Labour Market Responses to the Abolition of Compulsory Superannuation

This paper aims to compare the labour market effects of two alternative retirement income polices: the superannuation guarantee; and the higher income taxes that would be required to fund the greater pension expenditure that would be incurred if the superannuation guarantee was removed. The labour market effects of the superannuation guarantee have already been modelled by Freebairn (1998) by undertaking comparative static analysis of a partial equilibrium model. A similar approach is used to examine the labour market effects of higher taxes. The paper sets out both theoretical models, and then considers a numerical example to compare the policy alternatives. It is concluded that the superannuation guarantee is less distortional than an “equivalent” tax increase as long as workers do not completely discount the future value of future income derived from compulsory superannuation contributions.