On 23 July the Government released its Economic and Fiscal Update, reflecting the health of the economy over the 2019-20 financial year, and providing important forecasts for 2020-21.
The Update painted a grim picture, forecasting a significant 2.5% decline in GDP in 2020-21, and for unemployment to peak at 9.25% in the December quarter of this year.
The Update also included two substantive policy announcements impacting superannuation:
- Extension of the deadline for Tranche 2 of the COVID-19 early release scheme to 31 December 2020; and
- Amendment to the ‘ERF Bill’, allowing a trustee to transfer amounts to the ATO outside of mandated sweeps where it is in the members’ interest to do so, along with various timeframe deferrals.
The FSC has supported both of these policy announcements and will work with Government to ensure both are successfully implemented.
12 percent SG:
Whilst the economic forecasts did not immediately clarify the Government’s position on the increase in the super guarantee to 12%, there have been strong calls from some MPs and Senators to delay the increase to provide support to the broader economic recovery.
The FSC supports increasing the super guarantee to 12% over time, but also agrees with consumers that the system needs reform to make it more efficient. To this end we have continued to urge the Government to respond to the Productivity Commission's (PC) review of superannuation, and in particular, implement the PC’s and Royal Commission’s recommendation for ‘one default account’.
Retirement Income Review:
On 24 July the Government received an important policy document on this front, the Retirement Income Review (RIR), which it is yet to publicly release. We know that it is 650 pages, data rich, and traverses not only superannuation, but also health and aged care.
The FSC expects the RIR will clarify misleading arguments on superannuation that are permeating public debate, that the system costs $36 billion each year, and only generates $9 billion in savings. Clearly these numbers do not take into account behavioural changes that would occur if superannuation was taxed at full rates, or the higher pension savings that are achieved over the long-term (after all, super savings invested today will not actually reduce age pension outlays for up to 40+ years!).
More importantly, superannuation is about achieving a high standard of living for all Australians in retirement. The benchmark should not be simply how many people are on the age pension, but also how far above modest pension levels most Australian are able to retire.