Kelly O'Dwyer says superannuation increase would worsen wage crisis

https://www.theguardian.com/australia-news/2018/apr/04/kelly-odwyer-says-superannuation-increase-would-worsen-wage-crisis

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Kelly O’Dwyer has argued that increasing compulsory superannuation to 12% would hurt low-income earners because it would exacerbate sluggish wage growth.

The comments by the minister for revenue and financial services on Wednesday strongly suggest the Turnbull government will continue to freeze super contributions at 9.5% in the May budget.

The Australian Chamber of Commerce and Industry has also warned that higher super costs make wage rises less likely, urging the government to keep the freeze.

O’Dwyer told the Australian Financial Review’s banking and wealth summit that employees are “forced to sacrifice some of their wage today for their retirement”.

In 2014 the Abbott government froze the superannuation guarantee at 9.5% until 2021 but it is legislated to increase to 12% by 2025 if the freeze is not extended.

O’Dwyer said the super guarantee does not benefit low-income workers.

“Far from it,” she said. “In fact many low-income earners are being forced to save for a higher standard of living in retirement than they can afford while they are working.”

O’Dwyer quoted calculations from the Association of Superannuation Funds of Australia that a single person or couple would have a comfortable standard of living in retirement with savings of about $545,000 and $640,000 respectively.

She then cited the Grattan Institute to suggest that these levels would give retired people a better standard of living than most working singles and 40% of working couples.

“And this is before you take into account the detrimental impact that the super guarantee has on an individual’s wage,” she said, citing the Henry tax review’s findings that employers give lower wage rises when required to increase super contributions.

“This is something that should be top of mind in a historically low-wage growth environment.”

O’Dwyer noted the super industry is in favour of “compelling an ever-increasing amount of wages to be sacrificed into superannuation”.

“But they would say that wouldn’t they? The increase of 9.5% to 12% will mean around $10bn a year more flowing into the industry in 2025-26.”

The shadow treasurer, Chris Bowen, said the government must commit to not further delay the increase in superannuation to 12%.

Bowen said in its budget submission the Financial Services Council (FSC) estimated the a two-year freeze on the super guarantee would cost an individual retiring over the next decade $39,000 in savings.

“Yet another delay in the timetable to increase the super guarantee will cost working and middle income Australians billions of dollars in their retirement income. It’s as simple as that.”

The Australian Council of Trade Unions assistant secretary, Scott Connolly, said at 9.5% super “people are not able to save for retirement adequately and are denied the basic right of a secure and dignified retirement”.

“The minister’s comments appear to point to an opposition to universal superannuation, which her party steadfastly opposed when it was established,” he said. “The ACTU supports lifting the super freeze, accelerating the move to 12% and expanding superannuation so it covers all working people.”

The Australian Chamber’s acting chief executive, Jenny Lambert, told Guardian Australia that workers “will be far less likely to see a return to higher wage increases if increased labour costs are diverted into superannuation”.

“Australian superannuation contributions as a proportion of GDP are already the highest in the OECD world,” she said. “In 2016, the latest OECD figures, contributions were 8.3% of GDP, a figure equalled only by Switzerland, and well above the next highest 6.3%.”

Lambert called for “transparency and predictability” in the schedule of superannuation increases.

Bowen spoke at an FSC function on Wednesday and was asked about reports Labor will apply the super guarantee to taxpayer funded paid parental leave as a top-up, particularly to benefit women.

He did not rule out the idea but noted other options are also under consideration including a catchup contribution for people with low super balances.