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Superannuation: Removing the $450 SG Threshold adds to employment costs and does not deliver commensurate benefits

"Further analysis of the Federal Opposition's proposed change to the Superannuation Guarantee shows that it will add much more to employer costs than it will add to the retirement incomes of women," Innes Willox, Chief Executive of the Australian Industry Group said today.

"Improving retirement incomes for women is of course an important goal. However, the Opposition's proposal to remove the $450 per month income threshold below which employers are not required to make super contributions on behalf of their employees will add significantly to the costs of employment and it will not work in a cost-effective way to address gender disparities in retirement incomes.

"If implemented, the removal of this long-standing threshold will add significantly to the direct costs of employment and to business compliance costs. In addition, the extra Superannuation Guarantee payments will give rise to higher payroll tax liabilities. These additional costs will reduce the capacity of businesses to employ and invest and will reduce the contributions of business to the economy.

"On the other side of the equation, a large proportion of the extra costs borne by businesses as a result of removing this threshold would not convert into higher retirement incomes for women. Instead:

  • A large proportion – we estimate it at more than one-third – would be paid into the superannuation accounts of males;
  • Of the remaining additional contributions, 15% would be paid in tax to the Commonwealth Government and another proportion would be deducted as fees by superannuation funds;
  • Further, for many women the benefits of a higher superannuation balance on retirement will be significantly diluted by the age pension assets and income tests. For these women additional superannuation balances will be partly offset by lower age pension entitlements.

"It is important to note that the $450 per month Superannuation Guarantee threshold was put in place in 1992 in part to address compliance cost concerns. If the threshold had been indexed, today it would cut in at $850 per month. Instead, its erosion in real terms has exposed business to greater compliance costs than were envisaged when the Superannuation Guarantee was originally legislated. The Opposition's proposal would remove this protection altogether.

"While removing the $450 threshold is clearly not a cost-effective way to raise retirement incomes for women, Ai Group would welcome an opportunity to consult with the Opposition as it further develops its policy agenda both in this area and in others," Mr Willox said.  

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