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ISA plays devil's advocate on SG

Industry Super Australia's internal analysis has explored the other side of the superannuation guarantee debate, finding the costs of an increase in mandated savings may be shared between both employers and workers.

A piece of internal analysis put together by ISA senior analyst Bruce Bastian shows that the cost of increasing the superannuation guarantee may be borne at least in some part by workers, with employers taking the rest of the impact.

The research, submitted to the Tim Wilson-chaired House of Representatives Standing Committee on Economics, attempted to put an end to the arguments of ISA's adversaries in the ongoing debate about the impact of the legislated increase to the SG.

Bastian noted many commentators have argued the increase will have either a complete or near-complete pass-through to wages, with a 2.5% drop a direct result of the SG's legislated 2.5% increase to 12%.

However his study, which analysed almost three decades of wage data from all public and private federal enterprise bargaining agreements made since October 1991 - covering around 38% or Australian workers in 2018 - appeared to show there is no one-to-one relationship with wages and the super guarantee, quashing arguments that an increase in mandated savings would ultimately result in a wage reduction to the same effect.

However, Bastian's analysis did point to "costs being shared between employers and employees". Though he did note the extent varies over time, and added interactions with the tax and transfer system are important, pointing to estimates of a reduction in working life disposable income of 0.1% to 1% being exchanged for a 4% to 20% increase in disposable retirement incomes.

Designed to open the peak body's internal discussions on the issue, slides explaining the analysis' motivations point out there are a number of channels by which increases in the SG can be funded, including lower wages, costs being borne by employers through a reduction in profits, by consumers through increases in prices and via lower equilibrium employment.

"Ultimately, who bears the cost will depend critically on competitive factors such as labour supply and demand elasticities and factor substitution, but also on institutional factors such as employment protection legislation, minimum wage determinations and the degree of unionization," the analysis read.

In a letter to the committee accompanying the analysis, ISA chief executive Bernie Dean said that consistent with the organisation's earlier testimony to the committee, the relationship between the SG and wages is widely contested.

He added that ISA's internal modelling team was tasked with presenting a range of scenarios and trade off positions.

"It should not be assumed that ISA accepts those wage trade-off positions," Dean said.

"Largely that work has concluded there is no basis to support a direct one-to-one trade off with wages."

ISA remains adamant that even in assuming a tradeoff between super contributions and wages, the benefit to workers of increasing the SG is clear, with an additional $4350 to spend in 25 years of retirement for a couple each earning $50,000 a year.

However, if the SG were not to increase, the same couple would have an extra $111 to spend each year.

"The objective of assuming an offset scenario is not to recognise that rate as correct but rather to show that even with the highest wage offset assumptions there remains an undeniable case for increasing the SG, as workers of all income levels are better off overall," Dean said.

In a separate statement, Dean said that as he has previously publicly stated, "experts have a range of positions on the super guarantee rise and its impact on wage growth".

"But our research has proven that even using the most conservative assumptions, workers of all income levels are far better off overall with super going up," Dean said.

"To suggest our modelling shows otherwise would be wrong, but those suggestions aren't surprising from those politicians who are opposed to workers keeping and spending more of their own money over their lifetime."

Read more: SuperISASGSuperannuationIndustry Super AustraliaBernie DeanBruce BastianTim Wilson
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