It appears the Labor Party is still considering speeding up the timetable for lifting Australia’s superannuation guarantee (i.e. compulsory superannuation contributions) from the current date of 2025 :
Revenue and Financial Services Minister Kelly O’Dwyer warned Labor against meddling with the current trajectory in an environment of flat wages growth.
“Increasing the superannuation guarantee earlier would only mean lower wages for Australian workers,” she told The Australian Financial Review.
Shadow treasurer Chris Bowen left open the option.
“The Liberal Party is ideologically opposed to our compulsory super system and the increase in the Super Guarantee – they’ve delayed it twice now,” he said.
“The Turnbull government will find any excuse to break its commitments on superannuation, which has seen millions of Australian workers with lower retirement incomes as a result”…
The Abbott government, which inherited a rate of 9.25 per cent, froze it at 9.5 per cent in the 2014 budget for four years and delayed the increase to 12 per cent until July 1, 2021…
Under a second change legislated later in 2014, it extended the freeze at 9.5 per cent until July 1, 2021 and the 12 per cent rate until July 1, 2025…
Each 0.5 per cent increase is worth almost $2 billion a year in lost revenue to the budget.
Raising the superannuation guarantee above its current level of 9.25% is unambiguously bad policy.
As noted by Kelly O’Dwyer above, the cost of compulsory superannuation contributions falls on the employee, not on the employer, and any increase in the superannuation guarantee will lower one’s take home pay. This point was explicitly acknowledged by the Henry Tax Review when it stated:
Although employers are required to make superannuation guarantee contributions, employees bear the cost of these contributions through lower wage growth. This means the increase in the employee’s retirement income is achieved by reducing their standard of living before retirement.
As Minister for Financial Services & Superannuation in the former Labor Government, Bill Shorten also acknowledged that superannuation is paid for by employees, not employers:
NEIL MITCHELL:
Okay. When superannuation goes up from 9 per cent to 12 per cent, who pays?..
BILL SHORTEN:
What happens with superannuation is that people’s pay goes up anyway. It goes up each year, by and large. What will happen is that superannuation, the increases to superannuation, will be absorbed as part of people’s pay rises.
…they get a pay rise, of which some will probably go in super, yes…
NEIL MITCHELL:
Okay. So you’re saying that the superannuation increases will be paid for by absorbing money out of the wage increases.
BILL SHORTEN:
That’s the evidence…
NEIL MITCHELL:
Well, so, just to get it clear, business will not be paying an extra dollar, right?
BILL SHORTEN:
No, I can’t see that business will be paying any more in the future than they otherwise would have been if the superannuation changes hadn’t gone through…
Given this fact, where is the logic in forcing lower income earners to sacrifice more of their pay into superannuation, especially when real wages are falling? Many are already struggling with the high cost of living, so it makes little sense to reduce their disposable incomes even further.
The Henry Tax Review agreed, which is why it recommended that the superannuation guarantee be retained at its current level, not raised to 12%:
The retirement income report recommended that the superannuation guarantee rate remain at 9 per cent. In coming to this recommendation the Review took into the account the effect that the superannuation guarantee has on the pre-retirement income of low-income earners.
Let’s also not forget that tax concessions on superannuation already cost the Budget an inordinate sum, and are growing rapidly. Raising the superannuation guarantee to 12% would mean they become an even bigger Budget drain over time – almost $10 billion a year according to the article. Meanwhile, it would do little to boost superannuation savings for lower income workers – those most likely to become reliant on the Aged Pension – given the lion’s share of superannuation concessions would flow to higher income earners (even after the recent modest reforms).
Put simply, Labor should stop deluding itself and the Australian people in championing an increase in compulsory superannuation.
Such a move would merely heighten inequities already present in Australia’s superannuation system. It would rob younger (and lower paid) workers of much-needed disposable income and worsen the long-term sustainability of the Budget.
About the only winners from such a policy would be the superannuation industry, which would get to ‘clip the ticket’ on more funds under management and earn fatter profits.
Indeed, there are few better rent-seeking industries to be in than superannuation, which is why reforms to fix the underlying problems in the system (e.g. excessive fees, unequal distribution of concessions on contributions/earnings, etc) is critical before Labor even considers raising the compulsory superannuation rate.
