Last week a Grattan Institute paper argued that the federal government should cancel legislation to increase compulsory employer super contributions from 9.5 per cent to 12 per cent “as most Australians will be comfortable in retirement”. If only that were the situation even for current retirees, funding our ageing population would not be the challenge for governments it is now.
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There are compelling reasons why limiting compulsory employer super contributions to 9.5 per cent warrants serious consideration, but not for the reason suggested by the Gratton Institute.
Together with state-levied payroll taxes and workers compensation insurance, large employers face additional on-costs of over 15 per cent on top of the wages paid to employees. This encourages job outsourcing to lower cost jurisdictions and capital equipment and artificial intelligence investments to reduce ongoing labour costs.
Compulsory super also encourages the self-employed to avoid the need to make any superannuation contributions. They can decide if and when to contribute to their super and can, if they wish, allocate all their savings to achieving home ownership. It’s no coincidence that since the introduction of compulsory superannuation, younger Australians are finding it more difficult to acquire a home or reduce the size of their mortgage.
The reluctance of governments to increase indirect taxation collection has also resulted in heavier personal income tax burdens, especially on overtime and other earnings required to get ahead. The self-employed still face the same taxation regime as employees, with the big advantage of being able to make a tax-deductible super contribution up to $25,000 annually if it suits their situation.
The superannuation rules have become very unfriendly to people whose financial situation changes dramatically due to circumstances such as marriage breakdowns and job losses. Except for a small amount available under hardship terms, superannuation is now tied up and untouchable until at least age 60. The larger the amount invested in superannuation, the less flexibility people have to cope with a change in situation.
Calling a halt to further increases in compulsory employer contributions will increase the flexibility of workers to deal with the adverse impact of the further tax increases needed to fund the ageing population. The super legislation now permits all taxpayers to top up their compulsory employer super by personal tax-deductible contributions up to the maximum annual $25,000 limit.
Future retirees need to realise, however, that their comfort will absolutely depend on how much they accumulate in working life via home ownership, superannuation or other assets. The Grattan Institute’s conclusion that all will be mainly fine for future retirees ignores the fact that even maintenance of current support will be a struggle for future governments. Even today there are many people, such as non-homeowners, whose needs are being ignored.
Daryl Dixon is the executive chairman of Dixon Advisory.
