The Australian, July 7, 2017
There is little evidence the government is taking steps to crack down on avoidance of superannuation payments by businesses across Australia, says former Treasury director Phil Gallagher who prompted a Senate inquiry after finding a third of workers were losing out on around $5.6 billion in super entitlements.
Speaking at a forum for superannuation researchers at the University of NSW, Mr Gallagher said the inquiry’s recommendations that businesses pay workers their super monthly, instead of on a quarterly basis, and for the Australian Taxation Office to better address unpaid super “may not be going that well”.
According to ATO data, unpaid super overwhelmingly affects younger workers, employees in low-skilled jobs with lower income, and workers living in poorer electorates.
Although a working group chaired by the ATO, with representatives from Treasury, the Department of Employment and financial regulators ASIC and APRA, was set up in December last year with a deadline of March to report to Financial Services Minister Kelly O’Dwyer, none of the deliberations of this working group have been released.
At a recent Senate estimates hearing, ATO commissioner Chris Jordan said the idea that businesses should pay super monthly and not dip into the entitlements for short-term cash had “spooked small business a little bit”.
Mr Jordan said the Single Touch Payroll innovation should help the ATO with data matching and reporting of super payments.
The average amount of unpaid super is estimated at about $2000 per worker each year on average. It short-changes employees by about $24,000 of compounded value by retirement and leads to an extra $100 million in the government age pension bill annually.
The tax office currently relies on employers self-reporting underpayment or non-payment of super, which is rife in sectors and industries already known to be at risk of systemic underpayment, such as hospitality and retail.
While there have been independent estimates of the multibillion-dollar issue, ATO deputy commissioner James O’Halloran admitted the Tax Office did not have the wherewithal to estimate the extent of super underpayment. Mr O’Halloran said somewhere between 2 per cent and 11 per cent of businesses failed to pay super.
Mr Gallagher, who is now a special adviser for Industry Super Australia, said his estimates of the extent of unpaid super, based on data collected by the ATO, were “extremely conservative”.
In a dissenting report for the unpaid super senate inquiry, Liberal senator Jane Hume referred to ATO comments that suggested Industry Super was likely to “substantially overstate the prevalence” of underpayment.
Isabelle Favre of the Australian National Audit Office said the estimates seemed to be “a very thorough and cautious methodology” and were “ the most conservative” of the estimates put forward.
Mr Gallagher said unpaid superannuation “creates an uneven playing field for businesses, drives up pension costs, and is leaving hardworking people tens of thousands of dollars short at retirement”.
The Senate inquiry, chaired by Labor senator Chris Ketter, also recommended removing the $450-per-month wages threshold for qualifying for super guarantee payments, which the peak superannuation body ASFA estimates strips savers, predominantly female, of about $125m in contributions to their nest eggs each year.
Senator Hume agreed with this recommendation. However, the government has not made any moves on the front, despite the proposal receiving the endorsement of the Small Business Ombudsman.
The most conservative of Mr Gallagher’s estimates of unpaid super fell between $5.25bn and $5.6bn a year. “Even if half these estimates are true underpayment, they are of significant concern,” Mr Gallagher said.
“Because super guarantee payments need only be made quarterly, employees often cannot tell that they have been underpaid until months after the corresponding wage payment which incorporates overtime.”
The ATO data shows trade workers, machinery operators, labourers, consultants — which include contractors — and apprentices are more likely to be underpaid. Younger workers, and those with comes under $37,000 are also more likely to be underpaid. “Younger, lower-skilled, lower-income and terminating project workers are more likely to be underpaid their employer superannuation,” Mr Gallagher said.
“The electorate distribution of unpaid superannuation reinforces the view that people in more affluent electorates with good jobs are less likely to be affected by unpaid superannuation.
“The worst 10 electorates are in the Northern Territory, northern Queensland and high migration areas in Sydney.”