Tougher penalties for employers could be needed to deal with an estimated $5.6 billion in non-compliance with superannuation laws each year, a parliamentary inquiry says.
The Senate Economics Committee, which does not have a government majority, recommended harsher consequences for employees who repeatedly fail to comply with the 9.5 per cent super guarantee.
In addition, the Australian Tax Office should be directed to take a more "proactive" approach to enforcing the rules, the committee's final report, released late on Tuesday, said.
The inquiry was initiated following research by Industry Super Australia which claimed the underpayment of super entitlements reached $3.6 billion in 2013-14. ISA has since revised that figure upwards to $5.6 billion.
"Given the significant size of the fiscal impact of SG non-payment on the government in terms of lost government revenue and increased reliance on the age pension, the committee considers it reasonable for the government to consider stronger compliance activities to minimise the impact on its budgetary position," the committee's report said.
The super industry urged the inquiry to recommend the government cover outstanding super entitlements when a company goes broke.
The Department of Employment argued it was a bad idea that would cost $800 million over the next four years. The existing Fair Entitlements Guarantee covers owed wages for bankrupt and insolvent companies but it does not extend to super. The committee recommended super be incorporated.
An ISA report released on 4 December 2016 said approximately 2.4 million workers missed out on an average of $1500 each.
ISA has since revised those figures upwards, claiming 2.6 million people were affected by an average of $2025, or $5.6 billion.
Another $1 billion was lost to employees using salary sacrifice arrangements. This is because it is legal for an employer to reduce super contributions by an amount equivalent to the extra an employee has paid.
For example, if somebody chooses to salary sacrifice $1000 a month an employer can, in the absence of a contract stipulating otherwise, reduce their contribution by the same amount.
The committee recommends the loophole be closed.
The ATO argued that Industry Super Australia's method of calculating the number of people who were failing to be paid the super guarantee was flawed.
The report therefore "substantially overstates" the extent of non-compliance, the ATO said. However, it was unable to offer a reliable estimate of its own.
It emerged during a hearing last December that although the ATO had done a considerable amount of work on a "tax gap analysis", a reliable estimate had yet to be produced.
The super tax gap is one of a number such gaps the ATO has struggled to produce.
The agency's best guess is that something between 2 per cent and 11 per cent of employers are non-compliant with the SG.
At present, employers only have to pay super quarterly, which means it can be several months between when contribution amounts appear on pay slips and the money actually lands in a fund. This makes it tricky to keep track.
The committee says the law should be changed to require payment "at least monthly and and preferably in alignment with regular pay cycles".
Liberal MP Jane Hume, who chairs the committee, issued a dissenting report.
She agreed with recommendation three, which is that the government consider removing the $450 monthly threshold for employers to start paying super.
But she considered it and eight others were beyond the scope of the inquiry, while emphasising the ATO's skepticism about the ISA findings.
Late last year the government established a multi-agency working group on non-compliance with the 9.5 per cent super guarantee but it has yet to release any findings. The committee said it should do so immediately.
