Treasurer blames Labor for forcing Abbott government to negotiate with the Palmer United party

This article is more than 6 years old

This article is more than 6 years old

Freezing increases to compulsory superannuation contributions for the next seven years is not the government’s preferred option, the treasurer, Joe Hockey, has admitted.

Under a deal negotiated with the Palmer United party to repeal the mining tax, employer superannuation contributions will be frozen at 9.5 per cent until 2021 when they increase to 10 per cent.

After that, contributions will increase by 0.5 per cent annually until they reach 12 per cent.

As a result, Labor claims that a 25-year-old Australian earning $55,000 a year will be more than $9000 worse off by 2025.

Industry sources say the impact over a 40-year working life could be as high as $100,000, taking into account compound interest.

The chief of Industry Super Australia, David Whiteley, criticised the decision, saying it was about a short-term budget fix that would be felt later with increased age pension payments.

The Financial Services Council calculates working Australians will have $128bn less in superannuation savings by 2025.

“With increasing financial pressures of an ageing population, now is not the time to slow down on superannuation,” the council’s chief executive, John Brogden, said.

Hockey sought to pin the blame on Labor for any adverse impact on superannuation accounts.

“This is not our preferred option,” he told reporters in Canberra on Tuesday.

Initially the government proposed a two-year delay to Labor’s plan for a 12% contribution rate by 2019-20.

But that was opposed by Labor, the Greens and PUP in the Senate forcing the government to change its repeal legislation.

“They dealt themselves out of the game,” Hockey said of Labor’s position.

As a result, the 12% rate will not be reached until July 2025.

The government denied it had broken a promise not to make any adverse changes to superannuation in its first term.

The prime minister, Tony Abbott, said by delaying the contribution increases, workers would have more money in their pockets.

That’s because the 0.25% annual increases legislated by Labor could be used by employers as an offset against wage increases.

The PUP’s leader, Clive Palmer, defended his decision to back the freeze, arguing it was more important for Australian families to have access to money now, not in 50 years.

He claimed as a statistical fact that up to 50 per cent of Australians would die before they could access their superannuation.

Business has welcomed the freeze. The Australian Chamber of Commerce and Industry said it would reduce costs and make it easier to invest and employ.