The Lib-Nats class war continues apace and General Turnbull reminds us of another victory

On 1 July 2018 Australian Prime Minister Malcolm Bligh Turnbull proudly reminded his fellow Australians that the planned personal income tax cuts had started that day.

He was careful not to point out that to get that $530 tax refund next year this nurse or school teacher would have to earn above the average full-time wage in their respective professions.

Turnbull was also careful not to mention that these personal tax cuts excluded the lowest income earners - many of whom would be hit with the second tranche of penalty rate cuts which came into force on 1 July as well.

While the fact that on 1 July he just happens to get a 2 per cent parliamentary pay rise for the third year in a row, during a period of extremely low wage growth for ordinary workers, passes without mention as well.

It did not go unnoticed...........

The Guardian, 1 July 2018:

This week saw criticism of Labor starting a class war. But the real class war is being fought by those who seek to erase people on low and middle incomes from the debate. And too often the media are willing participants in this erasure.

Let us be honest: Australia is a nation whose politicians are for the most part drawn from similar socioeconomic (and education) backgrounds, covered by journalists who (including myself) come from similar backgrounds, and where any interruption to this course of events – such as when Ricky Muir was elected to the Senate – is greeted with a barely disguised level of condescension that someone not university educated or white collar has deigned to enter the sanctum.

It is a situation of course not solely devoted to income – gender and especially race are also major factors at play. In positions of power we remain a very white, relatively well-paid male nation (and I speak as one of that group).

It is not a situation without consequences.

Retirement age of 70? Well, that seems doable to one who sits behind a desk. The shift of jobs to the services sector? Well, after all, who would want to work in a factory? Low levels of industrial disputes? That must be good – let me quote some measure of international competitiveness while I pass over these record low wages growth and wonder at the coincidence.

It’s the type of thinking that has journalists asking “Is $120,000 the new rich” because that will generate a headline without even caring that it is more than double the median income.

And it is why I have little time for the theatre criticism that can infest political coverage where journalists writing for publications whose target audience is the very wealthiest in our society talk about how Labor’s “class war” attacks on Malcolm Turnbull are poor politics that won’t fly, and are divisive.

That’s pretty rich given today low-paid fast-food, hospitality, pharmacy and retail workers around the country are seeing cuts to their penalty rates.

Let us not fall into the trap of believing we can’t suggest that the situation and wealth of those in power has no impact on the policies they put forward, even while such policies actually benefit those same people who are putting them in place.

Oh no, we must instead keep to the myth that Australia is some egalitarian paradise where our history is one of everyone buckling down and working together to forge a nation against the odds. Bugger the rum rebellion, put John Macarthur on the $2 note, and bask in the warmth of misremembered history……

We see this erasure in his speeches where he talks of “school principals and police superintendents” to describe those deserving of a tax cuts as being somehow not wealthy – indeed as very much middle class.

The base level salary for a Victorian police superintendent is $154,412, the median salary for a Victorian school principal in 2015-16 was $113,446. That someone would use such incomes to talk up tax cuts says all you need to know about who he sees as the most deserving.

And here I must admit the media is often hostage to this erasure as well.

Upon the passing of the income tax cuts, one newspaper ran the line “What do low-medium income earners get?” and noted that “From July next year, Australians who earn up to $125,333 will get up to $530 cash-back when they lodge their tax return”.

In 2017 the median income was $52,988 and the top 10% of employees earned more than $109,668. Congratulations to those in the top 10%, you’re now officially middle-income Australia.

It means those who are actually middle and low-income workers are effectively erased from the debate – their situation ignored, and where to even raise it draws a rebuke – how dare you play the class war card! Why do you hate deserving middle class like the police superintendent?

The budget, despite what we might be led to believe, given the tax cuts that have just been passed without any savings measures attached, is not a magic pudding. Money spent on tax cuts to those presented as middle class but who are actually wealthy, means less money for those on actual low and middle incomes.

We do have a class war in Australia, and right now it is being won by those who not only would have you believe it is not occurring – and should not be mentioned – but who also would have you believe that those who are actually well off are doing it tough.

We need to be honest about who makes decisions in this country, how they are made and who they benefit. And we need to be honest about what is the reality for people on low and middle incomes. Failure to do so not only erases them from the debate, it ensures the system remains unchanged.

Read the full article here.

A call to arms in support of Our ABC

The Guardian, 17 May 2018:

The announcement in last week’s budget that the ABC’s funding indexation will be frozen for three years from July 2019 is the latest in a series of extraordinary attacks by a government that displays an unprecedented level of hostility to the national broadcaster. It represents a real cut to the broadcaster’s operating costs of $84m.

Added to the $254m cut over five years announced by then-communications minister Malcolm Turnbull in November 2014, and a $28m cut to the enhanced newsgathering service in the 2016 budget, this brings the money taken out of our national broadcaster since the election of the Coalition government to over a quarter of a billion dollars.

Contrast this with the former Labor government’s approach. In 2009, when I worked in the office of communications minister Stephen Conroy, the ABC was awarded the largest funding increase since its incorporation in 1983, with $136.4m in new money to fund the creation of the ABC Kids’ channel and 90 hours of new Australian drama. Four years later, the ABC was given $89.4m to set up the newsgathering service and enhance the digital delivery of ABC programs.

In addition to record funding boosts, Conroy, arguably the best friend in government the ABC has ever had, also ensured the ABC charters were amended to specifically require them to deliver digital services; overhauled the board appointment process to put it at arm’s length from the government of the day; and, in a move that enraged the Murdoch empire, created legislation that specified that any international broadcasting service funded by the government could only be delivered by the ABC. This came after the government’s refusal to award carriage of the Australia Network to News Corp in 2011, a decision that was regarded both at home and internationally as common sense by everyone other than the owners of Sky News.

All this is now under attack. The Turnbull government seems determined not only to undo every measure of financial and legislative support implemented by the last Labor government, but to undermine the ABC’s operations so thoroughly that its ability to provide the services its charter requires will likely be devastated.

The legislation passed in early 2013 prevented the incoming Coalition government from reopening the tender process to award the Australia Network to Sky – so they shut it down entirely instead.

Five years later, the Lowy Institute laments that “[o]nce a significant player in what the British Council calls the Great Game of the Airwaves, the ABC’s purpose-designed, multiplatform international services have suffered near-terminal decline”.

"We must rise up against this concerted campaign of funding cuts and attempts to limit the activities of our national broadcasters"

As far as the board appointment process goes, Turnbull as prime minister and his communications minister Mitch Fifield are doing their best to ignore it: two recent appointees, Minerals Council boss Vanessa Guthrie and Sydney Institute Director Joseph Gersh, were not recommended for appointment by the independent selection panel. Fifield is relying on clauses in the legislation governing the appointment process that allow the minister to appoint from outside the recommended list in exceptional circumstances, but has publicly offered no reason why these candidates were more urgently required on the ABC board than those recommended as more qualified by the selection panel.

It’s also impossible to discover whether the minister has tabled the statement to parliament giving his reasons for ignoring the advice of the selection panel, as required by the legislation. If he has, perhaps those statements explain why Guthrie and Gersh are the most qualified candidates to provide governance of our most trusted source of news.

Despite the selection criteria set out in Conroy’s legislation, the ABC board now includes no one other than the staff-elected director and the managing director, Michelle Guthrie, with media experience and, despite the full board having been appointed by this government, they seem unable to make a case to maintain the ABC’s funding.

But the biggest danger to the ABC is the government’s agenda to reduce its digital services, and it’s here where the ABC – and, in this case, SBS as well – face a truly existential threat. The so-called “competitive neutrality inquiry” into the national broadcasters, currently underway, has ostensibly been launched to satisfy Pauline Hanson’s demands for an inquiry into the ABC in return for her support for last year’s appalling package of media “reforms”, which will reduce diversity and local content across the commercial broadcast media.

Don’t believe it for a second. While Hanson’s hatred of the ABC will assist any future government moves to neuter the broadcaster’s digital activities, this inquiry is yet another gift to News Corp and the commercial media organisations, who have been baying for the ABC’s blood since it arrived on the airwaves more than three-quarters of a century ago.

The $30m of government money given, apparently with few strings attached, to Foxtel last year was really just “compensation” for the fact that the commercial TV operators got a windfall gain with the abolition of their broadcast licence fees and replacement with spectrum fees. This saves the broadcasters around $90m per year (money which is forgone government revenue, by the way) so, of course, Foxtel had to be similarly rewarded for … running a commercial business in a competitive market.

Read the full article here.

North Coast Voices, 12 May 2018,"Time to show support for the ABC"

The ABC provides vital local news services, as well as things like emergency and bushfire warnings. Every time the Liberals cut the ABC’s funding they hurt local communities.

SIGN THE PETITION ⬇️https://t.co/pNIFrLik2q

— Bill Shorten (@billshortenmp) May 18, 2018

Growing older in Australia is becoming fraught with financial risk

The Guardian, 4 May 2018:

Half of the 51,300 older Australians affected by an increase in the age pension age would move on to Newstart or the disability support pension in the first year alone, new figures suggest.

The Coalition has long proposed increasing the age pension age from 67 to 70, kicking in from 2025-26. The change is likely to make Australia’s pension age the highest in the developed world.

Government estimates show the move would affect 51,300 people in the first year alone, according to a response to questions asked in Senate estimates.

The government also predicts 12,934 people would move from the age pension to the disability support pension and 12,825 to the Newstart Allowance unemployment payment.

The changes have not yet been legislated, but the pension changes remain Coalition policy after being first proposed in 2014.

They would follow Labor’s increase of the pension age from 65 to 67 when it was last in government – a change that is being gradually implemented from July 2017 until July 2023.

The opposition has pledged to fight any further increase to the pension age.

The shadow social services minister, Jenny Macklin, said the data showed increasing the pension age would not necessarily keep older Australians in work, as the government intends.

 “Many Australians won’t be able to work for longer like Mr Turnbull wants them to. Instead they’ll just be forced to live on Newstart or the DSP,” Macklin said.

“Labor understands how hard it is for older Australians to find work, particularly when their job has taken a toll on their body and where there is age-based discrimination in the workforce.”

Heard Budget Speech 2018, read this morning's headlines? Now hunt the dollars using this cheat sheet

Because there is a great deal of sleight of hand in federal government annual budget announcements, to be sure that what the Turnbull Government is planning doesn't make life harder for you, your family and community everyone needs to read the fine print.

Budget Paper No. 1: Budget Strategy and Outlook - provides:

* information about the international and domestic economic outlook, including numerical estimates of key parameters such as gross domestic product (GDP) growth, employment, and the consumer price index (CPI)

* a statement of the Government’s fiscal strategy and the fiscal outlook of the Commonwealth (that is, the Government’s outlook and strategy for revenue, notably taxes)

* estimates of the revenues and expenditures of the Commonwealth, and their composition

* information on the proposed capital investment of the Commonwealth • information on the assets, liabilities—including contingent liabilities, or ‘risks’—and debt held or owed by the Commonwealth, and

* historical information about the Commonwealth’s fiscal and debt position. 

Go to: 

https://www.budget.gov.au/2018-19/content/bp1/download/BP1_full.pdf

Budget Paper No. 2: Budget Measures - contains information about the budget measures/policies Government intends to pursue and each measure will have a costing attached to it.

Go to: 

https://www.budget.gov.au/2018-19/content/bp2/download/bp2_combined.pdf

Budget Paper No. 3: Federal Financial Relations -  contains information about financial assistance grants made by the Commonwealth to States and Territories. Includes specific purpose payments for health, education, roads, local government.  Also provides estimates of the amount of GST revenue that will be collected, and estimates of how much each state and territory will receive from the GST.

Go to:

https://www.budget.gov.au/2018-19/content/bp3/download/Budget%20Paper%203.pdf

Budget Paper No. 4: Agency Resourcing - deals with various types of appropriations that are used by the Government to fund entities and activities. Shows the amounts and types of appropriation that are expected to be utilised in the forthcoming year.

Go to: 

https://www.budget.gov.au/2018-19/content/bp4/download/BP4_full.pdf

[Sources http://parlinfo.aph.gov.au/parlInfo/download/library/prspub/4523572/upload_binary/4523572.pdf & https://www.budget.gov.au/2018-19/content/documents.html]

One doesn't have to look very hard to see where Turnbull & Co's budgetary spending money is coming from

Australian Treasurer Scott Morrison is waxing lyrical about the state of government finances ahead of next week's 2017-18 Budget announcements. 

Tax cuts for low and middle income earners, company tax cuts, increased infrastructure spending and no increase in the Medicare Levy - all on the back of increased taxation revenue.

But that is not quite the whole truth. The Abbott and Turnbull governments have been steadily reducing the safety-net income and living conditions of welfare recipients for years in order to increase the budget bottom line.

It has been reported Scott Morrison has found over $8 billion in savings in the forthcoming Budget and one can guess where a significant portion of those 'savings' have been found given past history.

A walk down memory lane.......

Exhibit One

Australian Parliamentary Library, 2014:

The 2014­–15 Budget proposes to change indexation arrangements for the Age Pension, veterans’ pensions, Carer Payment, Disability Support Pension and Parenting Payment (Single) so that payment rates are only adjusted by movements in the Consumer Price Index (CPI). The measure will save $449.0 million over five years…

The budget savings from this measure arise from lower growth in the rate of payment provided to pensioners. Effectively, pensioners will receive a lower payment over time than they would have had the indexation method not been changed. Lower payments also affect the impact of the pension means test with less people likely to qualify for a payment under the income and assets test over time…

The Government estimates that $1.5 billion will be saved over four years through a freeze on the income and asset test threshold for all Australian Government payments. The thresholds for Family Tax Benefit, Child Care Benefit, Child Care Rebate, Newstart Allowance, Parenting Payment (Single and Partnered) and Youth Allowance will not be subject to annual CPI indexation for three years from 1 July 2014…

A further change to the pension means test, lowering the deeming thresholds, will accrue minor savings of $32.7 million for one year of operation (in 2017–18) but significant savings in the years beyond the forward estimates.....

Exhibit Two

The Australian, 5 December 2016:

The Turnbull government is ramping up efforts to claw back $4 billion believed to have been ­incorrectly paid to welfare recipients, issuing debt notices worth $4.5 million every day in a bid to rein in the ballooning welfare bill.

The Australian has learned a new automated system that matches a welfare recipient’s ­details with information from the Australian Taxation Office is generating 20,000 “compliance interventions” a week, up from 20,000 a year before the crackdown came into effect in July.

Human Services Minister Alan Tudge said the new system, which is expected to generate 1.7 million compliance notices to welfare recipients over the next three years, was helping to meet the government’s debt recovery targets.

“Our aim is to ensure that ­people get what they are entitled to — no more and no less. And to crack down hard when people ­deliberately defraud the system,” he told The Australian…..

In the 2015-16 budget and midyear budget update, the government estimated $4bn in welfare benefit overpayments were likely between 2010 and 2018. Budget papers forecast that the government will achieve savings of $1.7bn over five years through debt recovery….

In March 2015 the Reserve Bank cut its cash rate and cut it twice more by December 2016 and the big banks had followed suit. However, the Turnbull Government cut deeming rates for pensioners once only. The base deeming rate continues to date at 1.75% while CBA pensioner security account interest ranges from 0.50% to 1.10% for a good many age pensioners - giving the government a sly and petty saving over time.

Exhibit Three

In 2017 the waiting period for new claimants of New Start Allowance, Youth Allowance and Special Benefit was increased to a minimum of four weeks for those aged under 25 years and Youth Allowance age eligibility restricted in a  federal government omnibus bill.

This bill also applied further eligibility restrictions to Family Tax Benefit payments, removed the pensioner education supplement,  the annual education entry payment assisting with education expenses for eligible recipients, and and the requirement for employers to provide Government-funded parental leave pay to their eligible long-term employees and other measures. 

Total savings were est. $2.37 billion over six years.

The Department of Social Services has confirmed about 86,600 part-rate age pensioners had their pension cancelled as a result of the assets test changes that came into effect on January 1, 2017

Exhibit Four

In the 2016-17 financial year previous changes to the Disability Support Pension resulted in est. $1.5 billion in government savings. Further savings are expected in projections out to 2027-28.

The Guardian, 27 April 2018:

The federal government has created a “false economy” by restoring the budget bottom line through cuts to the disability support pension and potentially pushing more people into homelessness, a leading economist has said.

Speaking at a budget preview forum hosted by Industry Super Australia in Melbourne on Thursday, the Industry Super chief economist, Stephen Anthony, said the federal budget position had improved due to business receipts and cuts to personal benefit payments, particularly the disability support pension.

“The problem here of course is we’re seeing this spill out on to our streets in terms of homelessness,” Anthony said. “I’d say there’s a bit of a false economy occurring there and I’d ask the tax office to consider the models that they’re using and their reliability because the flipside of what they’re doing is causing a lot of social damage and social harm.”

The Turnbull government has tightened the eligibility criteria for the disability support pension, which the Australian Council of Social Services (Acoss) says resulted in a 63% drop in successful claims for the the pension between 2010 and 20116.

People who are not successful in claiming the disability support pension but are still unable to work have been pushed on to unemployment benefit Newstart, which pays $170 less per week…..

He said even a modest surplus was dependent on the government resisting the temptation to spend money in what is likely to be the last budget before the next federal election, saying “we don’t want to see tax cuts … we need tax reform, not necessarily tax cuts”.

The treasurer, Scott Morrison, this week announced he had scrapped a planned $8.2bn increase to the Medicare levy to fund the national disability insurance scheme, saying strong economic growth in the past 18 months meant it was no longer necessary.

The government has also telegraphed a personal income tax cut to address cost-of-living pressures in an environment of stagnant wage growth.

Anthony said the current budget parametres anticipate that annual wages growth will return to more than 3%, a projection that he said is unlikely to be met.

Micaelia Cash's bragging doesn't change the Abbott-Turnbull 'jobs and growth' numbers

On Thursday 19 April 2018 the Australian Minister for Jobs and Innovation and Liberal Senator for Western Australia Micaelia Cash stated: Since the Government came to office in September 2013, we have created a total of 996,800 jobs — an increase of 8.7 per cent.

What stands out for this voter is the small degree of change that has actually occurred when it come to those much vaunted 'jobs and growth' policies.

Bottom line is that in the years between the 2013 federal election when the Coalition Government came to power and the present day, the national unemployment rate has only fallen by half a percentage point and there are only four less job seekers competing for each job that becomes available.

In January 2014 the Australian population totalled est. 22.63 million, Tony Abbott had been prime minister for less than four months and seasonally adjusted there were an est.11,459,500 employed people across the country. This figure included wage employees, private contractors and business operators.

Up to an est. 1.5 million workers were being paid the National Minimum Wage.

Only 69 per cent of the 11.54 million had full-time jobs. Full-time employment decreased 7,100 to 7,953,000 and part-time employment increased 3,400 to 3,506,500.

Around 951,000 of these 11.45 million people in employment would be classified as underemployed, ie. they were employed in less than full-time or regular jobs or in jobs inadequate with respect to their training or economic needs. 

The workforce participation rate stood at 64.5% and the unemployment rate was 6.0%.

There were est. 728,600 people between 15 and 65 years of age who were unemployed and looking for work.

A total of 139,100 and 142,700 job vacancies were recorded for the months November 2013 and February 2014 respectively.

In January-February 2014 it was reported that there were 20 job seekers for every position currently available.

In March 2018 the Australian population totalled est. 24.90 million, Malcolm Turnbull had been prime minister for more than two years and there were seasonally adjusted an est.12,484,100 employed people across the country. This figure includes wage employees, private contractors and business operators.

Up to est. 1.8 million of these workers were being paid the National Minimum Wage.

Only 68 per cent of the 12.48 million had full-time jobs. Full-time employment decreased 19,900 to 8,514,100 and part-time employment increased 24,800 to 3,970,000.

Around 1.03 million of these 12.48 million people in employment would be classified as underemployed, ie. they were employed in less than full-time or regular jobs or in jobs inadequate with respect to their training or economic needs. It is likely that around 3 per cent  of this group were employed in low-paying and insecure jobs via federal government Jobactive placements.

The workforce participation rate stood at 65.5% and the unemployment rate was 5.5%.

There were est. 730,200 people between 15 and 65 years of age who were unemployed and looking for work.

There had been 220,800 job vacancies recorded by the end of February 2018.

In March 2018 it was reported that there were 16 job seekers for every position currently available.

See: Australian Bureau of Statistics Employment and Unemployment, Labour Force Australia, Mar 2018, Labour Force, Australia, Jan 2014, Roy Morgan Unemployment & Under-employment Estimates (2005-2018), Australian Unemployed Workers Union, ABC News March 2015 and ABC News March 2018.

Quote of the Week

“You may think spin-doctoring and economics are worlds apart, but they combine in that relatively modern invention the "free-trade agreement" – the granddaddy of which, the Trans-Pacific Partnership, is presently receiving CPR from the lips of our own heroic lifesaver, Malcolm Turnbull.”  [Journalist Ross Gittens in The Sydney Morning Herald, 3 March 2018]

Turnbull Government gets a lesson in 'Be Careful What You Wish For'

“Low wage growth means Australians aren't reaching into their pockets at the shops, Prime Minister Malcolm Turnbull believes.” [Sky News, 6 October 2017]

For years Liberal and Nationals state and federal politicians, along with the business sector, have been insisting wages need to be kept low in the ‘new’ economy.

They got their wish and then began to complain that consumers, who through their spending account for more than half of Australia’s GDP, weren’t spending with gusto anymore.

Apparently not one of these wage scrooges had stopped to consider that government economic policy leading to weaker consumer spending would impact on the national economy.

Now economists are beginning to point out the relationship between cause and effect.

Financial Review, 18 October 2017:

Australia's biggest domestic economic risk is a "skewed consumer cycle" and the government may need to step in with a policy on wages, Commonwealth Bank of Australia chief economist Michael Blythe says.

Normal wage growth is around 3.5 per cent per annum, according to the Reserve Bank of Australia, but Mr Blythe noted that wages are now growing at around 2 per cent per annum, "if you're lucky".

"There's a disconnect between slow wage growth and other economic fundamentals such as the employment rate, which are approaching levels that the Reserve Bank considers normal for a robust economy," he said.

"Given the usual economic fundamentals, like the unemployment rate, you would be expecting to see wages growth faster than it is right now. There's a market failure here, in a way, and governments are there to sort out market failures."……

In Australia, the risk is that low wage growth contributes to changing consumer behaviour.

Amid talk of higher official rates in 2018, Australians are already carrying very high levels of debt. Moreover, workers are concerned about job security, even as households face big increases in energy bills. All of which add up to a "pretty difficult mix", Mr Blythe said.

"Consumer spending is 56 per cent of GDP, so if it[s] underperforming it is a drag on the rest," he said.

To date, households have been running down savings rates, Mr Blythe noted, but "there's a limit to how far you can go on that front and what that tells you is we need to get some more income".

The income story consists of wages, interest rates, taxes and social welfare payments.

But of those four factors, wages are really the only "swing variable" as interest rate cuts or tax cuts are unlikely to occur any time soon and social welfare payments are under pressure from winding back the budget deficit, Mr Blythe said.

Some of the traditional mechanisms that have delivered wages increases in the past aren't delivering the same outcomes in the current environment. Tightening labour markets normally deliver higher wages. As the unemployment rate falls, wage growth tends to come through

.

"But we've been expecting that for a few years now and that hasn't happened," said Mr Blythe. "There's a fair amount of slack in the labour market, it seems, even though the headline unemployment rate has been falling."

Mr Blythe said that this indicates there's a high degree of underemployment in the economy. "When the economy works some of that off I think you'll get a wage response," he said.

However, he believes that low income growth has already changed consumer behaviour.

"Consumers seem to be less responsive to good news and the risk is they overreact to the bad news coming through…..

"So it's an indication that not all the good news is flowing through and if you were to get a negative shock, for example oil were to go up, you would quite likely see consumers cut back their spending more aggressively than they normally would."

"This kind of skewed consumer cycle remains a risk to the broader outlook I think. It's the main domestic risk we talk about when we look at the economy."

More evidence that the far-right in politics and industry are determined to drive working class Australians into generational poverty?

The Sydney Morning Herald

Wage fraud, wage freezes, cuts to penalty rates and companies scrapping enterprise agreements will reduce the retirement savings of millions of workers by $100 billion by the time they retire, a report has found.

The report, the Consequences of Wage Suppression for Australia's Superannuation System by the Australia Institute's Centre for Future Work, says the government will pick up more than one third of the cost, equivalent to $37 billion in lost taxes due to lower super contributions and higher age pension payouts.

It estimates that three million people, or one in four workers, have experienced some form of wage suppression, which will adversely impact their super payout.

The author of the report, Jim Stanford, describes wage suppression as an economic "time bomb". He says while individual families are grappling with the immediate impact of wage cuts, the long-term impact when they retire is yet to play out.

[THE CONSEQUENCES OF WAGE SUPPRESSION FOR SUPERANNUATION, p.9]

Centre for Future Work at the Australia Institute, Jim Stanford, Ph.D., The Consequences of Wage Suppression for Australia’s Superannuation System, September 2017, excerpt from Summary:

Wages and salaries in Australia’s labour market are exhibiting their weakest growth in the history of the relevant statistics. Hourly wages are growing at less than 2 percent per year, and real wages (adjusted for consumer price inflation) are stagnant or falling. The unprecedented stagnation of wages reflects many factors, including chronic weakness in labour demand and the erosion of traditional wage-setting institutions (such as minimum wages and collective bargaining). But it also reflects, for millions of Australian workers, the aggressive efforts by employers (both private- and public- sector) to deliberately suppress wages below normal levels. These wage-suppression strategies take many forms: from the imposition of temporary wage freezes, to the unilateral termination of enterprise agreements, to the outright theft of wages through below-minimum payments. These pro-active measures to suppress labour incomes, breaking the normal link between labour incomes and labour productivity (which continues to grow at over 1 percent per year1), impose great harm on affected workers, their families, government budgets, and Australia’s macroeconomic performance.

There is another important consequence of these wage suppression strategies that is often not sufficiently understood by workers, employers, policy-makers and regulators: their flow-through impact on Australia’s retirement income system. When workers’ wages are unduly suppressed, then the normal flow of employer contributions into their superannuation accounts is also constrained. They will have smaller superannuation balances when they retire, and will consequently experience a lasting reduction in post-retirement incomes. Moreover, governments will share a significant portion of the resulting damage: they will collect less in taxes on superannuation contributions and investment income, and will pay out more in means-tested Age Pension benefits (since workers’ superannuation incomes will be smaller). These significant, lasting consequences from wage-suppression strategies should be documented and considered. They provide a powerful motive for all stakeholders to challenge employers’ wage-cutting initiatives. They also should be of direct concern to superannuation trustees and administrators – since the capacity of the superannuation capacity of the superannuation system to provide decent, secure retirement incomes for its members is being undermined by this growing pattern of wage suppression.

This report presents results from several quantitative simulations of the impact of wage suppression on superannuation entitlements of affected workers, their long-run retirement incomes, and corresponding fiscal effects on government. The report considers several specific scenarios, corresponding to different instances of pro-active wage suppression strategies that have been experienced by Australian workers in recent years. It traces through the impact of those policies on workers’ wages, superannuation accumulations, and retirement incomes. The simulations also describe the spill-over impacts on government (arising from reduced taxes collected on superannuation contributions and investment income, and increased Age Pension payouts). The simulations confirm that:

* Wage suppression undermines superannuation accumulations by automatically reducing employer contributions. Moreover, the damage is compounded over time due to the subsequent loss of investment income.

* Even temporary wage restraint measures (like temporary wage freezes) have lasting negative impacts on superannuation balances, by altering the trajectory of a worker’s wages for the rest of their career.

* The most dramatic instances of wage suppression – the termination of enterprise agreements by employers, and resulting large wage reductions as workers are placed back on minimum award conditions – can reduce the superannuation balance of a retiring worker by as much as $270,000.

* More modest wage suppressing policies (such as temporary nominal wage freezes, producing real wage reductions that are then sustained through a worker’s remaining years of service) reduce retirement superannuation balances by $30,000 or more.

* Government bears a share of the resulting losses, through both reduced tax collections before affected workers retire, and increased Age Pension payouts after they retire. In the worst-case scenarios, governments can experience fiscal losses of over $50,000 per worker (in real 2017 dollar terms).

* Millions of Australians have been confronted with one or more of these forms of wage suppression from their employers, so the aggregate impacts across the economy are enormous. Based on plausible estimates of the number of workers confronted with each form of wage suppression, the aggregate loss of superannuation balances on retirement (if the pattern of wage suppression is maintained) could ultimately exceed $100 billion (in real 2017 dollars) by the time affected workers retire, and the aggregate fiscal cost to government could reach $37 billion (in real 2017 dollars)………..

1 A recent Department of Finance research paper on productivity trends confirms that labour productivity continues to grow at typical historical rates – advancing at an annual average rate of 1.8 percent over the last five years alone. See Simon Campbell and Harry Withers, “Australian Productivity Trends and the Effect of Structural Change, “ August 28 2017, http://treasury.gov.au/ PublicationsAndMedia/Publications/2017/ Australian-productivity-trends-and-the-effect-of-structuralchange

[THE CONSEQUENCES OF WAGE SUPPRESSION FOR SUPERANNUATION, p.10]