Controversy over the Resources Super Profits Tax (RSPT) is peaking due to the perceived potential negative impact on the mining industry and the government’s hotly debated $38 million advertising campaign.
Mining and political hoo-ha aside, few have stopped to consider what impact the proposed reforms will have on as the superannuation guarantee.
According to Treasury, the 40 percent tax on mining super profits was introduced to generate more superannuation savings for working families, lower tax for all companies, and invest in future infrastructure needs, particularly for mining states.
If the tax becomes legislation, the Superannuation Guarantee (SG) will be increased from 9 per cent in 2013/14 to 12 per cent by 2019/2020. Lower income earners will also receive up to $500 a year extra in their superannuation as part of these measures.
The Federal Government claims that this will put an extra $108,000 in the retirement superannuation balance of the average 30-year-old worker.
According to independent financial advisor, Con Dikeos, the 3 per cent increase in the superannuation guarantee is, “nothing more really than a drop in the ocean.”
“If the Government is serious about increasing superannuation contributions, it could have looked at its own changes to the law relating to superannuation,” he said.
“Last year it halved the maximum voluntary contribution that employees can make to their superannuation from $50,000 to $25,000 a year, for people under 50.
On one hand they want to increase people’s contribution to super, and on the other hand they don’t. It’s contradictory.”
CEO of the Association of Superannuation Funds of Australia (ASFA) Pauline Vamos argues that the superannuation initiative will help Australians that may not have otherwise achieve a ‘comfortable’ lifestyle in retirement.
According to ASFA research, around $500,000 of retirement savings is needed per person, or just over $500,000 per couple to achieve the ‘comfortable’ benchmarks as defined in the WESTPAC ASFA Retirement Standard.
This would require a person on an average income of $50,000 to make superannuation contributions of 20 per cent over 30 years, which is far higher than the compulsory 9 per cent.
Alternatively, if both members of a couple had incomes of $50,000 a year and each made total contributions (including the SG) of 12 percent per year, they would be able to achieve a ‘comfortable’ lifestyle.
“The increase in the Super Guarantee, the tax rebate for lower income earners, and the higher concessional contribution caps will improve retirement outcomes for working Australians and improve the equity of the system,” underscored Pauline Vamos.
“ASFA would like to see a resolution of the overall package so that the superannuation measures can be put in place.”
Without a clear resolution in sight, senior NAB economist Spiros Papadopoulos cannot forecast the viability of the 12 per cent Superannuation Guarantee.
“No-one knows… because every day you read that the Government might be prepared to moderate its stance (with the mining industry) and the next day it says it is not going to. Obviously funding is reliant on this tax going through.”
He went on to say that the proposed SG was a small step towards the Government’s aim of increasing people’s retirement contributions, and decreasing its burden of the funding.
However there is a potential drawback for superannuation savings due to the RSPT.
“From the mining industry’s perspective, lower profitability and lower earnings in the industry caused by the tax will obviously be negative for the share market and therefore negative for superannuation earnings,” he said.
“We are really uncertain however about the impact that it will have on the market. You would think that if an additional tax went onto the industry, that there would a negative impact but the Government’s modelling suggests that the impact on investment will be positive rather than negative.
“For example the modelling suggests that a lot of smaller projects will be able to continue as a result of this tax and that obviously keeps the investment quit solid.
Whereas the larger miners are obviously going to feel the impact and you might see a few projects pulled at the end of town.
So whether we get the increase of investment comes down to, whether the increase of activity at the smaller end offsets the reduced activity at the bigger end and that’s really where all this debate is at the moment.”