Monday, April 30, 2018

Super increases already hurting wages: Grattan

The Grattan Institute has made a last-ditch plea for the Turnbull government to abandon the scheduled increases in compulsory superannuation contributions, saying they are already hurting wages.

A schedule to be confirmed on budget night will lift employers' contributions from 9.5 per cent of salary to 10 per cent in 2021, and then by an extra 0.5 points each year until 2025 when contributions reach 12 per cent.

The institute’s analysis, to be released on Monday, says the timetable is already being taken into account in enterprise agreement negotiations, where it is suppressing offers.

The program of increases, set in train by the Rudd Labor government, has already been postponed twice, first by the Abbott government and then by the Turnbull government, but is due to restart in 2021.

“Unless stopped, the program will cut wage rises, cost the federal budget billions well into the future, and actually harm some retirement incomes,” said Grattan Institute chief executive John Daley.

The more superannuation a low earner has, the lower the age pension they receive in retirement. For each $1000 of assets above the threshold each pensioner loses $78 a year in pension payments.

Because the age pension is indexed to wages, increasing employers super contributions at the expense of wages cuts pension growth.

“Our research shows that increasing the rate to 12 per cent would make future pension payments 2 per cent lower than otherwise,” Mr Daley said. “By suppressing pension payments, it could make existing pensioners worse off by up to $460 a year for singles and $640 a year for couples.”

Earlier this month Financial Services Minister Kelly O'Dwyer spoke out against increasing compulsory contributions, but indicated it was likely the program would stay in the budget.

“The increase of 9.5 per cent to 12 per cent will mean around $10 billion a year more flowing into the industry in 2025-26, which, of course, means a bonus of hundreds of millions of dollars in fees each year for the industry and ever increasing salaries for industry professionals," she said.

Mr Daley said the scheduled increases would hurt the federal budget because money that would have been paid out and taxed as wages would be paid out as superannuation and taxed at 15 per cent instead.

“In both the short and long term, superannuation costs the budget more than it saves because the tax breaks cost the government more than the pension savings,” he said.

“Treasury analysis estimates that the revenue forgone from superannuation tax breaks as a result of moving to 12 per cent added to past increases would exceed the budgetary savings from lower age-pension spending for many years.

“Eventually superannuation would save the budget money but, from about 2060, by which time there would be 80 years of budget costs to pay back before government was in front.”

In The Age and Sydney Morning Herald