More superannuation is good for the economy

ACIL Allen was commissioned by Industry Super Australia to examine the economic impacts of the proposed increased in the Super Guarantee (SG) Rate from 9.5% to 12%. We modelled the increase and found that it will lead to a bigger economy ($12 billion by 2040), higher real incomes, higher real wages, 10,000 more jobs and an improved trade balance. Increasing the SG rate will increase household saving, and this saving will be invested in productive capacity by Australian businesses, which in turn will increase the total value of production of goods and services in the economy.

Why is it important to increase national saving? A high national saving level is needed for funding investments to facilitate productivity and economic growth. Household saving is integral to building the stock of national saving levels, with superannuation funds being a critical source for facilitating the nation’s business investment. In the past, Australia has been heavily reliant on foreign saving to fund the investment needed for economic growth. However, in the future, Australia may not be able to rely as much on foreign investment to underwrite Australia’s prosperity, particularly against a backdrop of the sustained effects on the world economy associated with the COVID-19 pandemic.

Contrary to much of what has been said in the public debate on the rise in the SG rate, apart from a very small and very short-lived effect, there is no trade-off between higher superannuation contributions and higher wages. In fact, an increase in the SG rate, because it will lead to more capital accumulation and a bigger economy, will lead to higher real wages.