Yesterday we spent more time than is healthy re-reading the submission to Emperor Henry by tertiary student Michelle But.
Maybe we’d interpreted her submission incorrectly. Comments left on the Money Morning and Markets and Money website suggested we had.
That’s the thing with publishing a daily newsletter. We’ve got a quick turnaround time on researching, writing and then sending it out.
We arrive at our building on Fitzroy Street by around 8am each morning.
We then quickly head for the Editorial Office – avoiding the ’roundhouse’ and ‘spinning crescent’ kicks from our black belt Taekwondo kicking assistant publisher Joanne Ha.
Once planted at our desk looking out onto the neighbours’ balcony we settle in to two full hours of reading, typing and editing. Needless to say, we’re not immune from making the odd mistake.
Of course I use my best efforts to make sure we publish error-free.
But, if an error does slip through, that’s the beauty of the comments section on the Money Morning website. If you think I’ve got it wrong, the best way to highlight it is to post a comment. As you’ll notice, there’s no censorship.
Providing you keep the wordage clean I won’t edit your comments. The only other thing we ask is to try and keep your comments relevant to the subject, but that’s all.
Anyway, back to Michelle But’s submission to Lord Emperor Henry of Canberra. If you click here you can read it for yourself.
We read it countless times yesterday evening. Maybe she didn’t support an effective 30% compulsory super contribution after all. Time for some humble pie we thought.
And then we ‘un-thought’ the idea of eating some humble pie.
It seems that rather than coming to the wrong conclusion, instead we made a schoolboy error by quoting the wrong part of the submission.
We should have referred to the summary on page one which makes it clear:
“(5) increasing compulsory employer SG contribution from 9% to 15% by 2012;
(7) establishing gradual and compulsory 15% personal superannuation salary sacrifice contributions (from gross pay taxed at 15%) by 2014.”
You can’t get much clearer than that. There’s no ambiguity there. “Employer” contributions to be increased to 15% by 2012, and “Employee” voluntary contributions to be made “compulsory” and also at 15% by 2014.
That in our books, makes a proposal for 30% of your salary to be expropriated by the government by 2014.
The idea about “voluntary” contributions being made “compulsory” is enough to make any defender of freedom and liberty cry!
Look, we’re not really interested in singling out one person here based on their submission to the enquiry. There are plenty of other hare-brained and mad-cap ideas from others too.
But frankly, if someone is lobbying the government to take 30% of your salary by force then you should probably know about it.
So in that respect we make no apology for highlighting this one submission in particular.
The fact is, almost every submission to Emperor Henry is advocating ways to slice, dice and mince your money.
But while we appear to have made a schoolboy error in quoting the wrong paragraph, it seems Ms. But – like many others – has made a schoolgirl error of assuming “employer” and “employee” contributions are unconnected.
We received this email from a Money Morning reader yesterday:
“The wage earner doesn’t care how much super goes up because it’s the employer who HAS to provide that amount. It could be argued that it comes from their wage… but it doesn’t technically. If the super amount was increased to 12%, the boss wouldn’t cut their take home pay, he would have to find the difference as it is added on after the wage is paid.”
It’s a common mistake made by many people. The government propaganda with superannuation has been mind-blowingly effective.
It seems very few employees consider superannuation as a tax on their income. A tax which reduces your take home pay by 9%. A tax which reduces the average worker’s pay packet by $465 per month.
If the super guarantee is lifted to 15% then that’s $9,300 per year or $775 per month you’re missing out on. And if compulsory super is lifted to 30% then the average worker will be out of pocket by $18,600 per year or $1,550 per month.
All because there’s a chance you could “squander” some of it.
Superannuation is treated as a mystical and magical entity. “It’s the boss that pays for it, not me.”
Wrong. Someone does pay for it, but it’s generally not the boss.
Where does it come from then?
Well, that’s where you have to take one step back and look at what isn’t seen. Everyone can “see” the super contribution on their payslip, but few equate it as a tax, or a pay cut.
You see, superannuation is paid for from one of three places:
- A cut in your wages
- An increase in unemployment, or
- Increased prices
There is a fourth option, and that is for the business owner to reduce his/her profit. Although possible, this is less likely. Besides, why should a business owner who has put his/her own capital at risk take a cut in profit just to subsidize the government?
Make no mistake about it, in most cases, an increase in superannuation contributions will result in a decrease in your take home pay over time. When the employer employs you, he/she will naturally try and pay you as low a salary as possible in return for you providing as much productivity as possible.
That’s just how it works. And that’s how it has to work. If the employer tries to pay too low a salary of course, then he/she will not attract the appropriate staff and will therefore lose out.
If he/she pays too much then they will not get as good a return on the investment, especially if the worker’s productivity does not justify the higher salary.
The market therefore, helps to determine the ‘price’ (salary) at which an employee is to be paid.
But what happens if suddenly the government decides to impose an arbitrary 6% increase in costs per employee? Will the business owner take that from his profit?
Not a chance. And neither should he/she be required to just because a government is implementing an arbitrary redistributive incomes policy.
So, the employer will look to take the money from the employee. Doubtless it would be made illegal for an employer to cut wages to an employee directly, so they would have to find another way of doing it.
Such as a freeze in pay increases. Inflation will have taken care of the 6% impost after just two years anyway. If an employee doesn’t like the sound of that they can look for another job, but chances are the pay being offered will be lower to take into account the increased superannuation expense.
And when the employer advertises a replacement he/she can factor in the lower pay.
Another unseen option for the employer is to cut the workforce. If they have 20 staff on similar pay scales doing a similar job then it’s fairly easy to get rid of one, or let attrition take its course and then not rehire – one less person on the payroll, but same cost to the employer.
That’s a simple example of how government contributes to increased unemployment.
The other option is for the business owner to increase prices. We’re not talking rocket science here. Trade unions would have you believe there’s no connection between pay (especially when they talk about the minimum wage) and prices to the consumer.
That’s twaddle. It does have an impact.
Again, it’s the individual that loses out at the expense of incompetent government policy.
As I’ve quickly shown above, the business owner will want to rightly preserve their profit margins, and therefore will try to achieve this in one of three ways.
So when these submissions are made to Emperor Henry’s enquiry using throw away numbers such as 12% or 15% or even 30% for compulsory superannuation contributions, just remember that the money to pay for it has to come from somewhere.
That somewhere my friend is from your pocket.
You shouldn’t forget that.
for Markets and Money