Australia markets closed
  • ALL ORDS

    7,042.70
    +102.10 (+1.47%)
     
  • AUD/USD

    0.7771
    +0.0060 (+0.77%)
     
  • ASX 200

    6,789.60
    +116.30 (+1.74%)
     
  • OIL

    62.67
    +1.17 (+1.90%)
     
  • GOLD

    1,753.30
    +24.50 (+1.42%)
     
  • BTC-AUD

    59,424.02
    +1,308.79 (+2.25%)
     
  • CMC Crypto 200

    922.44
    -10.69 (-1.15%)
     

Super increase at odds with Govt's wage rise plan: Hume

Jessica Yun
·4-min read
(Source: Getty)
(Source: Getty)

The scheduled increase to the superannuation rate is already set in legislation, despite industry experts arguing it will suppress wage growth, the superannuation minister has said.

Federal Minister for Superannuation, Financial Services and the Digital Economy Jane Hume said it was a “tough decision”, but the increase of the superannuation guarantee (SG) from 9.5 per cent to 10 per cent was already set in law.

“The Prime Minister has said it, the Treasurer has said it: the super guarantee rise is legislated for the first of July,” she said at an industry event on Thursday evening.

“It’s legislated to rise half a per cent on 1 July and another half a per cent for each of the four years following that until it reaches 12 per cent.”

Currently, Australian employers have to contribute a minimum of 9.5 per cent of employees’ pay to their superannuation.

But several industry groups and senior economists have lobbied for months for the increase to be delayed, including 44 experts in macroeconomics, labour markets, and public policy.

The Federal Government’s own Retirement Income Review, chaired by former Treasury official Mike Callaghan, indicated that workers’ pay packets would take a hit if the SG rate rose.

“Projections suggest that maintaining the SG rate at 9.5 per cent would … allow people to have higher incomes during their working life while still being able to maintain their living standards in retirement, if they used their retirement savings more efficiently,” the report stated.

A report by the Australian Council of Social Services (ACOSS) from early February last year echoed this.

“The increase in the Superannuation Guarantee contributions from 9 per cent to 12 per cent … should boost the retirement incomes of low- and middle-income earners, but at the cost of lower wage increases,” ACOSS’ report stated.

Hume on Thursday admitted that there was a “trade-off between wage rises and superannuation guarantee”.

“This is a tough decision. Everything that this Government has done is about trying to lower costs to business, to try and employ more people, to encourage wage rises.

“This legislation … does the opposite of that. So it puts us in an awkward position, but it’s already there,” she said.

“The Prime Minister has said that the shape of that rise going forward is something that he will consider much closer to the time.”

What’s happened so far?

When the Retirement Income Review’s final report was released in November last year, Treasurer Josh Frydenberg indicated at the time that the government would consider the report’s findings before making a decision on the SG increase.

"We will consider this report, we will consider other views that have been placed out there and we will make a decision about that in light of current circumstances before the scheduled increase takes place," he said on 20 November 2020.

The COVID-19 pandemic has created “a very different economic environment” to the year before, he continued.

"It has had a major impact on employment, on wages, on the labour market more generally, as well as the economy so we need to make decisions based on the economic facts at the time."

But two weeks ago, The Age reported that the Federal Government was mulling an opt-in model to the final 2 per cent of the SG increase that would give workers the choice between more take-home pay or higher contributions to their superannuation.

Superannuation industry leaders slammed the plans, with the Australian Institute of Superannuation Trustees chief executive Eva Scheerlinck arguing that lifting the SG rate to 12 per cent would mean an extra $27.50 a week into super.

“There are lots of ways to deal with low wage growth, but forcing people to use their retirement savings to fund their own pay rise shouldn’t be one of them,” she said.

Meanwhile, Industry Super deputy CEO Matthew Linden described the opt-in model as a “sneaky tax grab” and pointed out that wages are taxed at a higher rate than super contributions.

The wage increase would come at the cost of “sacrificing” their retirement savings, Industry Super said in a statement.

“Removing the guarantee in the super guarantee to make it ‘optional’ is a recipe for higher taxes, lower lifetime incomes, and a red tape nightmare for business,” said Linden.

“The Government should follow through on the legislated increase to 12 per cent and not be exploring underhanded ways to renege on it.”

Read more:

Find out more about The Broke Millennials Club’s 6-Week Bootcamp here. And join the conversation on Facebook.

Follow Yahoo Finance on Facebook, LinkedIn, Instagram and Twitter, and subscribe to the free Fully Briefed daily newsletter to make 2021 your best (financial) year yet.