Liberals set to slow down SG increase

Before the 2013 Federal Election, Tony Abbott, announced that if the Coalition won the election, the Superannuation Guarantee increases would be frozen at 9.25% for 2 years, and consequently the full SG increase to 12% would be delayed for 2 years, taking effect from 1 July 2021.

The previous ALP government legislated a gradual increase in the Superannuation Guarantee rate, starting with an 0.25% increase (from 9% to 9.25%) which took effect from July 2013. The SG rate was then to steadily increase over a 7-year period, to 12% by July 2019.

Superannuation Guarantee (SG) is the official term for compulsory superannuation contributions made by employers on behalf of their employees. An employer, regardless of whether they are a small or large business, must contribute the equivalent of 9.25 per cent of an employee’s salary (before July 2013, the percentage was 9%).

The newly-elected Coalition government are delaying the implementation phase by 2 years, which means the SG rate remains at 9.25% for the 2014/2015 and 2015/2016 years, and will eventually reach 12% by July 2021 (see table at the end of the article).

On 24 October 2013, Federal treasurer, Joe Hockey released an exposure draft of the Mineral Resource Rent Tax Repeal and Other Measures Bill 2013. The re-phasing (as the government describes it) of the SG increase is included as part of this Bill. The draft legislation is expected to be tabled in parliament in December 2013.

According to the exposure draft for the MRRT and Other Measures Bill: “The SG charge percentage will pause at 9.25 per cent for the years starting on 1 July 2014 and 1 July 2015, and increase to 9.5 per cent for the year starting on 1 July 2016, and then gradually increase by half a percentage point each year until it reaches 12 per cent for years starting on or after 1 July 2021.

Background: Originally the Liberals were against the 12% Superannuation Guarantee increase, and then relented and made a public commitment to the historic superannuation increase, once the legislation was passed. Unfortunately, they have had a taste of the ALP’s fiddling at the fringes of super policy. It was only in April 2013 that the Liberal Party promised “We will ensure that no more negative unexpected changes occur to the superannuation system so that those planning for their retirement can face the future with a higher degree of predictability.” That’s right, but they didn’t mean the promise applied to this super change.

According to the Coalition government, by slowing the SG rate increase to 9.5% from July 2016 (rather than 10.5% under the current law), the new government believes it will save $1.1 billion in tax concessions for the 2016/2017 year, and a further $2.5 billion over future years.

Note: In a related policy, the Coalition government is winding back the Low Income Super Contribution (LISC) which refunded the 15% contributions tax for Australians who earn less than $37,000 a year. For more information on the LISC see SuperGuide article – Scrooge alert! Low-income earners hit with extra super tax.

SG rate increase

 

Current law

Draft legislation

Financial Year

Rate (%)

Rate (%)

2012/2013

9

 

2013/2014

9.25

9.25%

2014/2015

9.5

9.25%

2015/2016

10

9.25%

2016/2017

10.5

9.5%

2017/2018

11

10%

2018/2019

11.5

10.5%

2019/2020

12

11%

2020/2021

12

11.5%

2021/2022

12

12%

Source: Calculated by Trish Power, based on description in explanatory memorandum and exposure draft of MRRT and Related Measures Bill 2013. 

© Copyright Trish Power 2009-2014

Copyright for this article belongs to Trish Power, and cannot be reproduced without express and specific consent.


IMPORTANT: SuperGuide does not provide financial advice. Comments provided by readers that may include information relating to tax, superannuation or other rules cannot be relied upon as advice. SuperGuide does not verify the information provided within comments from readers. Readers need to seek independent advice about their personal circumstances.

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