NSW Treasurer and State Member for Manly Mike Baird.

Super row: NSW Treasurer Mike Baird. Photo: Wolter Peeters

The NSW government has been defeated again in its attempt to include superannuation entitlements as part of public servants' basic salaries, which are capped from rising above 2.5 per cent a year.

The government in 2011 introduced its controversial cap on salary increases but did not include superannuation as part of the arrangement.

As a result, the basic wage has been capped at 2.5 per cent but the government will have to foot the bill for increases in superannuation due to a federal government decision to increase superannuation.

Labor introduced a "disallowance motion" to stop the government from redefining the regulation on the salaries cap. The motion was passed in the NSW upper house on Wednesday with the support of the Greens and other parties.

This is the second time in a year that Labor has stopped the government from implementing its cost-saving plan.

The O'Farrell government accused Labor of hypocrisy, saying the inclusion of superannuation as part of its salaries arrangement was in line with Labor wage agreements of the past.

Treasurer Mike Baird accused Labor leader John Robertson of hypocrisy and of putting thousands of NSW public sector jobs at risk.

"When superannuation was first introduced, federal Labor stated clearly that it should be absorbed into wages growth, and this remains their policy," Mr Baird said.

When former prime minister Paul Keating was asked about the Superannuation Guarantee Charge he introduced in government, he said it was set up with "employees carrying the cost in lieu of wages".

"The burden of the SGC fell on employees because in the end, it became a form of remuneration though not paid as cash. In other words, it was a compulsory transfer from cash to savings," Mr Keating said.

"While the burden fell to employees, the benefit also went to the account of employees. In each year of the SGC's climb to 9 per cent of wages, the profit share in GDP rose and unit labour costs fell.

"This makes clear that the SGC was never borne by the employer; the employer simply facilitated the transfer of wage income to each employee's superannuation account."

Mr Baird said Mr Keating's comments supported the O'Farrell government's position.

"When compulsory superannuation was first introduced, federal Labor stated clearly that it should be absorbed into wages growth," Mr Baird said.

"The wages policy NSW Labor introduced in 2007 also explicitly defined superannuation as part of the 2.5 per cent annual increase in employee-related expenses.

"This was the original intent, and it is fair and affordable."

However, NSW Labor's spokesman on Industrial Relations, Adam Searle, who introduced the disallowance motion this week, rejected the comparison.

He said the wages policy was designed by the O'Farrell government and Labor was simply holding the government to its original agreement.

"The fact that superannuation was outside the wages cap was something they did when they created their policy," Mr Searle said.

"They can moan and complain all they like, but the meaning given to the regulation is in line with what minister Baird and minister [Greg] Pearce told Parliament when the law was passed in 2011 - that it would guarantee wage increases of 2.5 per cent per year.

"Mr Baird did a deal with the Public Service Association leadership in February 2013 for a 2.5 per cent wage increase and there was no mention of that figure including superannuation until the matter went to the Industrial Relations Commission in May and June last year."

Mr Searle said superannuation had been funded by employers for well over a decade.

"Their analysis is rubbish and the fact they are seeking to invoke Paul Keating is just a measure of how desperate Mike Baird is on this issue.

"If they are invoking the spirit of Keating and what Labor did in the accord days, where is their contribution?

"This government does not propose an accord with the workforce as Labor did in the 1980s. All Baird is doing is looking for excuses to make people pay for their own superannuation increases. That is not what Keating and the former Labor government did."

The Greens industrial relations spokesman David Shoebridge said the NSW government had agreed to give public sector workers a 2.5 per cent wage increase last year, and later decided to shave off a further 0.25 per cent to pay the federally mandated increase in superannuation.

"The O'Farrell government knew at the time they agreed with the Public Sector Association to a 2.5 per cent wage deal that they would also have to pay the 0.25 per cent increase in superannuation," Mr Shoebridge said.

"After shaking hands on a wage agreement the government then turned around and reneged on the deal.

"It is simply unfair to force working people to meet the compulsory increase in superannuation out of their own wages."

Anne Gardiner, general secretary of the Public Service Association said the NSW government promised 2.5 per cent increases in salaries to public sector workers when it introduced its wages policy and now it was trying to "welch on that promise".

She said that if the government was successful in changing the law to force the 2.5 per cent to be discounted by the increases in superannuation then the wages of public sector workers would fall further and further behind the rising cost of living.

"When Keating introduced industry superannuation it was part of a negotiated accord with unions," she said.

"The NSW government should be a model employer. Instead, they prefer to legislate rather than negotiate with their employees."

Mr Baird said that if the superannuation increase is not absorbed into the existing wages policy, the cost will be up to $800 million over the forward estimates, and a similar amount annually when the Superannuation Guarantee Contribution is fully implemented.

"NSW taxpayers cannot afford costs of this magnitude and the government will be forced to shed up to 8000 public sector jobs to meet these additional costs," he said.

Mr Baird said the NSW government was keeping legal options open to maintain the integrity of the wages policy, and would not rule out further savings by departments under the labour expense cap introduced in the 2012-13 budget.

"Public sector wages make up almost half the state budget. The NSW government makes no apologies for making every effort to control spending and we are determined to ensure that wage increases are both fair for employees and affordable for NSW," he said.