The announcement of the deferral of rises to super contributions won't be a huge setback for Australians
Contrary to alarmist claims of a more than $100 billion slug to savings, this week's announcement of the deferral of the phased-in rise of compulsory employer super contributions to 12 per cent of salary won't be a huge setback for ordinary Australians. This costing is based on unrealistic assumptions that compulsory super provides a net addition to national savings. These figures assume employers will meekly pay the additional contributions without reducing future wage increases or reducing the number of employees because of the additional oncost.
Many, particularly the younger age groups and the middle-aged homeowners who've got mortgages would, if asked, prefer to receive additional take-home pay. Even more worrying for younger and middle-aged earners is the continuous pressure from the superannuation industry and Treasury to raise the preservation age beyond 60 to as high as the age pensioner eligibility age.
With many more Australians with mortgages and facing the threat or reality of redundancy, to have money tied up in super (apart from limited access to up to $10,000) is a far from pleasant prospect. Being forced to build up large super balances that are untouchable until a late age is not an attractive idea for many voters. If it were to prove popular, the federal government elected in 2016 could reverse the latest decision and speed up the timetable for the increases. Most importantly, if compulsory super is really the best option to boost national savings, there are three major flaws in the current policy even at 9.5 percent of salary.
First, there's no failsafe way to ensure smaller employers actually make the required contributions on a timely basis. Second, there's no compulsion for the self-employed and other non-wage earning taxpayers to contribute. Indeed, this is a major incentive for workers to become contractors and/or to operate in the cash economy. Third, it reduces the scope for lower and middle income taxpayers into home-ownership.
Instead of helping, as in Singapore and Canada, to achieve home-ownership, our compulsory super contributions are invested domestically and overseas by the superannuation industry. The industry's hostile reaction to Senator Xenophon's limited proposal to allow first home buyers to use their compulsory super to help achieve home-ownership shows their interest in maximising funds under management rather than helping their members. Hopefully, the delay in boosting the level of compulsory super contributions will provide the opportunity for policy changes to help fund members as well as to boost national savings.