While the compulsory superannuation guarantee charge (SGC) rate will increase from 9 to 9.25 per cent on 1 July 2013, many Australians may not have thought about how it's being funded, according to the Institute of Public Accountants (IPA).
In a statement released last week, the IPA said there may have been a misunderstanding when the SGC increase was introduced that the mining tax was going to fund the increase in superannuation.
However, the IPA said that was simply not the case.
The IPA said that while it was not opposed to the gradual increases in the SGC rate, people should think about how those increases are going to be funded – and the reality that the Government was not funding any of the increase in super.
For Andrew Conway, CEO of the IPA, the only cost to Government is the opportunity cost of more dollars feeding into the concessional superannuation pool.
That means that whenever a dollar of wages is redirected into super, the Government collects less revenue as the 15 per cent 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," he said.
"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."
Conway said that most employers worked on a total 'cost of employment' basis which included super, meaning that future pay increases would be partially offset by higher super contributions.
"We are also concerned as to how small businesses will manage these changes," he said. "Many are struggling to make ends meet as it is.
"Just ask the question of a retailer paying award rates to employees – how will they continue to do so and remain competitive?"
With the SGC increasing gradually up to 12 per cent by 2019 and adding to the many cost pressures facing small business owners, Conway said that the IPA was calling on the Government to introduce a concessional tax rate for small businesses.
It hoped such a measure would help stem the rapid flow of small business closures and shield this sector from significant headwinds.
