Imperative to avoid bad policy measures like super increase which would set back recovery

Prime Minister Scott Morrison is right to consider delaying the legislated increase in the 9.5% superannuation guarantee rate, which is scheduled to start increasing by half a percentage point each year from 1 July 2021 until it gets to 12%. It’s becoming increasingly clear that our economy will be well below normal levels of activity for an extended period which will probably include most of 2021, depending on the availability of a vaccine. The possibility of a V-shaped recovery has vanished.

Increasing the super guarantee in a still depressed economy would be counter-productive, as various commentators such as the Grattan Institute have noted. It would reduce disposable incomes, either by costing employees wage increases or subtracting from employer profits, and would reduce consumption spending. In the short-run, such a policy would have an adverse economic impact.  

So the PM is right to consider delaying the legislated increase, and indeed the Government should consider whether we need a more fundamental redesign of the retirement income system, given it doesn’t appear to be doing a great job in terms of reducing reliance on the aged pension. Coalition Senator Andrew Bragg has advanced some interesting ideas for super in his new book Bad Egg: How to Fix Super, which he discussed with the CIS’s Simon Cowan in a recent interview (see How to fix super).

Another bad policy measure which would hinder recovery, although to a much lesser extent than the super increase, is the proposed amendment to the Brisbane City Plan reported in today’s Courier-Mail:

Developers would be barred from bulldozing “tin and timber homes” to build townhouses and apartments in Brisbane’s east under a first-time amendment to the City Plan.

Brisbane City Council will recommend a first-time rezoning amendment to the City Plan in order to protect the “character” of Camp Hill from developers’ wrecking balls, pending the results of a community consultation period that begins on Monday.

Why the Council would be doing this when the outlook for the building industry is so dire is beyond me. Sure, it would be popular with many existing residents in these suburbs, but it is bad policy for a range of reasons nicely summarised by Brad Rogers in his 2013 guest post Old Queenslanders in a New City.

It is imperative we avoid bad policy measures like these if we are to recover as quickly as possible from the deep recession we are now in.

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