The superannuation guarantee levy should become a permanent tool of macroeconomic policy, with its level determined by the Reserve Bank of Australia, according to the regional head of Mercer Investment Consulting, Tony Cole.
Cole was one of eight prominent economists to sign an open letter to the Prime Minister on Saturday, suggesting that the SG level be cut from 9 per cent to 6 per cent from January, with the difference flowing through to take-home wages and countering an economic downturn.
"The numbers coming through from the US are scary, and there’s no way that the [1 per cent of GDP stimulus already announced by the Government] will be enough to prevent recession," Cole said.
The economists argue that a 2-3 per cent temporary boost to national payroll would go some way toward restoring the demand being subtracted from the economy by the fast-declining terms of trade.
Cole said with wages share of GDP at roughly 54 per cent, the SG reduction would boost GDP by about 1.5 per cent, although because it would go to rich as well as poor its stimulatory effect over the year would be about the same as the ‘give-away’ package.
The Australian Institute of Superanuuation Trustees came out strongly against any reduction in the SG.
“At a time when the average superannuation balance has been hit hard by falling markets and super funds are being called upon to invest in infrastructure and sustainability initiatives, calls for a reduction in the super guarantee are short-sighted and retrograde,” said AIST chief executive, Fiona Reynolds.
However the economists outlined a plan they claimed would boost national savings over the long term. From July 1, 2010 they proposed a 1 per cent rise in the SG to 7 per cent, and a similar rise every year until it reached 12 per cent in 2015.
"I’ve long been an advocate of a 12 per cent SG level, but I also see SG as a useful fiscal tool and that means you have to accept it going up and down," Cole said.
The economists’ plan dealt with the political reality that it was now very difficult to raise taxes to constrain growth in the good times, and that budget deficits had also become electorally unpopular, which meant the "uniquely Australian solution" of reducing SG could be a boon for Government.