Employers forced to bear the cost of increase in super
The federal government this week has been criticised for producing misleading advertising related to improvements it is making to the superannuation system. This is surprising because what the government should have been criticised for was an increase in taxation on business being classed as an improvement to superannuation.
This ability to bend the truth is not limited to just one party. Before Prime Minister Julia Gillard's campaign promise of "there will be no carbon tax under the government I lead", there was John Howard's promise that "there's no way that GST will ever be part of our policy".
The charge of misleading advertising is related to the claim by the federal government that the compulsory superannuation guarantee contribution (SGC) is increasing from 9 per cent to 12 per cent.
Unfortunately, the fact the increase was starting at 9.25 per cent from July 1 and increasing over the next six years to 12 per cent, was only disclosed in the fine print.
To understand why this increase in the SGC is a tax on business, and not a major improvement to superannuation, you need to go back in history to when the SGC was originally introduced.
The SGC started in 1992 as a result of negotiations between the Hawke government and the ACTU. It was originally set at 3 per cent of a person's wage. The deal resulted in the ACTU giving up 3 per cent of a wage increase.
After its introduction, the 3 per cent was increased from the 1996 financial year up to its current 9 per cent in 2003. These increases were all made when the Hawke/Keating Labor governments were in power. The increases over that period had no corresponding trade-off for wage increases.
These changes, and the increases in the SGC scheduled to start from July 1, are therefore increases in a tax on businesses rather than a major superannuation initiative.
This increase in the SGC cost for employers will result in decreases in profitability, an increase in the prices charged for goods and services to fund the increased SGC commitment, or be used to reduce future increases in salaries and wages as an offset for the increase in compulsory super contributions.
The odds of the increases in SGC payments being taken into account by unions and Fair Work Australia in wage negotiations and industrial award pay increases are not great.
The Institute of Public Accountants is calling for the federal government to introduce a concessional tax rate for small businesses to compensate them for the increase in SGC contributions.
IPA chief executive Andrew Conway said: "We are also concerned as to how small businesses will manage these [SGC] changes - many are struggling to make ends meet as it is. Just ask the question of a retailer paying award rates for employees, how they will continue to do so and remain competitive."
If the business sector had been hoping for some help if the Coalition gets elected in September, they could be sorely disappointed.
Not long after the SGC increases were announced, Opposition Leader Tony Abbott said the increases would stay.
Given that both sides of politics are well into election campaign mode, who knows what promises will be made.
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free