The government is set to abandon plans to freeze employer superannuation contributions at 9.5 per cent, with the levy to rise to 10 per cent from July 1.
The government is set to abandon plans to freeze employer superannuation contributions at 9.5 per cent, with the levy to rise to 10 per cent from July 1.

Super boost likely as government backflips

Australian workers are on track to get a mid-year increase to their superannuation, with the Morrison government set to walk away from plans to freeze employer contributions at 9.5 per cent.

The government has refused to rule out trying to repeal legislation which will automatically increase the employer superannuation contribution to 10 per cent on July, 1.

Employer groups representing businesses impacted by the coronavirus recession have been pushing for the rise to be deferred or scrapped until the economy has sufficiently recovered from the pandemic.

Treasurer Josh Frydenberg has also made it clear he believes there is clear evidence the legislated change could hurt wage growth and living standards.

But with little more than three months until the changes kick in, senior government sources said the increase to 10 per cent was almost certain to go ahead.

The view across government is that while a formal decision has yet to be taken there is little appetite to change the law.

"I think the view is this isn't a fight we need to have," a senior government source said.

The decision will be made public when the Budget is handed down on May 11.

Under the current legislation the super guarantee will continue to rise over the next five years until it reaches 12 per cent in July 2026.

One proposal understood to be under consideration is that the scheduled employer contribution rise between 10 per cent and 12 per cent should be made voluntary, with workers able to choose whether to take the money in wages or have it paid into their funds.

The superannuation industry is taking the threat to the legislated rise to 12 per cent seriously, launching a media ad blitz on Friday night which aired during football games across the nation.

The industry argues that dumping the increase to the super guarantee will add $33 billion to the aged pension by 2058.

It points to an ACIL Allen report which found billions in extra investment capital from the increase will add $12 billion to GDP and create 10,000 jobs by 2040.

 

Mum of three Myra Mawby, with her 14-month-old son Louis, says an increase to the superannuation contribution would make a huge difference to her. Picture: Annette Dew
Mum of three Myra Mawby, with her 14-month-old son Louis, says an increase to the superannuation contribution would make a huge difference to her. Picture: Annette Dew

The industry is keen to highlight the difference between most workers' employer contributions and federal politicians'.

Industry Super Australia chief executive Bernie Dean said: "If the Morrison government breaks its election promise many Australians will wonder why 9.5 per cent is enough for them but not for politicians, who all pocket 15 per cent."

He said that lifting the rate to 12 per cent "will add $170,000 to a family's retirement balance - for many that's the difference between a dignified retirement and one just scraping by, wondering if they can afford to keep the heating on."

He said cutting the rate would mean "some Australians will have to choose between a financially secure retirement or selling their family home - that's an unfair choice no one should be forced to make."

But economist Brendan Coates, of the Grattan Institute, which has long questioned the wisdom of increasing the super guarantee to 12 per cent, said there "was no case for raising the compulsory superannuation beyond 9.5 per cent" and "doing this in the middle of a recession is a bad idea as it will slow down the recovery and cost Australians higher wages".

He said the higher superannuation contributions "would cost the budget more in extra tax breaks for wealthy Australians than it would save taxpayers in lower pension costs for the next 40 years."

 

 

Mr Coates said tax breaks were costing the federal budget $35 billion a year while the aged pension was currently worth $46 billion.

But by 2040 the tax breaks would end up costing the budget more than the pension.

"If you get people to save an extra 2.5 per cent today which is about $15 billion a year in extra contributions, then the Government is giving up an extra $2 billion a year in tax breaks, which over time will be worth more than the pension savings," he said.

Dr Ross Lambie, an economist with the Australian Chamber of Commerce and Industry Economist, said it supported delaying the legislated increases "until there is a decision from government on the need for changes to the retirement income system."

His view was echoed by Chartered Accountants Australia and New Zealand Superannuation Leader Tony Negline, who said the approach "needs to be cautious not callous".

"The reason we are backing the pause is so we make it easier, not harder, to boost the economy for businesses to invest and jobs to be created," he said.

 

 

Labor Treasury spokesman Jim Chalmers said the Morrison government shouldn't be using a pandemic as an excuse to come after super.

He rejected arguments that increases in the super guarantee would cost workers' pay rises, saying "last time the Liberals froze the super guarantee wages growth got worse, not better".

He said Labor "was the party of super and we'll fight to defend it."

Liberal MP Tim Wilson, who has been pushing for people to be able to use their super towards buying their first home, said "you can save for retirement once you have a home, you can't save for a home in retirement".

"That's why it should be home first, super second," he said.

 

 

Originally published as Super boost likely as government backflips



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