According to John Daley, chief executive of the Grattan Institute, the “taxed-nots” – older Australians who pay far less than younger taxpayer on identical incomes – is unfair and unjustified. “So obviously seniors tend to have lower incomes and we’ve got a progressive tax system that says you pay less tax if you have got a lower income, but if you have the same income as a younger household, you still pay less tax,” he said as quoted by SBS. Seniors don’t pay tax until they earn more than $30,000 a year and for couples in their 40s, it’s $20,000.
That means the income level before elderly couples pay the Medicare levy is more than $10,000 higher than younger Australians. On top of that, it is reported that the private health insurance rebate is also far more generous once you hit 65. But seniors’ groups are warning the government that if tax breaks and rebates for over-65s are scraped, they could face major voter backlash.
A report by the Grattan Institute says back in the 1990s, also most a third of seniors paid tax. Now, John Daley says, it’s fewer than two out of ten.
“Older households today are paying less tax in real terms than older households 20 years ago, despite the fact they’re living so much longer and they’re taking much, much more out of the government tin. So the average older household today is costing Australian governments $32,000 a year, and just ten years ago it was $22,000 a year. That big jump is something budgets cannot sustain.”
The report estimates a billion dollars a year could be saved if the Medicare levy thresholds and private health insurance rebates enjoyed by the elderly are reduced and aligned with what younger Australians are paying. The report also suggested that limiting tax breaks to seniors on the full aged pension can help save the government money.
Do it and face a retiree backlash
But the report was not released without strong feedback from the seniors’ groups. Council Of The Ageing chief executive Ian Yates warns it would spark a voter backlash. “Look, Australia’s full aged pension is one of the tightest, targeted, most modest in any similar country in the OECD. Living on the aged pension is difficult so the fact that we are talking about people who have a little bit more than that does not mean that they are living in luxury: it means that they are getting by, and if you were to take a $1000 or $2000 a year from them that would have a significant impact on their life.”
He says most retirees are living modest lives and have already suffered from recent government belt-tightening.
“And these tax breaks are not going to save the kind of money that we could look at if we were to close quite a few other tax loopholes that substantially benefit people on hundreds of thousands of dollars a year. I think that there would be a significant reaction if the Government was to adopt the recommendations of the Grattan Institute.”