Rising pensions will cut wages: Treasury

Dr Kennedy said that every 0.5 percentage point annual increase in the super guarantee would lead to 0.4 percentage point lower wage growth each year.

“The super guarantee increases are reflected in our salary forecast,” said Dr. Kennedy.

“Obviously, it’s always people’s income, but they go into super and they lower the salary forecast. “

Wage growth could respond more quickly to a drop in the unemployment rate if we see a skills mismatch.

– Stephen Kennedy, Secretary of the Treasury

Without the super increases, there would be “small positive increases” in real wages over the next four years, he said.

Dr Kennedy was responding to a question from Liberal Senator Andrew Bragg, a regular critic of the $ 3 trillion pension industry.

Bernie Dean, Managing Director of Industry Super Australia, said: “When the super raise was removed in 2013, workers learned the hard way that there is no magical compensatory pay raise. Workers will not fall for the same empty promise again, which is why the government has re-committed to its election promise to raise the super rate.

Various factors have contributed to weak wage growth over the past decade.

Reserve Bank of Australia Governor Philip Lowe highlighted the globalization of the labor market, with technology creating competition against workers and less bargaining power for unions.

Dr Lowe also said that a higher super would lead to lower wage growth.

Wages could rise faster

Dr Kennedy said that over the next few years nominal wages would be influenced by three key factors: the level of “slack” in the labor market putting pressure on employers to raise wages to retain and attract workers. workers, inflation expectations which provide an anchor in wage negotiations, and Productivity growth.

He said closing borders and losing foreign workers to fill skills gaps could lead to faster wage growth than budgeted.

“Wage growth may respond more quickly to a drop in the unemployment rate if we see a mismatch between the skills employers are looking for and those looking for work,” said Dr Kennedy.

“There are definitely benefits to these salaries.”

“We are seeing a strengthening in wages, especially if the unemployment rate is brought back below pre-COVID levels.

The Treasury and the RBA estimate that unemployment needs to fall below 5 percent, and possibly closer to 4 percent, for wage growth to accelerate significantly.

Low wages are one of the main reasons the RBA expects to keep the cash rate at 0.1% until at least 2024.

Annual inflation is expected to temporarily rise to 3.5% by June 30, largely due to the end of free child care and the recovery in global oil prices from the depths of the pandemic Last year.

Dr Kennedy said the Treasury and the RBA expected this “base effect” to be “transient” and they would like to see a sustained increase in inflation and wages.

The Australian Financial Review reported last week that rising pensions would worsen already weak wage growth.

The government’s Retirement Income Review, the RBA, the Grattan Institute and economists at the Australian National University all estimated that about 70 to 80 percent of the planned increase in the Super Guarantee would be funded by increases. lower wages.

The legislated super hike was strongly supported by Labor, unions and super funds, and reluctantly supported by the government, which highlighted the super pay compromise.

Nominal wages rose 0.6 percent from the March quarter, bringing annual growth to 1.5 percent.

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