Subjects:   Superanuation increase, impact on wages



ROSS GREENWOOD: Today, we have heard from manufacturers talking about what they think they need the country to do to make themselves more competitive and more viable. We've also heard this afternoon from the ACTU, the unions, meeting in Melbourne.

Now the situation as we've told you about here in Australia is as a result of the mining tax and the money that flows from the mining tax coming back in to help to fund tax cuts, but also some, if you like, incentives for smaller businesses with immediate write-offs in their businesses.

But then there's the second part of this, that that in turn is helping to feed in the superannuation payments rising from between now and 2020 from 9 to 12 per cent, which on the face of it looks like a great thing. Except when you start to do the maths and you realise that the companies big and small, that really the difference is not going to be made up. Something's got to give somewhere. In other words, who pays? Is it the worker? is it the employer, or someone else?

Now, the ACTU has said this afternoon that they remain committed to opposing tradeoffs for any increase in super contributions from 9 to 12 per cent. In other words they're saying - we want the super to increase; we don't want a wage trade-off; we want the employer to pay. 

Jeff Lawrence, the ACTU secretary, has previously said there's no way that unions are going to say that there's any trade-off, because apart from anything else, the phasing times are so long - which is true, because it is seven years. So where does the Government sit on this? Because certainly the Workplace Minister, Bill Shorten, has indicated that he believes it will be part of a wages trade-off.

He joins us now.  Many thanks for your time, Bill.

BILL SHORTEN: Good afternoon.

ROSS GREENWOOD: So who ultimately pays for this increase in superannuation? 

BILL SHORTEN: Productive workplaces improving their operations give pay rises to Australian workers. Superannuation is a deferred wage increase which is rewarded by concessional tax treatment. So what will happen I believe - and history is the best guide to the future in my experience - is that that will happen between 2013 and 2019, exactly what happened between 1992 and 2002 when governments of both persuasions increased compulsory superannuation from 3 to 9 per cent.

The Gillard Government does not want to see people retiring poor. This is a long-term solution to ensuring that people have some comfort in retirement. The reality is for most Australians that they haven't got enough saved to be able to catch - to enjoy a retirement lifestyle 65 to 70 per cent of what they were earning before they retired. We're living longer than ever before and we've got to make sure we've got enough money saved. So that's why we have superannuation.

ROSS GREENWOOD: You and I have both been directors of super funds, Bill. We both understand it inherently, but people understand it as well. The problem is you've got manufacturers, as we know, shedding jobs right now, and I'll give you the classic example that I've done the maths on. 

I've worked out the tax cut - the impact it has on Woolworths and the increase in the superannuation and the impact it has. The difference is $155 million a year by the time you get to the 2020 year. That's per year.

BILL SHORTEN: All right.

ROSS GREENWOOD: Now they're the maths, somebody's got to pay.

BILL SHORTEN: Ross let's go - let's unpack that maths. You're talking about in 2019.  What will be the total payroll of Woolworths in 2019?

ROSS GREENWOOD: The total payroll of Woolworths - I've got the - I've got it in my head somewhere, but I know it's significant. It's basically hundreds of millions of dollars, if not billions of dollars by the time…

BILL SHORTEN: For this 3 per cent to be a $150 million at Woolworths, that means the total payroll is multiples of billions of dollars - sorry, multiples of - yes…

ROSS GREENWOOD: Yeah, that's right, yeah exactly.

BILL SHORTEN: So the only way that this is a tax on business is if between now and 2019 that the company or the employer never gives a pay rise. Now never in the history of companies since we got rid of convict labour has there been seven years where there haven’t been productivity increases and real wage increases.

ROSS GREENWOOD: I'm agreeing entirely with you with that, but…

BILL SHORTEN: And indeed - not that I often use them as a referral, but Joe Hockey said - I've got the Hansard of when he said it - he said in Parliament that the additional burden of the payment being superannuation would not be borne by business. So I say it's not borne by business, Joe Hockey says it's not borne by business.

Then we get to the issue of the claims that this is going to lead to some wages breakout. I don't believe it will. The fact of the matter is that over the next seven years, whilst I can't predict what wage movement's will be, most people are on, you know, quite a lot of people - I won't use averages - will probably see an increase of about 3 to 4 per cent per year in their wages. This is a total of 3 per cent over seven years. It has no impact this year. It has a quarter of a per cent impact next year.

ROSS GREENWOOD: So what you're saying to Jeff Lawrence and the ACTU is hey listen, regardless of what you might say, the truth is it's going to be absorbed by the wages negotiations between the companies and the individual unions and/or the individuals through enterprise bargaining agreements.

BILL SHORTEN: What I say to the ACTU - and I went and met with their whole executive today and said it to them - this will be part of real wage negotiations. Now some places will do slightly better than 3 and 4r per cent, others will do around that.

I for one, as far as the business would, will start packing my bags because you're going to have to see an increase over seven years of a total of 3 per cent, because that didn’t happen between 1992 and 2002. Business profits as a share of GDP grew, unemployment fell, unit labour costs fell.

If superannuation was such a bad idea, which it isn’t, then we would have seen all sorts of dire emergencies and catastrophes occur and it didn’t happen. In this case, seven years of phased in 3 per cent. 

At the same time the Gillard Government is proposing a reduction in income tax - sorry, corporate tax for business and for those who are concerned that somehow it's a reduction in real wage increases, it's not, it's just a sliver being concessionally taxed.  So you're awarded - if it's compulsory up to a certain point, you're awarded by concessional tax.

ROSS GREENWOOD: But if we're talking about the fact that the super's going to be at the margin, the truth is for most companies the company tax rate cut is going to be at the margin also, because…

BILL SHORTEN: Yes, but…

ROSS GREENWOOD:…we know that the superannuation is going to be a much larger impost potentially, even I'll go to wage…

BILL SHORTEN: Oh no, this corporate tax rate is the 1 per cent. We want to phase that in 2013 for small business. They get the benefit of that every year. The 3 per cent extra in super doesn't kick in until 2018.

ROSS GREENWOOD: And…

BILL SHORTEN: This assumes that, you know, the Australian enterprises can't negotiate with their workers and can't negotiate productivity improvements.

All of this debate, the argument of business tax or some sort of reduction in wages is marked by a pessimistic view that somehow Australian employers and employees can't negotiate. They can, and again I would submit history. That's exactly what happened between 1992 and 2002.

ROSS GREENWOOD: I guess the real problem, the frustration I hear in business - and Manufacturing Australia today had its own summit, but leaving that aside for a moment, what I hear the frustration is it feels as though business, despite the fact that some are going brilliantly in the resources area, many genuinely are feeling that the impost…

BILL SHORTEN: Yeah.

ROSS GREENWOOD: You've seen Cussens yesterday, 92 workers. Now you represented many of those workers who in the last year, thousands have gone out of manufacturing.

Now, sure unemployment at the moment remains relatively low on paper, but even your own forecasts say it's going to continue to rise. This is not something that necessarily would make a Labor Government particularly happy.

BILL SHORTEN: I know unemployment is low compared to Europe and America, but if you've lost your job that's cold comfort, so I'm pretty respectful of that fact. That's why we've got - that's why I know for instance from BlueScope right through to other Tasmanian forest industry, the Government stepped in to provide extra resources to help people who are displaced find work.

But what I also know is that a lot of this has been caused by the high Australian dollar. I do not believe building up a national savings pool by nothing this year, but by a quarter of a per cent next financial year and by another quarter of a per cent, then five lots of half a per cent, that ain't the tipping point.

What we do need is to make sure Australians don't retire poor. I don't want Australians living on a can of baked beans and a bit of toast every day.

ROSS GREENWOOD: No it's true. One thing, when you talk about that high Australian dollar, should the Reserve Bank act to try to bring the Australian dollar down?

BILL SHORTEN: You and I know the Reserve Bank is independent, so it's probably not appropriate protocol for me as a minister to start handing out advice.

ROSS GREENWOOD: He has the financial strength to do so if he feels it is necessary.

BILL SHORTEN: Well, what I would say is that if unemployment softens, which it's possible that it will, we do have four-and-a-quarter per cent of monetary policy to dial down to help build confidence. I've got confidence that the Reserve Bank, as it always does, will pull the right reins based on the evidence it has in front of it.

But I have no doubt, as a general question - not if you're asking about the Reserve Bank but just generally - if there was a reduction in the cash rate, I think that would be a boost to confidence in industry.

ROSS GREENWOOD: Bill Shorten, the Workplace Relations Minister, we appreciate your time here on Money News tonight. 

BILL SHORTEN: Thanks Ross, cheers.