A new report from the Grattan Institute says tax breaks for old Australians are way too generous.
Australian could raise around $1 billion a year by taxing over 65s at the same rate as younger workers, according to a new report from Melbourne-based think tank the Grattan Institute.
"Seniors pay less tax and get a higher rebate on private health insurance than do younger workers on the same income," the Grattan Institute said, announcing the release of Age of entitlement: age-based tax breaks. "They do so through the Seniors and Pensioners Tax Offset (SAPTO), a higher Medicare levy income threshold, and higher private health insurance rebates that are available only to older Australians."
The report labelled these three tax breaks as "unduly generous... [with] no sensible policy rationale."
Most of these tax breaks have been introduced in the past 20 years, and over this same time period the proportion of over 65s paying tax has dropped by half. As the Grattan Institute notes, "they might have been affordable when they were introduced but no longer" because the problem with only be exacerbated as Australia's population ages.
In an opinion piece for The Conversation , the Grattan Institute's CEO John Daly explained that Australian "seniors do not pay tax until they earn $32,279 a year." This is far above the tax-free threshold for working-age Australians, and means they are paying thousands more in tax every year than over 65s.
The example the Grattan Institute gives is a comparison between two Australian couples, both earning $70,000. The younger couple, both earning the minimum wage, would pay around $7,000 a year in tax. By comparison the retired couple would only pay $4,000. The other big difference? "Unlike the retired couple, they probably don't own their own home and have little chance of accumulating $1.4 million in assets, or much super savings, or owning their home before they retire," Daly notes.
Other research has pointed to this growing wealth gap between younger and older Australians. As the Australian Bureau of Statistics (ABS) has noted three-quarters of older low income households own their homes outright. This means they are "at lower risk of hardship."
However, the report was quick to note that these breaks should only be wound back for wealthy older Australians. "The proposed changes would have little effect on the 40 per cent of seniors who receive a full Age Pension," it suggests. "They would most affect seniors who are wealthy enough to receive no pension or just a part pension." This could mean older Australians who are still working, and those earning high incomes from investments and superannuation.
While it's unlikely the government will enact the Grattan Institute's suggestion, treasurer Scott Morrison faces a tough battle to make good on his promise to balance the Australian Budget. A new report from Deloitte Access Economics speculates that the Budget update on December 19 will see the forecasted deficit grow by $3.8 billion. On the bright side, the group also said it's unlikely that Donald Trump's presidency will hurt the Australian economy.
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