It’s one of the quirks of our superannuation and taxation systems that means those who have amassed a great deal of wealth while working make the most substantial tax savings in retirement.
And today respected thinktank, the Grattan Institute, has proposed that this unfair weighting of tax be evened out, proposing that the government reduce tax breaks for “rich old men”.
The institute’s report, Superannuation Tax Targeting, says doing so will add $7 billion to the budget, which would mean young people and low-earners could pay less tax.
Grattan Institute chief executive John Daley said the report’s suggestions were bound to be politically sensitive.
“This is an area where there’s enormous vested interests,” Mr Daley told Fairfax. “Reform is going to be extremely difficult given those vested interests … but the policy arguments are extremely strong.”
The main proposal is to restrict “concessional contributions” made from pre-tax income to $11,000 per year rather than around $30,000 now, News Limited reports.
Secondly, earnings in retirement should be taxed at 15 per cent instead of not being taxed at all.
“For the top 10 per cent of over 60s drawing on super, the tax benefits are extremely generous – they pay no tax on their average super earnings of $85,000 a year,” says the report.
A third proposal is to limit post-tax super contributions to $250,000 over a lifetime rather than $180,000 a year.
As the report says: “We would all like to be rich. But the benefit of higher retirement incomes must be balanced against the costs of achieving them.”
It also found evidence that the top 20 per cent of earners would still be more than comfortable without these tax concessions and caps, and that these people (who are, yes, overwhelmingly men) would still not qualify for the pension.
“People on higher incomes, and those close to retirement, tend to use tax-advantaged savings programs to reduce the tax paid on money they would save anyway,” the authors write.
“For a small proportion of women with higher incomes later in life, the changes would reduce their catch-up contributions.”
But the changes would “reduce far more the tax breaks for a lot of rich old men”.
According to the report, the top 20 per cent of older Australians have assets of $2 million and the wealthiest 20 per cent of households headed by someone over the age of 65 have typically saved enough to generate a substantial retirement income.
Do you think it makes sense for Australia’s wealthiest retirees to pay tax on their retirement earnings? Would you like to see these measures adopted?