I can understand the keeping the powder dry argument when it’s a one off effect – as it is with the $10.4 party we’re throwing next week. But a reduction in compulsory super is an ongoing effect – it could well build up over time as people habituate. Until you turn the tap off that is. I get mystified by the same ‘lets keep our powder dry’ argument with monetary policy. If you’re trying to loosen policy, there’s nothing like loosening policy – not keeping loosening in your pocket so you can loosen. That seems strange to me. But then just about everyone talks like that – so who am I to argue?

(It’d need some tweaking of payroll software packages but this would (or should) be trivial.)

Agree with Joshua Gans #2, This could be modelled by Treasury (as if Treasury hasn’t already got enough on its plate!). It’s worth modelling.

I’m a bit concerned, however, that we’re all tempted to fire off all the ammo all at once – in the very first phase of a bad recession, when things are likely to be far worse next June or next December. We need to keep some powder dry and there’s every likelihood in my view that the downturn will run for a long while yet.

You could try to prevent people not taking the super cut, but I doubt it’s worth it. (Perhaps I’m wrong – there might be something to think about there at the top end with richies salting it away in super, though I doubt you’d do any more than just save some Govt money – I doubt you’d push consumption much. But I digress.)

On assumption that people could take their wage cut and pay it back into (voluntary) super, it seems sensible just to let them opt out. So if they tick some box, their employer would be obliged to keep paying 9% of their wages into super.

Peter,

Yes, as suggested in the post, tax receipts from wages would probably go up by more than they went down from lower super contribution taxes. We’re looking at a fiscal contraction that stimulates the economy (presuming a reasonable propensity to consume).

As for the so-called “benefits” of raising it further in the long term, I won’t bore you with my oft-repeated arguments against it. The idea’s recurrent popularity has more to do with the power of vested interests than any public policy merit.

But I would strongly object to another increase to “at least 12 per cent to fund retirement” – unless you first do something about the unfairness of the tax system (something you seem to endorse.)

You’re the economist here, but surely any time the government makes more cash available to citizens, it’s going to result in more spending than would have occurred otherwise? Sure, it may also result in more saving, and higher levels of debt-payment, but for those that are inclined to do as such in the current economic circumstances, then there’s a reasonable chance they will cut back on consumption in order to do so – which is where extra available cash helps, as it allows those people to save more, or pay off debts faster, while maintaining existing levels of consumption. Further, if people are saving more and paying off mortgages faster, won’t this have a positive affect on the banks’ willingness to lend?

The other issue is that the reduced super might just go into the mortgage. So there is no consumption increase there either.

That said, this change might really help the lower income segment in the economy so it could be a good thing.

It couldn’t hurt for Treasury to do some modeling.

For those employees who didnt opt out and maintain their contributions, their employers would be required to pay any reduced employee payments into their normal wages.