Are the government’s much-publicised changes to superannuation—announced in the May budget—as good for employers as they are for employees?
For something that people are always trying to make simpler, superannuation seems to get more complex. Back in the May budget, the government announced a phased increase in the Superannuation Guarantee rate for employer contributions. The increase will be from nine per cent to a maximum of 12 per cent by the 2019/20 financial year. The increases will be introduced progressively—it will increase to 9.25 per cent in 2013/14 (two years from now); then will increase by another quarter of a percentage point the next year; and by half-a-percentage point over the next five years, until it’s at 12 per cent in the 2019/20 financial year.
The phased approach has been balanced by a proposed reduction to the company tax rate, which the government says should help reduce some of the funding burden on employers. “The Government is determined to boost Australians’ retirement savings so that whenever the mining boom ends, Australians have got something real and enduring to show for it. Our natural resources are finite, so we need to take action now to ensure we save some of the proceeds,” the Treasurer Wayne Swan said in a press release.
If you’re an employee, it sounds like great news. But not so great if you run a restaurant or catering business. Restaurant & Catering is disappointed at the decision to lift the superannuation guarantee rate for employer contributions. R&C has advocated over many years that any increase to superannuation contributions should be in the form of employee contributions until employee and employer were making equal contributions (i.e. nine per cent each).
This increased cost to employers will mean a 36 per cent reduction in net profits for restaurants (i.e. net profit being reduced by 1.3 per cent from the ABS-cited average 3.6 per cent net).
Unlike other sectors of business, restaurants, cafes and caterers have a large number of non-corporate entities and therefore will receive the benefit of the reduction in company tax rates. Further, those restaurants and cafes that are corporations make such small profits that the difference in rate will not compensate for the increase in costs of the superannuation measure. For example, the difference in the company tax rate will see the average restaurant pay 0.07 per cent less of it turnover in tax—the additional superannuation levy will cost 1.3 per cent of turnover.
Restaurant & Catering will continue to express concern over the impact of the tax reform measures on labour intensive sectors such as restaurants, cafes and caterers.
The Government has also assumed that the extra costs for employers will be offset against increases in productivity—an assumption that seems fine if you’re looking at a ‘broad-brush’ approach across the entire economy, but is completely wrong when it comes to services industries generally, whose productivity levels have dropped in the last five years.
A saving grace with the changes is they are all happening in the future, says Ann Wong, executive manager, compliance and business risk with Hostplus. “For example the changes to the super guarantee doesn’t happen until 2013.”
The other changes announced were: From 1 July 2013, the age limit at which employers have to make SG contributions for employees will increase from 70 to 75 years of age; and from 1 July 2012, workers aged 50 and over with total super balances of less than $500,000 will be able to make up to $50,000 (indexed) in deductible contributions into their super at concessional tax rates. This extends the current concessional contributions cap of $50,000 (which is not indexed) for those aged 50 and over, which was due to expire on 30 June 2012. This will enable those with lower super balances to catch up and particularly benefit those who have had periods outside the workforce.
Furthermore, the government will permanently retain the current matching rate for superannuation co-contributions at 100 per cent up to a maximum of $1,000, although conditions apply to that guarantee.
In addition, the co-contribution income eligibility thresholds will be frozen for two years. That means for the next two years the full government contribution of $1,000 will apply to people with incomes up to $31,920. Previously the co-contribution matching rate was legislated to increase to 125 per cent in the 2012/13 income year and then 150 per cent in the 2014/15 income year. However, this scheme could be complemented by the new additional one-off government contribution for low-income earners to help make up for this loss. “On the whole, this gives people with less super a good chance to boost their super,” says Ann Wong from Hostplus. “So for example, the super guarantee age limit is going up to 75. The government is trying to encourage older citizens to keep working, so increasing from 70 to 75 has got to be a good thing. As far as for low-income people, especially over 50, if you have less than $500,000 in your super you can increase your contributions up to $50,000. At that age there’s a lot more strategies available for people. So this budget is more about targeting lower-income people with less super.”