking it recently, warning the Coalition in separate co-ordinated outbursts against stopping the increase in the so-called superannuation guarantee. What they lacked in coherence and consistency, they made up for in theatrics.

A bearded Rudd, chan­nelling Julian Assange, said the idea extra super came from wages, a view put by everyone from the Reserve Bank and the Treasury to the Grattan Institute and the Australian Council of Social Service, was “the biggest bullshit argument” he’d ever heard.

“There’s been no wages growth in eight years, so if they don’t get it in super, they won’t get it at all,” added Keating, accusing the Coalition of considering “grand theft, Liberal Party style”.

In a speech in 2007, Keating said the cost of superannuation “was never borne by employers”. “It was absorbed into the overall wage cost … In other words, had employers not paid nine percentage points of wages, as superannuation contributions, they would have paid it in cash as wages.”

So much for consistency. Bill Shorten, Labor minister a few years later, said it was “wages, not profits that would fund super increases in the next few years. Wages are the seedbed of the whole operation.”

Such candour and accuracy won’t suit the forthcoming scare campaign, however, which will kick off in earnest if the government even hints at changing or rescinding the timetable for lifting the super guarantee to 12 per cent when it hands down the budget next month.

Industry Super Australia issued an 85-page “economic paper” earlier this month touting the multiple benefits of compulsory superannuation and industry funds in particular, which combined held $748bn in assets at the end of June this year.

It made some ridiculous claims, including that industry funds “saved the federal budget $2.7bn a year”, by assuming their investments in infrastructure generated a “stronger economy” that somehow produced $2.5bn in taxation and $200m in lower interest payments. That analysis ignores $36bn a year in forgone income tax revenue from super tax concessions.

It said super had “reduced our reliance on foreign debt” and boosted national savings. Yet the facts show foreign debt as a share of gross domestic product has increased from less than 15 per cent in the late 1980s, when super became mandatory for some workers, to around 60 per cent today.

Meanwhile the household savings rate, except for a surge this year, has fallen steadily across the same period. And household debt has soared to among the highest levels in the world.

Third, industry super apparently would “create 200,000 new jobs between 2020 and 2023”.

It’s not clear if that’s on top of the 55,000 jobs in the financial ser­vices sector that are sustained by well more than $33bn a year in fees extracted by the super sector every year.

With all these benefits, perhaps we should lift the super guarantee to 20 per cent — imagine our prosperity then!

Saul Eslake, an independent economist without a vested interest in the sector, said he’d changed his mind on supporting an increase in the guarantee: “Lifting the SG rate to 12 per cent would produce, for many workers, the perverse outcome of having a higher income in retirement than they did whilst working, and for others, particularly lower-income workers, a net reduction in their retirement incomes because the higher income from higher superannuation savings would be more than offset by a reduction in the Age Pension.”

We’re still lucky — our res­ources remain in high demand for instance. But when the luck runs out we won’t be able to get away with such stupidity.