Even before COVID-19, wage growth in Australia was in the dumps: 2 per cent per year on average since 2015, the weakest since the Second World War. Then the pandemic brought wages to an utter standstill: wages grew just 0.1 per cent in the September quarter.
In his mid-year fiscal update in December, Treasurer Josh Frydenberg acknowledged the dismal outlook, reducing his already-gloomy wage forecast a little further still.
In the initial years of this unprecedented wage stagnation, Commonwealth treasurers urged patience – promising that market forces would quickly lift wage growth back to normal. But their predictions of a rebound never came to pass.
Now government leaders are trying a different tack: they acknowledge weak wages are a problem and pledge to do something about it. Not by lifting the minimum wage, empowering unions, or anything else that might directly lift wages. Instead, their strategy is to cancel legislated increases in the superannuation guarantee (SG), scheduled to start in July – or to make those increases ‘voluntary’.
Coalition backbenchers have been arguing for months the SG increases should be scuttled. That’s politically tricky, however, for a Coalition government that committed in the last election to the SG increases (which have already been deferred six years).
So the government is also reportedly considering making higher super optional: workers could direct extra employer contributions into super, or take them in current wages (taxed at a higher rate) to help relieve the financial pressures of near-zero wage growth.
Both versions of this strategy – making increased super voluntary, or cancelling SG hikes entirely – invoke an economic theory that higher superannuation contributions are automatically offset by lower wages. By this theory, cancelling the legislated improvements should automatically produce higher wages.
Remember, many Liberal politicians have long opposed compulsory employer-paid superannuation. Their sudden concern with weak wage growth thus provides a convenient opportunity to chip away at the foundation of the whole system.
The idea of a trade-off between super and wages reflects the peculiar history of superannuation in Australia: dating back to the 1980s, when unions were strong, strikes were frequent, and inflation was high. At that time super was advocated as a way of reducing disposable incomes and taking some steam out of inflation. So under the Accords, unions accepted super as a trade-off for lower wage settlements.
Today the institutional context is exactly opposite: union coverage has plummeted, inflation is too low (not too high), and centralised wage setting disappeared decades ago. So no automatic trade-off between wages and super can be assumed. Nor is any trade-off visible in historical macroeconomic data: to the contrary, higher superannuation has often been associated with stronger wage growth (as in the late 1990s and early 2000s).
The government’s argument is further undermined by the fact that wages decelerated badly after the previous SG freeze it implemented after 2014. Then-prime minister Tony Abbott promised a freeze would produce stronger wages, but wage growth immediately slowed – and still hasn’t recovered.
The historical evidence is clear: there’s no magic market formula that automatically determines wages, superannuation contributions, or both.
Rather, it is the broad balance of institutional and economic power between workers and employers that determines how the economic pie is divided. That balance of power has shifted against workers over the last generation, which is why labour’s share of GDP (including superannuation) has shrunk to record lows.
There’s no reason to assume that reducing super, or making it voluntary, will deliver the wage growth Australian families need.
And in many ways, making super voluntary is more dangerous than cancelling the legislated increases altogether.
Millions of hard-pressed workers will be compelled to raid their own retirement funds just to pay their monthly bills – just as millions drew down their super accounts to get through the COVID recession. And far from spurring wage growth, this would actually encourage employers to cut wages: when rock-bottom wages can be marginally ‘topped up’ with super funds, employers could still attract desperate workers despite unappealing wage offers.
In this context, asking workers to give up super to lift their own wages adds insult to injury. Clearly, in the current economic and political climate, workers would get neither super nor a wage increase. Worse yet, by breaking from the core principle of compulsory employer-funded superannuation, the government’s opt-in proposal opens the door to the complete dismantling of the system as we know it.
And for some members of the Coalition, that is exactly the point.
The New Daily is owned by Industry Super Holdings.