Coalition green lights compulsory super increase

The Australian reports that the upcoming federal budget will not include a measure to pause the proposed increase in the superannuation guarantee (SG). It will also not contain measures to allow first-home buyers (FHB) early access to their super, as some Coalition MPs have been calling for, following strong opposition from Prime Minister Scott Morrison:

[Liberal MP Jason] Falinski, one of the biggest advocates for pausing the increase to the superannuation guarantee, said he was “disappointed for Australians”.

“Increasing the super guarantee does not do ordinary Australians any good,” Mr Falinski told Sky News. “But it’s legislated. The Prime Minister’s made it clear that legislation will ensure that the increases go forward.”

Proceeding with the legislated rise in the SG contravenes the findings of the Australian Treasury’s Retirement Income Review, which argued that lifting the SG would:

  1. Worsen the long-term sustainability of the federal budget, since the extra cost of tax concessions arising from the SG increase would more than offset any savings from reduced future Aged Pension outlays;
  2. Increase inequality in Australia, since super concessions overwhelmingly benefit higher income earners; and
  3. Reduce wage growth.

These same concerns were explicitly noted by the Henry Tax Review and the Grattan Institute, both of whom recommended against lifting the SG. They have also been argued ad nauseum on this site.

The main beneficiary from lifting the SG to 12% are the superannuation funds themselves, which would earn fatter fees from having more funds under management. However, their gains will come at the direct expense of both taxpayers and workers.

Thus, proceeding with the SG increase is a big win for the rent-seeking superannuation industry, but a loss for ordinary Australians.

That said, at least the daft proposal to allow FHBs to use their superannuation savings to purchase a home is also off the agenda. Such a move would have been capitalised into higher house prices, making affordability worse at the expense of lower retirement savings.

Unconventional Economist

Comments

  1. The Libs yet again ignoring the advice of experts on what is best for Australia and making captain’s calls, probably because some private funds have promised donations! Best economic managers LOLs.

    • I think it’s because they are taking a pasting on all fronts they decided that with an election in 12 months they didn’t want to take on industry funds.

      This one is kicked into touch until AFTER the next federal election. As others say, you can always stop it later or change the %.

  2. It’s only going from 9.5% to 10% this year (which is a nice round number).

    Still plenty of time to pause it before it hits 12%.

    • Yep. I say no change as they are now actively minimising targets ahead of the next Federal Election. This will be seen in other budget announcements coming up.

      • My thoughts as well. Labor would campaign hard on the SG increase. Industry funds would spend millions to convince people that they are missing out and would have a bleak retirement without handing over more money to them.

        • The ALP will still try to skewer them to make an election promise not to change the increases.

  3. Doesn’t actually reach 12% until July 1st 2025. If “normal “people are going to have enough in their fund to avoid putting their hand up for the pension they’ll need every penny that they can scrape together.

  4. I’m going to a conference later this week where Andrew Bragg is one of the speakers.

    I’ll have to ask him a question as to whether he feels betrayed by his party?

  5. Am i the only one on here who agrees with compulsory contributions going up? The housing situation is bleak enough, it ensures that people who would never consider index funds etc experience the power of compounding returns over their working lives. Fees for Aus Super are pretty low.

  6. OZ battlerMEMBER

    I received a 1.3% pay increase and that’s even with an EBA and working at a top 10 global insurer. I’ll take the super increase as there won’t be pay increases regardless – only for public service workers unfortunately. Non professional private industry workers are just plebs these days pissing against the wind. No home, no pay increases – living the dream!

  7. working class hamMEMBER

    The super increase will benefit me. Once we have set up our SMSF, my wife will benefit as well.