The Government is reportedly preparing to stop the Superannuation Guarantee from increasing to 12%, keeping it at 9.5%.
According to a report in The Australian cancelling the currently legislated increase to 12% would improve the Federal Budget and save employers “$20 billion a year to their wage bills”.
The Super Guarantee (SG) was originally scheduled to reach 12% in the 2019/20 financial year, up from the current 9.5%. Prior to the last federal election the Liberal party said they would delay this by two years, until 2021/22. However, as the Minerals Resource Rent Tax repeal bill worked its way through the Parliament, this was pushed out to six years. As currently legislated the SG rate won’t reach 12% until 2025/26.
It now appears the Government may try to cancel any further increases to the SG rate.
However, the Prime Minster said: “The Government has got no plans to change the rise in compulsory super. What is happening at the moment is that we’re having a very lively debate about tax and economic reform and so all sorts of proposals are swirling around.”
Labor Shadow Treasurer Chris Bowen said stopping increases to the SG rate would result in Australians on average incomes losing $75,000 in retirement savings, pushing up the cost of the Age Pension.
Speaking to ABC Radio National he said: “The Liberals can’t be trusted on superannuation, they are always looking for excuses to delay scheduled increases in the Superannuation Guarantee.”
“If Scott Morrison thinks that 9.5% is enough for a dignified retirement he is completely out of touch, and completely ignorant of how our superannuation system works, and if they want a fight on this they’ll get one, we will fight this all the way.”
However the ALP have not promised to reinstate their original schedule of increases to the Superannuation Guarantee rate, only to return to a schedule for 12% “when prudent”.
It should also be noted that heading up to the Federal Budget is often the time for politicians to float ideas through the media to test reactions.
Industry calls for continued increases to Super Guarantee rate
Suggestions of keeping the SG rate at 9.5% have been criticised by superannuation and finance industry bodies, who say such a change would cost the Budget in the long term through the Age Pension.
“Future generations should not bear the cost of short term Budget decisions,” said FSC CEO Sally Loane.
“Stopping superannuation guarantee payments at 9.5 per cent would be inconsistent with Australia’s future needs for savings. It is simply too low to help the majority of Australians fund their retirement and would mean that more than 80 per cent of Australians would still be dependent on the age pension by 2050 – nearly 60 years after the introduction of compulsory superannuation.”
“Australia has an aging population, and a shrinking tax base. We cannot afford to have 80 per cent of the population on the age pension by 2050.”
“We need to save more for our retirement, not less.”
“We urge the Government not to make short-term decisions but instead consider what is sensible public policy for the long-term benefit of the country.”
“The industry is open to a conversation on how our super system can be improved, but having less in aggregate retirement savings is not negotiable,” Ms Loane said.
According to modelling by Industry Super Australia, the cost of the Age Pension would need to increase by 6% to offset the lower superannuation savings.
“It is hard to believe the Government would seriously consider capping increases to universal, compulsory super, one of the major pillars in our retirement income system and our economy,” said ISA Chief Executive David Whiteley.
“Speculation that such a measure would pay for income tax cuts is absurd. There would not be one dollar of savings in the budget forward estimates, and only a modest $500 million saving in 2021-22 which would deliver a tax cut of less than a dollar a week.”
“With our ageing population, these proposals wouldn’t just hit retirees in the hip pocket but reduce capital investment which in turn will have a negative impact on productivity, real wages and economic growth.”
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