The Australian government hopes its budget proposal for the next financial year will drive strong economic growth, which will have an indirect impact on superannuation returns.
However, while superannuation funds backed some proposals that should benefit members, including the removal of a minimum monthly income threshold and allowing higher voluntary contributions for first-home buyers, several of the nation's retirement funds criticised the budget for its limited support for women, especially in relation to paid parental leave and low-income workers, whom, they say, are mostly women.
Federal budgets generally do not affect institutional investors’ allocation strategies directly and this year’s Australian budget, announced on Tuesday (May 11) is no exception. But the growth forecasts and allocation of resources to different areas of the economy will have an indirect impact on investment outcomes.
“The Australian economic rebound has been a surprise; the economy has done much better than expected,” David Goodman, an economist at Aware Super, told AsianInvestor.
“We have a high number of members involved in health, education, and aged care sectors. So from that regard, it's also really important the budget does provide some direct support to these industries. So it's important to fund investment returns, but [that support] is also important for us,” he added.
The budget announcement revised the government’s 2021-2022 GDP growth forecast upwards to 4.25%, up from 3.5%, reflecting a stronger and faster-than-expected recovery. Unemployment is also expected to fall to 4.75% by June 2023, down from 6%.
“The government has changed fiscal strategy to really focus now on reducing the unemployment rate to pre-pandemic levels or lower. So that adds to the strong Australian economic backdrop,” Goodman said.
The budget’s move to extend fiscal policy support for the economy is “entirely sensible”, Brian Parker, chief economist of Sunsuper, wrote in a statement. .
“Turning off the fiscal tap at this point would have been far too premature. Even after a better-than-expected recovery, unemployment and underemployment remain too high, wage and price inflation too low. There isn’t a surplus in sight and, frankly, there doesn’t need to be at this point,” he wrote. Parker did not respond to requests for comment.
DEFICIT IN HAND
The budget deficit for this year is expected to be A$161 billion ($125.6 billion), or 7.8% of GDP, an improvement from October’s projection of 11%. However, this is still the largest in terms of share of GDP since 1946.
Still, the deficit is not a cause for concern, David Knox, senior partner at Mercer, told AsianInvestor.
“The level of debt for Australia, compared to many advanced economies is still low. The deficit is there, but I don't see the debt as a big concern. And of course, the interest payments on that debt are very small with low interest rates. So, I think, yes, we are coming out of that,” he said.
Some budget proposals will have a direct, positive impact on superannuation funds. For instance, it removes a A$450 monthly income threshold for Super Guarantee contributions, which means that employers will have to ensure Super Guarantee coverage for 300,000 lower-income workers.
”Removing the threshold is something we have been advocating for for some time. It means many more Australians, including 200,000 women, will be able to save for their future and won’t be penalised for working part-time or multiple jobs,” Aware chief executive Deanne Stewart wrote in a statement.
GENDER GAP REMAINS
However, Stewart called for more action to close the super gap for women.
“There was little in this budget to provide older, vulnerable women with long-term financial security or to protect women taking time out of the workforce to care for family by paying the superannuation guarantee on paid family leave,” she wrote.
As part of the budget, the government proposed a A$3.4 billion package to fund women’s safety, affordability of childcare, and health. But it failed to make several policy changes that supers have been advocating for.
“We would recommend that the government pay superannuation on paid parental leave,” Eva Scheerlinck, chief executive at the Australian Institute of Superannuation Trustees (AIST) told AsianInvestor. “It is the only paid leave in Australia that does not attract superannuation.”
She added that she would also like to see “greater availability of the Low Income Super Tax Offset. This would help to boost the savings of low-income earners, who are mainly women,” she said.
The budget also omitted any mention of an increase in super guarantee contribution rates to 12% by 2025, starting with a move from the current 9.5% to 10% in July.
“Moving to compulsory employer contributions of 12% will have the biggest impact,” Scheerlinck said. “And while this measure would apply to both men and women, the adequacy of women's retirement would be significantly helped by this measure. Adequacy and equity are not the same, but we need to work on both.”
“The government is silent on the 12%. It is legislated to increase from 9.5% to 12% over the next five years, starting 1 July. But with an election looming, they may delay any announcement on the 12%. We would like to see them publicly affirm their commitment to it," she said.