Increase in super contributions a tax on business
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.
Most Australians would understand that when it comes to misinformation, the hierarchy is, lies, damn lies, statistics, political advertising, with campaign promises coming in a dismal last. This ability to bend the truth is not limited to just one party. Before 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 relates to the claim by the Gillard government that the compulsory superannuation guarantee contribution is rising from 9 per cent to 12 per cent. The fact the increase is starting at 9.25 per cent from July 1, 2013, and then 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 contribution was originally introduced. The SGC started in 1992 as a result of negotiations between the Labor government and the ACTU. It was originally set at 3 per cent of a person's wage. The deal saw the ACTU give up a 3 per cent 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. The increases over that period had no corresponding tradeoff for wage increases.
These changes, and the increases in the SGC scheduled to start from July 1, 2013, 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 the profitability of businesses, 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 likelihood of the increases in the SGC payments being taken into account by unions and Fair Work Australia in wage negotiations and industrial award pay increases is not great. This leaves the very real possibility of there being either an increase in prices or more businesses failing.
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. Chief executive of the IPA 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 government gets elected in September, it could be sorely disappointed. Not long after the SGC increases were announced, Tony Abbott stated that the increases would stay. Given that both sides of politics are now well into election campaign mode, who knows what promises will be made.
Frequently Asked Questions about this Article…
The article explains the government's SGC increase starts from July 1, 2013 when the contribution rises to 9.25% and then phases up over the next six years to reach 12% of a worker's wage.
The piece argues the SGC rise is effectively a tax on businesses because employers must pay the higher contributions. Historically the SGC began as a trade‑off in 1992 (a 3% contribution in exchange for giving up a 3% wage rise), and recent increases add employer cost without corresponding wage trade‑offs, so the article says the change mainly increases business costs rather than being a new superannuation benefit.
According to the article, higher SGC costs for employers could reduce business profitability, lead to higher prices for goods and services to cover the extra cost, or be used to limit future wage increases as employers offset the compulsory super contributions.
The article highlights concerns that many small businesses are already struggling and may find it hard to absorb higher SGC costs. The Institute of Public Accountants called on the federal government to introduce a concessional tax rate for small businesses to help compensate them for the increase in SGC contributions.
The article says the government was criticised for misleading advertising because ads claimed the guarantee was rising from 9% to 12% while the fine print revealed the increase actually starts at 9.25% on July 1, 2013 and phases up to 12% over six years.
The article states the SGC started in 1992 after negotiations between the Labor government and the ACTU, initially set at 3% of wages. That 3% contribution came as part of a deal where the ACTU gave up a 3% wage increase. The rate was later increased from 1996 and reached 9% in 2003.
The article suggests the likelihood is low: it says unions and Fair Work Australia probably won't fully take the SGC increases into account during wage negotiations and award pay settings, which raises the risk of price rises or more business failures instead of wage offsets.
Per the article, both major parties have come under scrutiny over messaging. Tony Abbott publicly said the SGC increases would remain if the Coalition won, and the piece notes that political advertising and campaign promises can be misleading, so future promises during the election campaign are uncertain.
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