The rule of unintended consequences is that something unforeseen happens as a result of doing something else.
A good example is the housing insulation scheme. The idea behind the policy was that it would serve a dual purpose. It would stimulate the economy and help the environment.
A political one-two if ever there was one.
But, in order to profit from the huge taxpayer-funded handout, companies had to get in quick. The handout wouldn’t last forever. If an insulation company took too long to get its act together, other companies would act, and so it could miss the government cash.
The unintended consequence was that companies cut corners. Such as by not providing suitable training. This even led to some under-qualified installers dying. And when the government axed the insulation scheme, it left companies with a whole bunch of excess stock.
Well, it seems the government has knocked-in another own goal. This time with changes to compulsory superannuation…
Superannuation Isn’t “Magic Money”…
You’re probably aware that compulsory superannuation will rise in stages. From 9% of your salary today, to 12% by 2020.
Most people think super money is magic money. That it just appears from nowhere. But most people don’t realise that a company allocates super money from its labour force budget.
So, if the government increases compulsory super, the company has to make a choice. Does it reduce staff wages? Cut staff numbers? Or cut other costs – buy lower quality components, move to a premises with lower rent, and so on.
The easiest choice is to either cut wages or at the very least not increase wages by as much as they otherwise would. This creates an unintended consequence for the government and its budget plans…
You see, the problem is the impact it has on government tax revenue. Simply put, if you earn $80,000 and your boss gives you a $2,400 (3%) pay rise, the government will swipe $888 of that amount as tax.
But, if the government forces employers to pay that 3% pay rise as a super contribution, the tax taken by the government is only $360.
That’s because the government levies tax on super contributions at 15%. Compared to the 37% rate for a wage earner on $80,000.
Of course, the above is an example. The rise from 9% to 12% won’t happen in one go. It will rise over the next seven years. But the point remains the same.
By forcing bosses to pay more super to workers rather than giving them a pay rise, the government forgoes 15 cents in the dollar for every dollar that goes to superannuation rather than to the workers’ pocket.
As you can guess, that’s fine by us. We’d rather you get the money than the government (in fact, we say you should get to keep all your income and the government get nothing).
But it hasn’t taken the government long to realise it has shot itself in the foot.
…Superannuation is Captive Money
This news came out late last week in the Fairfax press:
“A senior [government] source confirmed yesterday reports that the billions in tax breaks that apply to superannuation contributions were squarely in the sights of the government’s razor gang as it strives to return the budget from a $40 billion-plus deficit to a surplus.”
The irony appears to be completely lost on the government. It passes a law to force people to save more for retirement… but then slugs them with a tax bill.
But then, maybe it’s not an unintended consequence. Maybe it’s part of the government’s grand plan to raise taxes. Think about it this way…
There are far fewer ways to claim tax deductions within a super fund than outside. And the money is captive. You can’t touch it.
But maybe we give politicians too much credit for having brains.
The bottom line is, the attack continues by governments here and overseas on privately held wealth. The question is, are you prepared to do anything about it?
We’re doing our part by bringing this to your attention. And we even give you advice on ways to grow and protect your wealth.
The next step is for you to do something… to grow and protect your wealth. If you haven’t already started, what are you waiting for?
Cheers.
Kris
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April 26th, 2012 at 4:59 pm
Couldn’t agree more Kris. I’d add that compulsory super is very detrimental to lower income earners. Their super balance is never high enough to be useful. They’d be better off paying down debts which is also “saving”. The fact that super needs to be compulsory should send a HUGE signal to others that something is wrong with the idea in the first place.