Ideas@TheCentre
The Not So Super Guarantee
Stephen Kirchner |
11 June 2010
The government argues this will add just over $100,000 to the superannuation accounts of an average worker aged 30 in 2010. But this does not necessarily mean that the average worker will be better off overall. The SG is a cost to employers that will be passed on in the form of lower take-home pay or fewer hours worked and reduced employment. Saving takes place out of lifetime income, and the increase in the SG does not necessarily add to lifetime income. Compulsory super is not a magic pudding.
However, research by Reserve Bank economists suggests that compulsory super does contribute to net household wealth by anywhere from 62 cents to 94 cents for every dollar of compulsory contributions. Households offset compulsory contributions through reductions in voluntary saving, but this offset is not complete because many households face constraints that prevent them from borrowing more (e.g. for housing) or reducing other assets. To that extent, compulsory super can be effective in increasing household net worth, but only by limiting choice.
The most recent Westpac-Melbourne Institute consumer survey finds that superannuation is nominated as the ‘wisest place for saving’ by only 5.4% of respondents. While sentiment towards super may have been damaged by the financial crisis, more than twice as many respondents (11.3%) nominated shares. Banks (27%) and paying down debt such as mortgages (26.8%) were most favoured, followed by real estate (14%). This is despite superannuation’s considerable tax advantages over bank interest and some other forms of saving.
This relative aversion to saving via super likely reflects uncertainty about the future tax treatment and other rules applied to superannuation. As with the RSPT, the government cannot credibly commit to not changing the rules in the future. Households are thus not being irrational in choosing not to save voluntarily via super.
Dr Stephen Kirchner is a Research Fellow at the CIS. He is also a Senior Lecturer in the School of Finance and Economics, Faculty of Business, University of Technology Sydney.
