Superannuation cannot rise without stalling wage growth, RBA documents reveal

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Australia’s superannuation rate is legislated to rise but it could cost workers an increase in wages.

Confidential documents show the central bank’s position on this contentious economic question is clear; the Reserve Bank of Australia (RBA) believes up to $8 of every $10 of future wage rises could be wiped out as the superannuation rate lifts half a per cent each year before reaching 12 per cent by 2025.

“Wages growth forecasts have been revised lower from mid-2021… due to planned increase in super guarantee,” a report from December 2019 states.

A ‘forecast meeting’ of the Prices Wages and Labour Market Section in January 23 this year went further, predicting the cost of the super increase would wipe out 80 per cent of wage rises “staggered over four years”.

RBA position based on one think tank

But documents obtained using under Freedom of Information (FOI) laws show the RBA’s position appears to be based on the work of one think tank that many superannuation funds believe “ignores the reality” of how tough it has been for workers to win higher wages.

“There is no evidence to support claims that there is an automatic trade-off between wages and super for the millions on workers on low incomes,” said Australian Institute of Superannuation Trustees (AIST) chief executive Eva Scheerlinck.

“Claims that leaving super at 9.5 per cent will deliver a pay rise to these workers are flawed — there is no mechanism in place to deliver forgone super increases as wage rises to workers on awards.”

AIST is the peak body for the ‘industry super’ or ‘profit-to-member’ sector, managing $1.5 trillion in funds, and has a clear interest in maintaining the increases.

But the Government is under pressure from business groups and some backbenchers to delay the rate rising.

The Reserve Bank’s homework on the issue weighs up competing experts in the field, dismissing research from the McKell Institute and the Australia Institute/Centre for Future Work that argued there was no evidence the increase would cost wage rises.

“The literature tends to find that most of the cost of an increase in mandated benefits gets passed on to employees in the form of lower wage rises,” an internal report found.

“Any ‘wedge’ driven between cost to employers and the benefit to employees will fall mostly on employees.”

Additionally, it found: “Historically, the consensus among Australian policy makers has been that super contributions are paid for out of wages growth.”

Despite this, the RBA based its conclusions on research from the Grattan Institute, and “use it as our baseline assumption for the private sector”.

The Institute’s paper wasn’t even released at the time the decision was made, but it used a database of wage agreements to suggest that around 80 per cent of any increase would be passed through in lower wage increases.

When released it suggested the legislated increase in the rate of superannuation paid would from workers’ potential future pay rises.

Stagnant wages forecast for years

But wage rises versus super rises is not that simple.

Australian workers have felt the impact of stagnant wages for several years, and further RBA documents expect that to continue.

“Wages growth is expected to remain stable,” said Natasha Cassidy, head of section for the Prices, Wages and Labour Market group inside the bank.

Eighty per cent of businesses in a ‘liaison program’ — that talk to the bank about economic conditions — expect wages to stay flat or just tick up slightly.

“Only around 10 per cent anticipate stronger wages growth,” Ms Cassidy said.

In addition, Ms Cassidy wrote, the new enterprise bargaining agreements are tending to be longer and lower, extending over three years with minimal increases.

“By locking in lower wage outcomes for longer, these EBAs could contribute to wages of EBA-covered workers being slower to pick up than was the case in the past,” she wrote.

Meaning, the contentious question, and the argument around it, is likely to go on.

By business reporter Daniel Ziffer (Original ABC Article)

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