We recently read an article published by ABC News on how the increase in the super guarantee from 9.5% to 10% can be treated by employers. (Superannuation rises could come at the cost of wages — workers may end up paying for their own super rise – Super Rort. Are you losing pay?) The basic gist of the article is that many nasty employers will be ‘pocketing’ this increase from their employees. Rather than promoting uninformed and inflammatory commentary like this, we thought it would be worth examining the facts.
Many employers have contracts that state a ‘total remuneration package’ which includes the mandated minimum superannuation guarantee amount, (to avoid the superannuation guarantee charge (SGC)). When there is an increase to the SGC amount, this effectively comes at the expense of the employee’s cash remuneration. The overall cost to the employer remains exactly the same, and there is a reallocation from short-term cash remuneration to longer-term retirement savings.
The author of this article was horrified by the fact that nasty employers could ‘pocket’ wages from their employees by using such tricky contracts… Of course, the unions were particularly horrified by this.
A little history lesson – mandated super contributions were brought in by the Keating Labor government in 1992 to constrain inflation that was being fuelled by cash wages growth. The idea was an extension of the ‘Accord’ framework with the Unions started under the Hawke Labor government, that provided employees with more overall remuneration, while at the same time not providing this remuneration in inflationary cash. The whole SGC framework was designed to swap cash remuneration for longer-term retirement savings – while at the same time constraining inflation.
Apparently ‘everyone’ now wants wages growth because we have ‘no’ inflation. We’re not convinced about the no-inflation thing, but that’s another story. Furthermore, apparently the increase in the SGC amount should be in addition to any existing cash remuneration to assist with real wages growth and putting some fire under inflation.
You don’t need to be a maths genius to realise that even if any SGC increase was in addition to existing cash remuneration, it would not positively impact inflation – although it may impact further ‘asset inflation’ as more savings are forced into the equities markets. The whole SGC framework was designed to contain inflationary wages growth, not promote it. Wrong policy tool, guys. That said, we concede that if cash remuneration is reduced by a swap to super contributions (by 0.5%) then this will take cash out of the pockets of employees (and into their super, not the employer’s pocket), which could be deflationary.
Let’s not conflate policy issues. If we decide we want to increase real cash incomes (which is not necessarily a bad idea), then this can be done through minimum award wage thresholds, or through changes to maximum working hours, etc. If we want to increase retirement savings, then this can be done through increases to the SGC rate. But trying to increase wages through an increase in the SGC rate, is just bad policy. Primarily because SGC was designed to constrain cash wages growth.
It comes down to who you think should pay for the government’s policy of increasing the SGC rate by 0.5%. Should it be the employers, i.e. should it be a mandated salary increase of 0.5% for all employees in Australia – even those being paid well above the award minimums? Alternatively, should it be a mandated reallocation of existing remuneration from short term spending to longer term retirement savings? There is no ‘good guy’ or ‘bad guy’ here. There is no one ‘pocketing’ another person’s money, it is merely a question of policy.
Our favourite quote from the article is:
“Unfortunately, that’s not the approach the government took, with some companies grabbing too much JobKeeper and refusing to give it back.
“The Reserve Bank, Treasury, virtually all economists agree that what Australia needs right now is higher wages growth, and here we have employers pocketing what’s supposed to be an increase in retirement incomes for their employees.”
Seriously? Employers grabbing too much JobKeeper and refusing to give it back? The author of this article has obviously never been visited by the Tax Office! Employers cannot refuse to give money back money if they were not entitled to it. Our Tax Laws just don’t work that way. This is naive reporting.
We agree that the way JobKeeper was implemented meant that many employers became legally entitled to a massive amount of government money they probably didn’t need. That is not the same thing as employers keeping JobKeeper money that they should give back. (As an aside, take casual wages and underpayments. Employees have, until the recent legislative changes in March, been given a legal ‘double dip’ by being paid higher casual wages and then becoming entitled to further benefits when recharacterised as permanent employees. Do you see any of these employees voluntarily giving back the excess remuneration?)
Further, how does the employer ‘pocket’ what’s supposed to be an increase in retirement incomes for employees? There is an increase in retirement savings for employees (by 0.5%). If this comes out of the employee’s existing cash remuneration, the overall cost to the employer remains the same. There is absolutely no benefit to the employer. What we think the author was trying to say is something more subtle, namely that employers are refusing to pay an additional amount to their employees to supplement the employee’s future retirement incomes. That’s not the same things as ‘pocketing’ your employee’s retirement income… If the government wishes to mandate a 0.5% wage increase for all Australians, no matter what income they are on, then that’s what they should say.
The information contained in this post is current as of publishing – 17 June 2021. The content was reviewed on 11 July 2022