The arrows are pointing to the Morrison government ditching next year’s legislated increase in compulsory superannuation, with the Reserve Bank the latest to add weight to freezing the superannuation guarantee levy at 9.5 per cent.
Odds are the government will use some historical data and modelling of economic theory to justify continuing the freeze instead of gradually lifting the SGL to 12 per cent by 2025.
What the government – and the RBA – haven’t and won’t do is consider the reality of what’s happening to wages when there’s a capital strike against real take-home pay increases.
To borrow a line from University of Melbourne’s Professor Kevin Davis, it’s not that simple.
That was an admission by Professor Davis while outlining a radical proposal to improve Australia’s retirement income system. (Nothing involving the complex interplay of superannuation perks, tax policy, pensions, politics, and the $3 trillion superannuation industry could be simple.
The same warning applies to the economic policy war over whether the SGL should be increased.
Yet to come is the government’s retirement income review – the one Treasurer Josh Frydenberg has already promised won’t see any changes to the franking credits regime.
The RBA was enlisted in the no-increase army on Friday under questioning from the House of Representatives Economics Committee.
Governor Philip Lowe went with the economic orthodoxy that increased super would mainly come at the cost of wages rises.
Assistant governor Luci Ellis volunteered that the RBA had “shaved” its wages growth forecasts because of the proposed SGL increases.
Never mind that the main lesson about RBA wages forecasting over the past decade is that the bank is absolutely hopeless at it, demonstrating a very poor grasp of the real world. Ditto Treasury.
That a large salt shaker is necessary when considering RBA and Treasury wages forecasts is demonstrated by the persistent internal contradictions in their economic forecasts – a belief that wages will take off despite unemployment remaining around five percent.
It’s the same sort of theorising over past data that results in Treasury modelling that claims cutting company tax will boost workers’ wages.
Treasury apparently thinks we’d all be rich if we scrapped all superannuation and company tax.
Nice in macro theory, but not the way the world works, especially when there’s a capital wages strike.
The current battle in the super war is being fought most publicly by two think tanks – Grattan Institute and Per Capita.
Grattan has long pushed the economic orthodoxy that increasing the SGL means workers get smaller wage rises.
On the other side of the fight, Per Capita has looked at what happened to median wages while the SGL has been frozen and found workers went backwards anyway, arguing they would have been better off with at least getting some extra super.
In the way of such things, I suspect both are right about the past but neither quite grasps the likelihood of the immediate future.
Not that it matters, but I have generally been drawn to the argument that a higher SGL means lower take-home wages.
That’s certainly the case for those employees operating at the level of total remuneration “packages”.
For them and their employers, the super element is just part of the total.
It has become a different world though for people on awards, where the SGL is theoretically separate from take-home wages.
For the 20 per cent or so of workers subject to the annual Fair Work Commission, the commission has taken super increases into account as a cost to employers.
What has changed now for the rest is a refinement of the Per Capita argument: The boss isn’t going to give you a real wage rise anyway, so you may as well grab more superannuation.
What refines that argument is stagnation of nominal wage increases at around two per cent, which is about employers’ and employees’ idea of inflation.
As explained here often enough – but apparently still not quite understood or admitted by employees, employers, government and some economists – is that a nominal wage increase of about the inflation rate means a reduction in real, take-home wages thanks to the way our tax system works.
It’s the key factor in our weak household consumption story.
Using The Conversation’s economists panel average 2020 forecast of 2.2 per cent wages price index growth and 1.9 per cent inflation, most workers would go backwards as their nominal take-home pay would rise by 1.8 per cent.
Fingering capital’s declared determination to keep wages increases steady has been the RBA’s main contribution to the wages debate.
Although most labour has rather meekly accepted the “about 2 per cent” annual wage rise, what neither the Grattan Institute or Per Capita can know is whether workers would push back against sub-inflation pay agreements.
My suspicion – a suspicion as good as anyone’s in the current environment – is that the perceived inflation rate is the minimum acceptable wage rise.
We’ve seen real wages stagnation push down living standards for several years now, but there comes a point when it creates resistance.
It’s a fair bet the point is about 2 per cent, the same point employers have told the RBA they want to hold wage increases to.
So, if you’re not going to get a real lift in take-home pay, you may as well push for a greater superannuation contribution as a means of labour clawing back a little more of the economic pie.
Adding to the “it’s not as simple as that” are the vested interests at work.
The most obvious – and the subject of considerable finger-pointing – is the very large, very rich superannuation industry that wants to get its hands on as much money as possible.
The owners of The New Daily are part of that industry.
Employers and the government, of course, want to reduce costs wherever possible.
Watch the reaction when the retirement income review report eventually lands.
And complicating it all is that superannuation contributions are only one small part of the overall issue of retirement incomes.
Grattan Institute argues that most Australians already save enough for their retirement.
Per Capita points to large sections of the workforce, especially women, who do not.
The interaction of superannuation savings and the pension means test is another argument again – one that Professor Davis would partly solve by giving everyone the age pension but adjusting tax scales and making superannuation earnings taxable in retirement.
He figures such a system would only adversely affect those on high retirement incomes of more than $100,000 a year.
No wonder he admitted it’s not that simple – the group he identifies sounds very much like Tim Wilson’s politically powerful franking credits army.