The Guardian 5 March, 2008
Not so super trade-off
Anna Pha
When the compulsory superannuation scheme was introduced it involved a trade-off. Instead of giving workers a wage rise, employers commenced making compulsory contributions to superannuation funds for their employees. Now, there is talk of another trade-off to increase superannuation contributions — either by workers foregoing their next wage rise or by the government cancelling the promised tax cuts and diverting the money into superannuation.
The Reserve Bank of Australia (RBA), the government and the employers are all pushing for wage restraint to contain spending as an anti-inflationary measure.
The Construction Division of the CFMEU has thousands of collective agreements expiring this year. "We are now in a deregulated labour market, essentially. Enterprise bargaining means that we go in, sector by sector, company by company, to get the best position we can for our members, and that’s the position we’re taking", said Dave Noonan, the National Secretary of the Construction Division.
"We’re not talking about a wages/superannuation trade-off."
Mr Noonan flatly rejected the idea of wage restraint, indicating the union would pursue the "best possible position" for its members.
The inflationary pressures being experienced at present can be sourced to higher interest rates (such as on housing, credit card and business debt repayments), businesses increasing prices to boost profits, the effect of drought on food prices, and the massive increase in petrol prices.
Wage rises do not cause inflation. This is one of the oldest capitalist myths, an excuse to keep wages as low as possible to boost profits.
The call for the promised tax cuts to be turned into superannuation contributions is coming from the superannuation industry and from some economists. There are also calls from within the trade union movement, such as Paul Howes, National Secretary of the Australian Workers Union (AWU).
"In the past six months we have incurred three interest rate rises and we can now predict a fourth around the corner — and we can watch mortgage rates rise to possibly over 9 percent", Mr Howes said, writing in the Sydney Morning Herald (21-02-2008).
"At the National Press Club last month I launched our AWU discussion paper expressing concern that the promised tax cuts would rapidly disappear from AWU members’ pockets, and put more pressure on their mortgages by stoking further interest rate rises", he said.
Recognising that it may be politically difficult for the government to break its election policy on tax cuts, Mr Howes proposes an amendment to the union’s original proposition for ditching all the tax cuts and replacing them with superannuation contributions. "Each individual taxpayer should be allowed to tick an opt-out box for the tax cut, and choose instead to have it delivered into their superannuation savings", he proposed.
PM Kevin Rudd sees tax cuts facilitating wage restraint. He is not suggesting that the tax cuts would result in workers having more to spend than they might have without them.
The tax cuts would have the effect of letting employers off the hook as workers find it increasingly difficult to make ends meet in a climate of rising prices. The tax cut can, as happened in the last wage rise from the Fair Pay and Conditions Commission, be deducted from any proposed wage rise. In the case of those on low incomes, the government subsidises low wages in tax rebates.
Tax cuts also reduce the amount of money at the government’s disposal to fund health, education, welfare and infrastructure.
Although it appears that the nine percent compulsory superannuation contributions are paid by the employer, they are in reality wages that have been redirected to compulsory retirement savings.
The government is very concerned that the superannuation savings of many workers will not be adequate, meaning many of them will still rely on the age pension or part pension in retirement. The aim of the government is to wind back the age pension so that today’s younger workers will be individually responsible for their retirement income.
The former Howard government introduced tax incentives to encourage additional contributions. For example, that set up pays those on lower incomes who make additional personal contributions to superannuation an income-based co-contribution of up to 150 percent.
The introduction of compulsory contributions began around 20 years ago; it will take some years yet to reach the point where a significant proportion of retirees are self-supporting. Even then there are no guarantees of this outcome.
In Chile, which was the pacesetter in the privatisation of pensions 27 years ago — which is what the superannuation system is — the promises of retirement incomes close to wage levels and cuts in the cost of public pensions have not been fulfilled. Many workers are reaching the end of their careers without enough savings to retire.
Last week the media carried reports that some superannuation funds are making losses at present. There is speculation as to how much they will lose or whether the present crisis on financial and stock markets will worsen or pass over. Whichever way it goes, headlines such as "Super funds hit hard in market rout", are a grim reminder of the risks involved in superannuation for workers.
The financial institutions that invest and gamble with the trillions of dollars in superannuation savings, are not risking their own money. They are guaranteed their various fees and commissions as they play with workers’ retirement funds.
The alternative, which is as secure as anything can be — and which has worked for decades — is the public pension. At present this is paid from general revenue. Concerns about the consequences of an ageing population could be met by contributions being paid to a central fund that invests in socially desirable projects such as public housing, infrastructure and the development of alternative renewable energy.