Yesterday we spent more time than is healthy re-reading the submission to Emperor Henry by tertiary student Michelle But.
Maybe we’d interpreted her submission incorrectly. Comments left on the Money Morning and Daily Reckoning website suggested we had.
That’s the thing with publishing a daily newsletter. We’ve got a quick turnaround time on researching, writing and then sending it out.
We arrive at our building on Fitzroy Street by around 8am each morning.
We then quickly head for the Editorial Office – avoiding the ’roundhouse’ and ’spinning crescent’ kicks from our black belt Taekwondo kicking assistant publisher Joanne Ha.
Once planted at our desk looking out onto the neighbours’ balcony we settle in to two full hours of reading, typing and editing. Needless to say, we’re not immune from making the odd mistake.
Of course I use my best efforts to make sure we publish error-free.
But, if an error does slip through, that’s the beauty of the comments section on the Money Morning website. If you think I’ve got it wrong, the best way to highlight it is to post a comment. As you’ll notice, there’s no censorship.
Providing you keep the wordage clean I won’t edit your comments. The only other thing we ask is to try and keep your comments relevant to the subject, but that’s all.
Anyway, back to Michelle But’s submission to Lord Emperor Henry of Canberra. If you click here you can read it for yourself.
We read it countless times yesterday evening. Maybe she didn’t support an effective 30% compulsory super contribution after all. Time for some humble pie we thought.
And then we ‘un-thought’ the idea of eating some humble pie.
It seems that rather than coming to the wrong conclusion, instead we made a schoolboy error by quoting the wrong part of the submission.
We should have referred to the summary on page one which makes it clear:
“(5) increasing compulsory employer SG contribution from 9% to 15% by 2012;
(7) establishing gradual and compulsory 15% personal superannuation salary sacrifice contributions (from gross pay taxed at 15%) by 2014.”
You can’t get much clearer than that. There’s no ambiguity there. “Employer” contributions to be increased to 15% by 2012, and “Employee” voluntary contributions to be made “compulsory” and also at 15% by 2014.
That in our books, makes a proposal for 30% of your salary to be expropriated by the government by 2014.
The idea about “voluntary” contributions being made “compulsory” is enough to make any defender of freedom and liberty cry!
Look, we’re not really interested in singling out one person here based on their submission to the enquiry. There are plenty of other hare-brained and mad-cap ideas from others too.
But frankly, if someone is lobbying the government to take 30% of your salary by force then you should probably know about it.
So in that respect we make no apology for highlighting this one submission in particular.
The fact is, almost every submission to Emperor Henry is advocating ways to slice, dice and mince your money.
But while we appear to have made a schoolboy error in quoting the wrong paragraph, it seems Ms. But – like many others – has made a schoolgirl error of assuming “employer” and “employee” contributions are unconnected.
We received this email from a Money Morning reader yesterday:
“The wage earner doesn’t care how much super goes up because it’s the employer who HAS to provide that amount. It could be argued that it comes from their wage… but it doesn’t technically. If the super amount was increased to 12%, the boss wouldn’t cut their take home pay, he would have to find the difference as it is added on after the wage is paid.”
It’s a common mistake made by many people. The government propaganda with superannuation has been mind-blowingly effective.
It seems very few employees consider superannuation as a tax on their income. A tax which reduces your take home pay by 9%. A tax which reduces the average worker’s pay packet by $465 per month.
If the super guarantee is lifted to 15% then that’s $9,300 per year or $775 per month you’re missing out on. And if compulsory super is lifted to 30% then the average worker will be out of pocket by $18,600 per year or $1,550 per month.
All because there’s a chance you could “squander” some of it.
Superannuation is treated as a mystical and magical entity. “It’s the boss that pays for it, not me.”
Wrong. Someone does pay for it, but it’s generally not the boss.
Where does it come from then?
Well, that’s where you have to take one step back and look at what isn’t seen. Everyone can “see” the super contribution on their payslip, but few equate it as a tax, or a pay cut.
You see, superannuation is paid for from one of three places:
- A cut in your wages
- An increase in unemployment, or
- Increased prices
There is a fourth option, and that is for the business owner to reduce his/her profit. Although possible, this is less likely. Besides, why should a business owner who has put his/her own capital at risk take a cut in profit just to subsidize the government?
Make no mistake about it, in most cases, an increase in superannuation contributions will result in a decrease in your take home pay over time. When the employer employs you, he/she will naturally try and pay you as low a salary as possible in return for you providing as much productivity as possible.
That’s just how it works. And that’s how it has to work. If the employer tries to pay too low a salary of course, then he/she will not attract the appropriate staff and will therefore lose out.
If he/she pays too much then they will not get as good a return on the investment, especially if the worker’s productivity does not justify the higher salary.
The market therefore, helps to determine the ‘price’ (salary) at which an employee is to be paid.
But what happens if suddenly the government decides to impose an arbitrary 6% increase in costs per employee? Will the business owner take that from his profit?
Not a chance. And neither should he/she be required to just because a government is implementing an arbitrary redistributive incomes policy.
So, the employer will look to take the money from the employee. Doubtless it would be made illegal for an employer to cut wages to an employee directly, so they would have to find another way of doing it.
Such as a freeze in pay increases. Inflation will have taken care of the 6% impost after just two years anyway. If an employee doesn’t like the sound of that they can look for another job, but chances are the pay being offered will be lower to take into account the increased superannuation expense.
And when the employer advertises a replacement he/she can factor in the lower pay.
Another unseen option for the employer is to cut the workforce. If they have 20 staff on similar pay scales doing a similar job then it’s fairly easy to get rid of one, or let attrition take its course and then not rehire – one less person on the payroll, but same cost to the employer.
That’s a simple example of how government contributes to increased unemployment.
The other option is for the business owner to increase prices. We’re not talking rocket science here. Trade unions would have you believe there’s no connection between pay (especially when they talk about the minimum wage) and prices to the consumer.
That’s twaddle. It does have an impact.
Again, it’s the individual that loses out at the expense of incompetent government policy.
As I’ve quickly shown above, the business owner will want to rightly preserve their profit margins, and therefore will try to achieve this in one of three ways.
So when these submissions are made to Emperor Henry’s enquiry using throw away numbers such as 12% or 15% or even 30% for compulsory superannuation contributions, just remember that the money to pay for it has to come from somewhere.
That somewhere my friend is from your pocket.
You shouldn’t forget that.
Other Stuff on the Markets
The S&P/ASX200 jumped 1.51% yesterday, while overnight on Wall Street the Dow Jones Industrial Average slipped 81 points. In Europe the FTSE100 dropped 0.06% and the CAC40 slipped 0.05%.
The price of gold in Australian dollars is trading at $1,161.90, while in US Dollars it is trading at $1,008.33. And the price of silver in Aussie dollars is $19.34 and in US Dollars it is $16.78.
The Aussie dollar lost ground versus the US dollar and Japanese Yen, trading at USD$0.8663, and JPY79.39.
Crude oil closed overnight at USD$68.25.
For the biggest movers on the market yesterday click here…
{ 22 comments… read them below or add one }
I dunno about the big fat bureaucracy Mr. Henry heads up in the illusionist paddock called Canberra but his mate Mr. Stevens over at the Reserve had a bit to say including (as reported on the ABC news) that there are now 25,000 households in mortgage arrears greater than three months. Hmmmm. Looks like those dominoes are starting to teeter. What will Super Kevin do next?????????
“So when these submissions are made to Emperor Henry’s enquiry using throw away numbers such as 12% or 15% or even 30% for compulsory superannuation contributions, just remember that the money to pay for it has to come from somewhere.
That somewhere my friend is from your pocket.
You shouldn’t forget that.”
So, true. But am I mistaken in my belief that Sayce and Danning and Bonner, etc., are also all for people SAVING, instead of spending it all, or worse, borrowing to spend even more?
If I am not, then perhaps, Mr Sayce should similarly not forget that compulsory super, instead of it being a pay cut, or a tax, as he argues, is FORCED SAVINGS. And if I am not mistaken, savings are necessary for capital investment, and that is one of the lucky things about our compulsory superannuation system here, that we are now sitting on a large pile of saved money of our own, which can be put to fruitful capital investment.
The only drawback, is that control of that money is not given to the people whose money that mountain of cash happens to be. Maybe after adjusting his sights a little on what our super contributions actually are, Mr Sayce could could attack instead the mismanagement of our savings, instead of arguing against making such savings in the first place? I would certainly love to see him do that.
This submission is laughable. Not only is it full of errors of spelling and grammar, the ideas put forward seem to be those of a child screaming for more presents for an upcoming birthday. I’ve no idea how Ms Butt was chosen to submit, but it surely would have made more sense to chose someone with more qualifications than those listed simply as “tertiary student and member of the public”? The increase of Employer SG contributions to 15% and addition of voluntary-compulsory (hmmm?) contrubtions of 15% is a brilliant idea which will do wonders for those already struggling to pay the weekly grocery bill. As is the planned SG on maternity leave – an employer which is already inconvenienced by a staff member absent due to a lifestyle choice has to put a little bit more away for their future too? Under this system, unless a woman is not able to bear children she will be virtually unemployable!! Given that there are also several mistakes regarding conditions of release, ability to rollover ETPs and deductibility of expenses, it looks like Ms Butt might have a long and successful career as a politician ahead of her.
‘as many Australians cannot manage their finances for mortgage repayments, retirement funding and medical expenditures. In the long run, they will have insufficient funding for retirement and will rely on Age Pension.’
That is an incredibly bold statement by Michelle backed up by ???
So Michelle believes that the vast majority of people can go out and earn money, but not be trusted to spend it?! What’s next hmmm well for own good we start being told we can spend here and here only and this much – actually no we will take your entire paypacket and provide you with what you need… As the majority can not manage such simple things.
It’s time to take away the cotton wool – we live in a democracy not a commune, and have people be responsible for there actions.
Kris can go to extremes with some issues, and CB is right in stating that the super is forced savings, however I have little faith I will ever see my super as the public is being prepopostitioned for increasing the age at which Super can be accessed and by the time I get there the access age will be probably 80 (oops just gave them an idea!) and I greatly object to any further erosion of my paypacket for more super, compulsory or otherwise.
I just enjoy your style Kris, makes me laugh, not enough of that around at the moment, the whole super thing makes me so angry they are just robbers, got a letter yesterday inviting me to contribute more to save on tax, why would I do that, so they can lose more of my money?
Come on guys, Michelle But is apparently a tertiery student who took the time to make a submission based on her thoughts and experience, cut her a bit of slack.
Tell her you disagree, but we need people to be engaged in society, so don’t be so personal with your critique.
This was just one submission that they picked out, no doubt because they could use it for their own manipulative purpose. Look past this to the big picture.
MS – you struck the nail on the head!
Forced savings through ’super’ is a dumb nannystate idea. Now they want to make this dumb idea even worse by increasing the amount stolen from your paypacket, plunging people who are already struggling to make ends meet even further under the water.
If we werent taxed to death and had more disposable income, then the economy could grow quicker as people will be in a better position to invest and start businesses and employ more people. THAT is how people prepare themselves for retirement – not through forced ’savings’ for everybody.
The whole state pension scheme runs in tandem with super. Get rid of means testing for state pensions and then the ‘reward’ for not providing for one’s own retirement (and punishment for those who do) will be removed… then we wouldnt need this hair-brained scheme called super.
I just read today’s edition of Money Morning entitled “How Your Super is Not Quite Your Super” …
This clearly demonstrates why there is a good chance that the average working person today, who is a good couple of years away from retirement – will never see the money they worked hard for and which has been confiscated by the government in the name of ’super’. Or at the very least you will not see a sizeable portion of this money…
The average person would in all probability be many times better off if they were permitted to put this money into their own mortgage instead, and/or if there was no mortgage, to invest this money however they see fit.
Sayce is correct – the way the structure and law surrounding super funds is set up, the government has you by the nuts as far as this money is concerned. anytime in the future it could use this vicegrip to extort this money from you by legislating how portions (or indeed all) of this money is to be invested.
I’ll probably lay off the subject for now, and allow all you good nannystaters to comment about why you think super is such a wonderful idea…
**YAWN**
You can’t really blame the politicians and their fat arsed bureaucrats mates from ever thinking that superannuation schemes were the best things ever invented! They bloody well are….. for the fat arsed politicians and their fat cat bureaucrat allies! Their schemes are entirely underwritten by the legions of humble PAYG taxpayer morons (or by the sale of publicly owned assets aka Telstra) so happy to receive the crumbs from the table and until a well deserved public outcry sent shivers through Howard’s spine, utterly unfair in being able to access their generous INDEXED PENSIONS FOR LIFE way before the rest of us plebs can get our compulsory hard earned LUMP SUM IF we are lucky. Think of how many remora fish are out there like the Natasha Stott Despoja’s (and many others)who choose (or is it the public who choose for them?) to leave politics at the ripe old age of thirty something then receive PENSIONS greater than the average wage earner salary for the remainder of their life! FOR WHAT? The hypocrisy of the political and public sector class is breathtaking . Note yesterdays well deserved salary increase so that some idiot backbencher has a base salary of $130K. Judging by the parliamentary performances of all including the so called ’stars’ in ministerial and shadow portfolios most would be very lucky to get a real job let alone a six figure salary. It’s a circus and the clowns are calling the shots.
BB – I wouldn’t do that work for a mere $130,000 pa. There is a school of thought that puts forward the idea that we don’t pay them enough, and so we get what we deserve.
I see diesel mechanics who earn over $100,000 pa and they don’t have to toe the line in public etc.
Has any country paid their PM or President a CEO’s wage, and if they did what would be the results. If we had the right person in office an extra $1M in salary would be nothing compared to the savings in a more efficient government.
Good for you. Likely a wise career move anyway as I probably wouldn’t vote for you, but sometimes you don’t actually need to get too many votes to actually get into politics – Senator Steven Field is a good example of that and doesn’t his presence ultimately enhance the lives of so many Australians.? At least your diesel mechanic gets the damn motor going when it breaks down! We have too much government with too many politicians and far too many hangers on – advisers, consultants call them whatever title you wish, the fact remains that many of those seeking power and privilege do so for their own self interest and aggrandisement. The weak refrain of “paying peanuts and getting monkeys” must inevitably be challenged by the conclusion and I believe evidence that if we “pay more peanuts, we only get fatter monkeys”. And please, from the following random selection of present and past politicians of every political hue, advise which ones you consider are putting in or have previously put in the ‘hard yards’ in the sole interests of the Australian public and therefor deserve our long lasting admiration and gratitude for their selfless sacrifice and contribution to public life.
1. Joe Tripodi.
2. Eddie Obeid.
3. Mark Arbib.
4. Bob Askin.
5. Joh Bjelke Petersen.
6. Pauline Hanson.
7. Wilson Tuckey.
8. Peter Reith.
9. Mark Latham.
10. Graham Richardson.
Please, I await you glowing references for these doyens of civil service.
BB – You have me on toast with some of the above names.
Still we won’t get talent if we can’t offer some decent incentive. It is a chicken and egg question. If we paid them nothing I expect we would get value for money, but at what real cost? If they are ONLY there for the power what does that say?
This is just going to be one of the controversial issues that will remain timeless. A benevolent dictator is said to be the ideal, but how many benevolent dictators has history supplied us?
Mate I don’t have the answer and really nor do you, but we both have some good questions.
Me suspects there are not too many people to be good politicians, and those who would be good, are the last ones who would want to be politicians. Ergo, since you cannot get good politicians in any case, cutting their pay by at least 50% would be a good place to start. Same for public fat cat servants, after all, job security itself is of considerable value, especially in tough times like these. They take a cut, or take a hike – is what me says on the matter.
cb – this is one of those “you can’t please anyone” situations I’m afraid.
I’ll offer more wine to the Gods, perhaps they will have an answer.
yeah makes real sense …………………………..GIVE THEM MORE MONEY SSSSSSSSOOOOOOOOOOOOOOOOOO they can penny pinch of the common worker as that turd howardice tried & on top of that CONSTANTLY MANIPULATE “OUR FRICKEN SUPER ”
they are doing quite well with all their lurks & perks & done well as they have been for years
why give em more dough ?,,yet the low incomers get freezed
wat a pathetic joke
dont worry once they get the super they will come after other people with other assetts ………..thieves
I’ll second that, PF. Long live Bacchus!!!
thieves and scoundrels they are, etch, and liars to boot.
MS, and others, I agree that we should be vigilant about the potential erosion of our savings in super, but most of the current disadvantages can be overcome by establishing your own SMSF, namely the danger of wealth managers putting your savings in harm’s way through their investment decisions and charging you fees based on the balance of your savings, even in the face of dreadful performance. Both of these can be overcome if you take control of your money by rolling it over into your own SMSF.
The other issues, such as the raising of age brackets at which we can access our savings, we need to be vigilant about and try to resist through the political and voting process. In the meantime, there are very generous tax concessions that you can take advantage of with regard to money you are able to save from current income (paying only 15% tax on it, instead of paying tax on it at your marginal tax rate at double or worse rate, plus paying only 15% tax on any interest or other income you generate with those savings in your super), and depending on your preservation age, you can start accessing these savings TAX FREE. For example, instead of hitting your account with a lump sum re-draw as soon as you reach 55, you can choose to re-draw only 10% of your total balance annually for five years, until you reach 60, and pay not tax on those re-draws, while continuing to work and earn a wage unaffected by the extra money your started to get from super. So, if you have a 250k balance by the time you are 55, you can start taking out 25k annually tax free, with which you can start making a serious dent in your mortgage, or other debts that you can pay down. And once you reach 60, I think, then you can take out larger lump sums tax free as well.
The incentives are set up to encourage saving and sensible re-draw of those savings as one enters retirement, and if you are mindful of the rules, you can avoid heaps of taxes that otherwise would hit you right, left and centre, had you been trying to save and grow your wealth outside of super. Another good example is capital gains tax that you would also not pay on assets, such as shares or property, if sold from within your superfund following your retirement.
So, all in all, as things stand, super is a very good investment vehicle to make use of, and chances are that future changes will continue to be more of the carrot than the stick variety. For example, if the govt wants to use some of our supersavings for infrastructure investment, or mortgage lending, they are more likely to offer guaranteed minimum returns for those who voluntarily choose to invest parts of their savings that way, than to actually legislate that, say, 20% of your savings in super must be in infrastructure, as in Sayce’s example. So, while the dangers of adverse legislative changes are there in general, it is more likely than not that investment flows will be encouraged into various areas by providing attractive options that you may and may not decide to take up as a manager of your own savings in a SMSF.
Haaaa! Ms. But appears to be suffering from a chronic case of naivety. Does she have a mortgage yet? Does she have children to raise yet? Has she ever run a business? Does she pay tax? How would she like it if I decided I was the one who was best qualified to tell her how to spend her hard earned cash??? (When she starts to earn some I presume……….)
This is a classic example of an over enthusiastic, inexperienced smarty pants who at under 24 of course thinks she already knows everything. For heaven’s sake!
Politicians claim that their remunerations ought to be higher than they are today because larger remuneration packages will encourage brighter people to join the ranks. To assess the merits of a salary rise for politicians one would have to also appraise the value of their pension benefits, perks and sinecures they are offered by government and corporations when they retire from politics.
The current protocol of governance in most democratic countries is essentially based on political sponsoring by corporations or alien political vested interests and a compliant media. This introduces a blatant conflict of interest between the public good which politicians are supposed to attend to and the corporations who subsidize them to high office.
Politicians are essentially well articulated super salesmen who are good at selling themselves, but are not as well qualified to run the country as the heads of government departments are. Neither is the present system of democratic governance democratic in the genuine sense as “government by the people,of the people and for the people”.Tony Blair and George W. Bush were respectively elected with 15% and 35% of the eligible voters.
The moral majority among the warmongering coalition of the willing countries was not in favor of the conflict. Under pressure from lobby groups who sponsored them, politicians have passed laws that allowed financial institutions to take greater risks with investors and taxpayers’ money by repealing former laws that protected them. As such politicians have become a vested interest group more closely allied with the corporate sector than the public. We need integrity in politics more than deceitful salesmanship, if democracy is to be more meaningful than it is today.
Amen to that, George. But unfortunately, not much of a chance. It is a rather depressing landscape when you comprehend it in any detail.
When commenting on Michelle But’s Superannuation proposals why has no one referred to Productivity or Choices given to Workers and Employers under WORK CHOICES. Only increased productivity will
allow increases in Superannuation Contributions no matter who (Employer or Employee) is the PRIMARY payer eventhough by refusing to recognise productivity, a case may be made that the Employee is the only (Primary) payer. As I see it Workchoices, by definition permitted SBU’s Individual wage agreements as well as Award Wages but increases in productivity were the only real area paying for the choices. Thus by removing choices (WORKCHOICES) AND concurrently STREAMLINING WAGE AWARDS AND NOT GUARANTEEING THAT NO WORKER WILL LOOSE in the process, KEVIN , JULIA , and WAYNE have GUARANTEED increased militancy and disharmony in as many workplaces as possible to cultivate a more favourable climate (CLIMATE CHANGE) in which INCREASED UNIONISM might flourish. If that is achieved, there will be less or no productivity and we should forget or REDUCE compulsory contributions to superannuation so that the individual can avail themself of paid investment/insurance advice and NEVER AGAIN BE SHORT SERVED by an industry super fund again. It is, I claim the ability to recognise PRODUCTIVITY that permitts an employee to successfully make the transition to employer/small business owner or investor. The removal of WORKCHOICES and the pretence that productivity has little or no relevance IS what we have voted for; as is the aquiessence to BIG GOVERNMENT, PROFLIGANT SPENDING and a total inability by our federal government to prioritize political goals, or spending, of any sort. Lets try strengthening regional government by increasing what we now know as local government and completely removing all state governments with only a 2% per 5 year permitted increase in FEDERAL PARLIAMENTARY members. At the very least lets not contemplate any increase in employer super contributions until employees are compulsorily contributing 9%. (that could be introduced increasing 1% per year over 10 years ) I believe that all wages paid for more than 4 hours per month should qualify for 9% compulsory employer super contributions giving a more realistic starting point and protection to workers based on permanent employment or minimal engagement times without reference to hourly rayes of pay. penned by Jeffery of the L’nP
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