A recent report by the Grattan Institute has suggested the government reform tax breaks for retirees as the concession is projected to cost more than the aged pension.
The potential savings from the proposed reforms to superannuation tax breaks are estimated to be $11.5 billion per year and could be utilized to fund essential services such as health and aged care.
The report comes as the government gets ready to announce the federal budget come May 9, and found the superannuation tax breaks will cost the budget $45 billion a year, or roughly two per cent of GDP.
1/ Australia’s current superannuation system is unfair and unsustainable.
Super tax breaks cost the budget $45b a year – or about 2% of GDP – and will soon exceed the cost of the Age Pension.
They should be wound back. Here’s why. ???? #auspol pic.twitter.com/H8B1KUyxXM
— Grattan Institute (@GrattanInst) April 2, 2023
Furthermore, it was highlighted that two-thirds of their value mainly benefit the top 20 per cent of income earners. Those with more substantial super accounts pay significantly less tax per dollar of earnings than younger workers do on their wages.
The federal government recently announced intentions to reduce the super tax break for retirees with over $3 million in their super accounts.
If the reform on tax breaks is passed, the Grattan Institute’s findings could save an estimated $2 billion per year and will likely go unnoticed as the report suggests large amounts of the increase to super balances from the tax concessions are never spent.
By 2060, bequests are expected to account for nearly one-third of all super withdrawals, compared to one-fifth presently.
Lead author of the report, Brendan Coates, said: “Super has become a taxpayer-funded inheritance scheme.”
“Reining in super tax breaks is a responsible way to boost government revenues in a world where the government has committed to higher spending on defence, health care, aged care, and disability care.”
The Gratton Institute’s suggested methods for reform include:
With an ageing population, redirecting money from tax breaks towards such programs could significantly benefit the broader community.