Bloated Super Sector Sucking Up Workers’ Wealth

Written by:
5 November 2020
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Originally Appeared In

The Morrison government has a key decision to make before the end of this financial year: does it stand with mainstream Australians who have suffered through the lockdown-induced recession, or with the financial sector and industry super elites that are seeking to line their pockets further at the expense of working people?

The compulsory superannuation contribution rate is legislated to rise from 9.5 per cent to 10 per cent next July and steadily increase to 12 per cent five years later. In the wake of the largest economic shock in decades, and the sharpest spike in unemployment and underemployment, increasing the super rate will come at the expense of working people who are already struggling with a rising cost of living.

By scrapping the legislated increase in the super contribution rate, the Morrison government will demonstrate that it prioritises the interests of mainstream Australians above those in the bloated superannuation industry.

There is a misconception that employers pay superannuation contributions. The legal incidence of contributions falls on employers, but it is workers who must pay them through lower wages.

This used to be an uncontested point. Compulsory super was first introduced after Paul Keating as treasurer agreed with the ACTU that it would allow for wage increases without creating inflationary pressures. In a speech in 2007 Keating reaffirmed the point that super was paid by employees: “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.”

In 2010, in a speech after the Labor government legislated to increase the contribution rate, Bill Shorten as assistant treasurer said: “It’s wages, not profits, that will fund super increases in the next few years. Wages are the seedbed of the whole operation.”

Keating and Shorten have since sung from different song sheets, arguing that increasing the contribution rate will not come at the expense of wages.

But their change of tune does not alter the fact super is paid by workers through lower wages, which is the agreed wisdom of the Parliamentary Budget Office, the Grattan Institute, a range of academic studies and the Rudd government-commissioned Henry tax review.

Compulsory super was designed to ensure that Australians could retire in comfort without putting too much strain on government pensions. In reality, it prevents a decent working-life standard of living and often diminishes the ability of Australians to buy a home and raise a family. The home ownership rate declined from 71 per cent in 1994-95 to 66 per cent in 2017-18.

In the meantime, things could not be better for the financial services industry with a guaranteed and growing revenue source from super fees. Before compulsory super was introduced, the financial services industry represented 2.4 per cent of the economy. Now it’s 6.5 per cent.

The forced savings scheme has allowed the financial services sector to flourish as it enjoys a never-ending transfer of wealth from working Australians. Meanwhile, working people struggle as private sector wage growth has been below its long-run average for the past decade as the cost of living increases.

The government should provide a message of hope and aspiration for Australians as they emerge from the lockdown recession. This means making the case for individuals and families keeping more of their wages, rather than seeing more siphoned off into the accounts of the elites running super funds. It also means making the case for liberal values rather than ac­qui­escing to the technocratic mantra that the government must force people to save for their own good. Australians should be able to make their own decisions about how they spend or save; they are best placed to make the right decision.

According to statistics from the Australian Prudential Regulation Authority, more than 3.3 million Australians have withdrawn an average of $7400 from their super under the COVID-19 early release scheme. This indicates that young people are withdrawing their entire super balance and are voting with their feet; they believe that they are better placed to manage this money than the super funds to which it was previously sacrificed.

The budget contained some sensible reforms of the super system, but there is still a long way to go in ensuring that it works in favour of mainstream Australians. For example, the $450 a month earnings threshold after which contributions must be made has not increased since compulsory super was introduced in 1992, meaning people earning about half as much in real terms today are forced to make contributions to their retirement fund.

For most working Australians, the super system does not serve them well. Forcing them to throw more money at it will do more harm than good.

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