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End of the age of entitlement

Savings of $1 billion a year for the Commonwealth Government could be made if three tax breaks for older Australians were wound back a new report claims.

Cutting the tax breaks for older Australians could save the Government $1 billion a year
Cutting the tax breaks for older Australians could save the Government $1 billion a year

Despite rising incomes and workforce participation rates, the Grattan Institute’s latest report, Age of entitlement: age-based tax breaks says the proportion of over 65s paying tax in Australia has halved in the past 20 years.

“With deficits running at about $40 billion a year, Australia has a budget problem,” the report says, pointing out while the Government’s recent omnibus bill improved the budget bottom line by $2 billion a year, there is a long way to go.

The report notes generous policy changes during the last 20 years introduced two age based tax breaks: the Seniors and Pensioners Tax Offset (SAPTO) and a higher Medicare levy income threshold for senior Australians. It says they are part of a series of policy choices, made as the electorate was ageing, that have disproportionately benefited older Australians. “As a result seniors pay less tax than younger workers on the same income,” the report states.

Recommendations in the report include:

  • wind back SAPTO from the current maximum value of $2,230 to $1,160 for singles and from $1,602 to $390 for each member of a couple.

  • reduce the Medicare levy threshold so only pensioners with income under $27,000 (for singles) or $42,000 (for couples) pay no Medicare levy. (At present seniors earning up to $33,738 (singles) or $46,966 (couples) pay no Medicare levy.)

  • reduce the current higher Private Health Insurance rebate rates for seniors to the same levels as apply to younger workers with similar incomes.

According to the report, winding back SAPTO and the Medicare levy will save about $700 million a year and reducing the private health insurance rebate will save about $250 million.

Its proposed changes would have little effect on the 40 percent of seniors who receive a full Age Pension, with the report stating “Seniors affected will predominantly be wealthy enough to receive no pension at all, or only a part pension. They will not pay any more tax than younger households on similar incomes.”

Grattan CEO John Daley believes some people think the tax breaks are a fair reward for paying tax while under 65, however he points out large tax breaks for seniors are a relatively new invention not provided to previous generations.

“And the current generation of seniors receive much more than their predecessors from government spending, particularly on their health,” he says. “Age-based tax breaks are badly designed to achieve valid policy purposes, such as increasing workforce participation or preserving adequate retirement incomes for poorer Australians.

“These tax breaks might have been affordable when they were introduced over the past 20 years, but the country can no longer afford the bill,” concludes Mr Daley.


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