More disposable income would only provide temporary boost

While low-income earners would welcome more disposable income with a lower superannuation guarantee (SG) or no SG, it would need to be the duty of the tax and transfer system to look after the group, according to Rice Warner.

Rice Warner’s latest analysis said behaviour of individuals with high levels of disposable income in other countries, would largely spend most of their extra cash and not increase their savings.

“Some might have higher savings by buying more expensive residences, which is far less efficient for the economy than investing in infrastructure and businesses,” the analysis said.

“…Clearly, for those on modest incomes, the SG contributions add to their savings as they would have had little capacity to save otherwise.  Those with higher levels of disposable income have more scope to determine how much to save. 

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“This is not always easy to measure, as the wealthiest families might appear to save less than they do due to negative gearing which is used to reduce personal taxes and to leverage assets. Similarly, people taking out large mortgages to buy a family home will have less disposable income, though the mortgage payments are also a form of regular saving.”

Rice Warner added that an increase in disposable income would prove to be temporary as tax rates increased to finance an increase in Government pension costs from the current 2.7% of gross domestic product to something closer to the OECD average of 8%.

Rice Warner noted that the industry should not expect super to solve everything as some issues required broader measures such as the tax and transfer system looking after low-income workers.

“We have pockets of retirement poverty which need to be addressed – such as those single pensioners who are renting in private markets,” it said.

“Females tend to have significantly less retirement provision than males. This should be addressed through a combination of superannuation policy, employment policy and availability of affordable childcare.

“The taper rate on the Age Pension is punitive for many people, especially in a low interest rate environment, and it should be softened.”