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We need to talk some common sense about super

We need to talk some common sense about super

This article originally appeared on Advisor Voice on 29 April 2020

Economic pain has been on the horizon for some time now, but no one wins in a race to the bottom.

There’s no doubt that the remainder of 2020 is going to be particularly tough for Australian businesses and their employees. Until earlier this year, the economy had been slowing for some time. It was looking likely that the world would slide into a recession, and unfortunately, a black swan event like the COVID-19 pandemic has seen us there much sooner.

Dealing with the fallout of recent events is number one on the global agenda. As various stimulus packages and monetary policy measures are put into place around the world, people are unsurprisingly nervous about how this economic downturn is going to play out. If the historic stimulus measures being rolled out are able to cushion the economic blow – and that’s about all they can do at this point – we need to think about what can be done next to recover and grow.

Are we headed for a GFC-style 18-month bear market, or are we in for something more protracted? No one can be sure at this point, but this uncertainty can emphasise some latent issues in our economy, particularly when it comes to superannuation and doing business in Australia.

Super debate overlooking societal and economic issues

The debate over the last few months around increasing the superannuation guarantee and the superannuation amnesty is leaving a number of societal and economic issues overlooked.

We’ve seen several policy changes over the last five years. Increasing penalties for employers who inadvertently make late super payments being one of these changes that demonstrate how we’ve lost sight of the original policy objectives of super.

These changes aren’t making businesses more productive, nor are they improving people’s retirement position. It’s also becoming increasingly difficult for employers to have any certainty that super payments for employees are correct.

Some may argue that the recent increase in penalties for employers that underpay or make late payments, whether inadvertently or not, balances out a “pro-business” environment. However, without a policy and economic environment that fosters business productivity, these businesses are being placed in jeopardy. As a result, the jobs they support may cease to exist too.

Increasing the SG is not a super idea

One of the first superannuation issues dominating headlines earlier this year was the debate around increasing the superannuation guarantee to 12%. At the time when this issue was front of mind for policymakers, retail and industry super funds and employers, the economy was already in a fragile position.

Clearly, things are now much worse. In an already fragile economy, increasing the super guarantee won’t improve the retirement position of low-income earners, and it will reduce many Australians’ vitally needed take-home pay.

Compulsory super arguably doesn’t improve the retirement income position of low-income earners at all. This group often needs to use the lump sum available at retirement to pay off debt, while relying on the age pension for their retirement income.

Would the compulsory super contributions of low-income earners be better off going towards earlier debt reduction? Possibly. Is there any guarantee these funds wouldn’t be spent elsewhere? No.

The Federal Government’s recent announcement that financially struggling Australians will be able to access up to $10,000 of their superannuation in this financial year and a further $10,000 in the next financial year indicates the financial benefits of earlier access to super earnings outweigh saving for retirement for this group.

Business growth will be jeopardised with an SG increase

Employees aren’t the only people who will bear the brunt of an increase in the super guarantee.

Businesses that have employees on hourly rate arrangements will need to pay for the super guarantee increase on top of their employees’ hourly wages. This additional cost comes straight from a business’s bottom line, further diminishing their capacity to invest profit into growing the business to bounce back after a recession, such as through employing more people.

While businesses may be able to recoup the extra costs of a super guarantee increase over time, with changes to pricing arrangements to absorb costs across the supply chain, it still puts businesses at risk. If the super guarantee increase isn’t parked, we’ll likely see more businesses close their doors, and the unemployment rate will continue to rise more than it already will in the wake of recent events.

Review our industrial relations framework, again

The current debate around the super guarantee and super amnesty, plus the widespread reports of employee underpayments, which, a lot of the time, are unintentional, highlights a persistent issue in our economy.

Australia’s complicated industrial relations framework directly contributes to this trend. If employers need to review up to four, sometimes competing, sources of information to get their employees’ pay right – legislation, the industry award, an enterprise bargaining agreement and the employment contract – it’s no wonder issues and mistakes arise. Thankfully, with data becoming an integral part of business, it’s becoming easier to identify and rectify mistakes. The policy response to these mistakes, however, is concerning.

Recently, the Government has made penalties for employers who don’t meet their super payment obligations even more severe. After the amnesty period ends on 7 September 2020, employers will be required to pay the super guarantee owing, nominal interest (10%), an administration fee ($20 per employee, per quarter) and the Part 7 penalty (no less than 100% but up to 200% of the total super guarantee charge). None of these costs are tax deductible. If the policy objective of superannuation is to ensure Australians have enough money saved for retirement, these penalties reach far beyond this objective.

It’s true that the ATO has a role to play in ensuring employers do the right thing. It’s also true that most businesses want to do the right thing by their people. The danger with the current environment is that the core issue, Australia’s IR complexity, isn’t being addressed. Without ensuring that Australia’s industrial relations framework is simplified, the current measures are only increasing the risk that businesses will fail through inadvertent mistakes.

The broader national conversation, the 24-hour news cycle and general scepticism toward people who put everything on the line to build their businesses has shifted negatively over the last decade. When did we start assuming businesses want to do the wrong thing?

What’s next?

We’ve lost sight of the bigger picture in the super debate. With the economy already experiencing below-trend growth for years, recent events are demonstrating the glaring weaknesses in our financial and economic systems and highlighting how critical strong businesses are to society.

If the best is truly yet to come in Australia, and I believe it is, it’s time for us to ask some tough questions after the dust settles.

Let us reflect on the lessons we are learning in this crisis and place an emphasis on fostering a stronger environment for the businesses which prop up our economy. This will, in turn, fuel employment opportunities and economic growth.

No one wins in a race to the bottom.

The views expressed in this podcast are provided by Pitcher Partners Investment Services and do not represent the views of any other Pitcher Partners financial services licensees. Pitcher Partners is an association of independent firms. The advice provided to you is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. Accordingly, before acting on the advice, you should consider the appropriateness of the advice having regard to your objectives, financial situation or needs. If you wish to acquire a financial product, we recommend you seek advice from a Pitcher Partners Investment Services’ representative, and where applicable, consider the relevant offer document prior to making any financial decision. ABN 24 052 941 036 | AFS LICENCE NO. 229887


This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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