MEDIA RELEASE While the Federal Government’s proposed increase in the Superannuation Guarantee (SG) could result in some workers taking home less pay, the incremental increase is likely to benefit lower and middle-income Australian’s, according to QMV’s principal consultant, Jonathan Steffanoni.
The current rate for SG payments made by employers is 9.5%, with this rate set to continue until 1 July 2021 when it increases to 10% before settling at 12% from 1 July 2025. The likelihood of employees taking home less pay will be contingent on how wages are set, the frequency and regularity of determining employment arrangements, and the wording of individual and collective employment contracts.
According to Mr Steffanoni, the planned increase is sound economic policy and beneficial to the retirement savings of Australian’s, however caution is warranted to ensure broader economic conditions and the labour market remain adequately elastic to absorb the associated cost.
“Broad assertions that the planned increase in SG will add to the cost of living pressures faced by many Australians don’t really stack up to closer scrutiny. This may simply be due to misunderstanding of the complexity and nuance in the way the SG and labour markets function.
Mr Steffanoni said that “rather than adding to cost of living pressures by reducing take home salary, an increase in SG for the 23% of Australian workers on lower salaries set by Modern Awards will increase the retirement savings of those who are set to benefit most, as wages aren’t set by the market and provide for SG in addition to salary.
Young Australians early in their careers and workers in lower paid industries often face the most pressing cost of living challenges, and it would be this demographic to benefit most from an increase in the SG. As casual employees on monthly incomes of less than $450 are not covered by the current SG system, they would also benefit from an increase in the SG and the removal of the $450 rule.” he said.
While Mr Steffanoni concedes there will be some of the 37% of workers on individual employment agreement which relies on a “total remuneration package, inclusive of SG” who could see a direct reduction in their take home pay with an SG increase, a vast majority of the 40% of workers covered by a collective agreement would be unlikely to see a direct reduction.
Mr Steffanoni also emphasised that “the salary of employees on individual or collective agreements often falls below market value, particularly where employees remain in the same role or with the same employer for a longer period. There may be pay increases, but these typically don’t keep pace with the market.
An increase in the superannuation guarantee is a blunt but effective mechanism to force improvements in labour market efficiency in times of low unemployment and wage growth – times such as those we are currently experiencing.
Consideration needs to be given to the impact on economic conditions affecting future salary increases and new agreements,” said Mr Steffanoni.
The SG has been effective in extending coverage to about 90% of the Australian workforce and while employers are not legally obliged to contribute, tax incentives have this far proven beneficial in incentivising most employers to adopt the regime.