Who is really paying for higher super contributions?

On 1 July 2013, the compulsory super guarantee charge (SGC) rate will increase from 9 to 9.25 per cent but many Australians may not have thought about how it’s being funded, says the Institute of Public Accountants (IPA).

If you think the Government is paying, think again.  There may have been a misunderstanding, that when it was introduced, the mining tax was going to fund the increase in superannuation.  Simply, that is not the case.
 
The IPA is not opposed to the gradual increases in the SGC rate, however, people should think about how those increases are going to be funded.  The Government is not funding any of the increase in super.
 
The truth is the only cost to Government is the opportunity cost of more dollars feeding into the concessional superannuation pool. 
 
Whenever a dollar of wages is re-directed into super, the Government collects less revenue as the 15% tax rate imposed on super funds is less than the average marginal tax rate on wages and salaries.
 
“There are only two possible avenues for funding the increase in the SGC; one, employers will do so, adding to their cost structure or two, employees must sacrifice some of their pay packet,” said IPA chief executive officer, Andrew Conway.
 
“Where an employee is expecting an annual incremental pay increase, they may be well disappointed when they realise that they have to fund the SGC rate increase themselves.
 
“Most employers work on a total cost of employment basis which includes super and therefore, future pay increases will be partially offset by higher super contributions.
 
“We are also concerned as to how small businesses will manage these changes; many are struggling to make ends meet as it is.  Just ask the question of a retailer paying award rates to employees, how they will continue to do so and remain competitive,” said Mr Conway.
 
The SGC is to be increased gradually up to 12 per cent by 2019 adding to the many cost pressures facing small business owners.
 
This is one of the reasons why the IPA is calling on the Government to introduce a concessional tax rate for small businesses (see release 18 March 2013: Tax offset for small business a must) to stem the rapid flow of small business closures and support this sector from significant headwinds.