The Grattan Institute has attacked the legislated lift in the superannuation guarantee (SG) to 12%, claiming it would “leave an enormous hole in economic activity”:
Legislated plans to increase the rate of compulsory superannuation contributions incrementally to 12 per cent of wages between 2021 and July 2025 would also exacerbate the economic problems caused by COVID-19, and should be abandoned.
At least 80 per cent of the cost of higher compulsory super contributions comes at the cost of lower wages for workers, typically within two-to-three years. Consequently, any increase in the Superannuation Guarantee will result in reduced consumer spending. As noted in Section 3.1.2, household saving has already spiked sharply in response to COVID-19, and consumers and firms are likely to remain cautious in the months and years ahead.
And the policy justification for increasing the Superannuation Guarantee is weak anyway. The vast bulk of retired Australians have an adequate income and feel financially comfortable, and the vast bulk of working-age Australians can already look forward to a standard of living in retirement at least the equal of their standard of living while working.
Increasing the Super Guarantee as planned would effectively compel most people to save for a higher living standard in retirement than they enjoy in their working lives. It will do little to boost the retirement incomes of middle-income earners, while draining government tax revenues.
The cost of tax breaks on higher compulsory contributions – growing to an extra $2 billion a year by 2025 – would be better spent providing stimulus to the economy, and funding permanent increases in JobSeeker and Rent Assistance.
You will get no argument from us.
Despite offering a superannuation fund via our partners at Nucleus Wealth, we oppose lifting the SG to 12% as it would:
- Increase inequality, given superannuation concessions overwhelmingly favour high income earners;
- Reduce workers’ take-home pay, thereby punishing lower-income earners living paycheck to paycheck, as well as sucking demand out of the economy while it is still trying to recover from COVID-19; and
- Cost the federal budget more than it saves in Aged Pension costs.
Australia’s superannuation system is more of a tax avoidance scheme for the rich than a genuine retirement pillar.
The money saved by not lifting the SG would be better spent elsewhere.