80% of superannuation increase would come from pay packets, Grattan report says

Ben Butler
Photograph: Joel Carrett/AAP

The government should abandon plans to increase the amount employers have to contribute towards superannuation because new research shows about 80% of the extra money would be taken out of pay packets in the form of lower wage increases, the Grattan Institute says.

In a new report released on Monday, the centrist think tank used data from enterprise bargaining agreements to attempt to track the effect of increases in the super rate on wages.

It is both Coalition and Labor policy to increase the contribution rate from 9.5% to 12%, but the Morrison government is conducting a review of the retirement income system that may give it political cover to abandon the idea.

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“This trade-off between more superannuation in retirement but lower living standards while working isn’t worth it for most Australians,” said Grattan household finances program director, Brendan Coates, who was lead author of the report.

The new Grattan report, which doubles as a submission to the government review, drew fire from proponents of increasing the rate even before it was released, with the powerful industry super lobby, which stands to benefit from extra contributions if the rate increases, dismissing it out of hand.

Industry Super Australia chief executive Bernie Dean said Grattan’s view was “nothing new”.

“Grattan came to this flawed conclusion last year, and have now come back with cherry-picked information to support a pre-conceived fantasy view of the world that ignores women, the self-employed and periods outside of the workforce,” he said.

ISA pointed to work done for it by economist Jim Stanford last year that found no correlation between higher super rates and lower wages growth.

However, in their report Coates and his team said Stanford’s model could only capture the short-run effects of an increase in super on wages and claimed that small changes in his assumptions produced large changes in outcomes.

Stanford, the director of the Centre for Future Work at leftwing think tank the Australia Institute, said he had not reviewed the Grattan report but could comment generally.

“It is easy for modellers to find fine criticisms of others’ modelling,” he said.

“I can provide a more thorough discussion of these issues (especially when I am able to fully review their work), but I think most peoples’ eyes will gloss over.”

He said the new report represented a backdown by Grattan because it had previously “previously assumed a full 1:1 trade-off between wages and superannuation guarantee contributions”.

“Even Grattan’s findings confirm that wages do not fully decline to offset increases in the superannuation guarantee rate,” he said.

“This research thus confirms that total labour compensation does indeed grow when the superannuation guarantee rate is increased (contrary to the previously assumed 1:1 trade-off).”

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Grattan has previously argued that the rate should not be increased because the current 9% level provides for a good retirement for most Australians.

This research has been fiercely criticised by industry super for neglecting the fact that many women take time out of the workforce to raise children, but in its new report Grattan says its work shows that retirement incomes remain adequate even if people take a break from the workforce of up to 10 years.

Coates said the Grattan’s latest research added to the case against an increase.

“Together, these findings demand a rethink of Australia’s retirement incomes system,” he said.

Grattan’s salvo follows a call from the chairman of Industry Super Australia, Greg Combet, for the rate to be raised straight away.

Writing for Guardian Australia on Saturday, Combet said that “workers need more than the 9.5% of their earnings they receive as super contributions (on top of their wages) to reach an adequate, dignified retirement”.