Thursday, December 15, 2016

Super Pay Scam?


The latest pay scandal in Australia? ABC News Online (also SBS) reports that:
"About a third of Australian workers are being ripped off by rogue employers who are holding back some or all of their superannuation entitlements, according to a report out today.
"Research by Industry Super Australia and Cbus has found employers dodging superannuation payments are pocketing $3.6 billion per year from 2.4 million workers.
"Under the mandatory Superannuation Guarantee, employers are required to contribute the current minimum 9.5 per cent into the super funds of any worker aged 18 and over earning $450 a month.
"But using Australian Tax Office (ATO) and Australian Bureau of Statistics (ABS) data, the study suggests the average worker was short-changed a conservative $1,489, or four months of super, in 2013-14."
What does it all mean?

A part of workers' pay (the so-called superannuation contribution), which employers are legally obliged to report in the payslips workers receive, is not being deposited in their accounts. It just disappears, puff, into employers' pockets.

Australian employers are to be congratulated, for this is a remarkable feat of entrepreneurial genius: according to the best mainstream economic theory pays are governed by marginal productivity, period. Further, according to cutting-edge post Keynesian theory this kind of income "redistribution" is a logical impossibility, God bless their infallible logic.

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Overseas readers may find this surprising, but it is no exaggeration to say that Aussie superannuation is a legacy of the so-called social democratic/democratic socialist Australian Labor Party, not of the business self-declared handmaidens party (the Liberal/National Coalition).

During the 1980s it was fashionable among very serious economic experts to be deeply, deeply worried about the future of government-funded age pensions: population ageing would lead to increasing numbers of pensioners, translating into unsustainable fiscal burden (won't those pesky old-timers ever die!). In Australia, in addition, inflation had to be reined in and the Keynesian prescription was to cut private final aggregate household demand.

The Aussie solution to both problems came in 1983 from the then incipient neoliberal wing of the ALP during the government of PM Bob Hawke. It took the form of the so-called Prices and Income Accord. Top technocratic pragmatist, scourge of commies, federal Treasurer, and high-school dropout Paul Keating -- whose career as professional politician started in the union movement -- promoted the revolutionary notion of harnessing the awesome power of financial capitalism and its ability to "create" wealth out of nowhere to solve those problems: Superannuation!

Roughly speaking the idea was to introduce compulsory savings (reducing, thus, final aggregate demand). Inflation box? Check.

A part of one's pay is diverted to accounts, whose balance can only be accessed upon retirement. Age-pensions box? Check, with the added bonus that costs (administration fees) are also transferred to individual account-holders, together with risk.

Think of the then glamorous mutual funds. A super fund is  a mutual fund, but one chosen by the employer, and whose shares the account-holder cannot sell. These accounts are then managed by the booming Australian finance services industry, boosting a new caste of financial whiz-kids. Genius!

Ever since legislation has piled up, introducing self-managed super-funds, tax concessions benefiting the rich while burdening the budget, and such and nowadays the Coalition and their propaganda department have become supporters of superannuation. But that's a long story.

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