Coronavirus: Pay rises or jobs ‘the cost of lifting super’, Productivity Commission boss says

One of the government’s key economic advisers has said lifting the rate of compulsory super contributions will come at a cost of slower pay rises or fewer jobs.

Productivity Commission chairman Michael Brennan says the spirit of enterprise bargaining has been lost and needs to be regained to inject dynamism and creativity into negotiations between businesses and their employees. Picture: James Croucher

The head of the Productivity Commission says lifting the rate of compulsory superannuation contributions will come at the ­expense of either slower pay rises or fewer people employed.

Declaring there is “no such thing as a free lunch”, chairman Michael Brennan told the Senate COVID-19 committee that it was “logical” that raising the super guarantee rate would be an “increase in the net cost to ­business”.

“Something has got to give,” Mr Brennan said in comments echoing those made by Reserve Bank governor Philip Lowe at a recent parliamentary hearing.

“Whether that is a slowing in what would otherwise be pay rises, or employing fewer people — it shows up somewhere ­because it’s a net cost to the ­employer,” Mr Brennan said.

Amid an increasingly heated debate about whether the ­government should fulfil an ­election promise and start incrementally lifting the super guarantee rate from 9.5 per cent to 12 per cent starting from July next year, Mr Brennan said he didn’t “have a view of whether or not we should go to 12 per cent or some other ­alternative”. He ­acknowledged a higher compulsory super payment could come from business profits, rather than from wages.

“It could result in an increase in the overall labour cost; my point being simply it comes from somewhere.”

Mr Brennan also told the committee that the government’s JobKeeper program was “clearly a very good policy” for dealing with the immediate impact of the ­pandemic, but that it would eventually begin to drag on the recovery as it tied employees to companies.

“As you go through the recovery, ultimately JobKeeper can ­become a source of rigidity ­because you do need workers to move between jobs,” he said.

As Melbourne struggles through an extended lockdown, Victorian business groups and the federal opposition have called on the government to rethink its planned tapering of the wage subsidy program from the end of this month.

Mr Brennan said that deciding when to phase down and ­eventually remove the wage subsidy scheme was a “genuine ­dilemma”, but “you can’t maintain JobKeeper indefinitely”.