The Grattan Institute says seniors are contributing less to the economy but taking a lot more out, which has to change.
Two main targets
The government is studying recommendations that would cut into the age-based tax breaks for some seniors.
The suggestions come from independent think tank the Grattan Institute, which says the tax breaks are damaging the federal budget, and winding them back could save about $1 billion a year.
It is targeting two generous age-based tax breaks – the seniors and pensioners tax offset (SAPTO) and the higher Medicare levy income threshold for senior Australians.
As a result, seniors now pay less tax than younger people on the same income.
The institute highlights the generational divide through the example of a self-funded retiree couple that has $500,000 in superannuation and $1.4 million in shares as well as a house. They still qualify for a Commonwealth Seniors Health Card that entitles them to cheaper pharmaceuticals and other concessions. Their assets earn taxable income of $70,000 and they draw $24,500 from their super fund each year. They pay $4,049 in income tax combined, including tax of $3,797 and a Medicare levy of $252. SAPTO reduces their tax by $1,698.
By contrast, a couple in their 40s working full time in minimum-wage jobs and earning a combined income of $70,000, pay tax of $5,494 and a Medicare levy of $1,400. In other words, they pay $2,845 more tax than the seniors on the same income. Only middle-income seniors benefit from SAPTO.
The institute makes three recommendations:
- Reduce SAPTO so that seniors pay some income tax unless they qualify for the full Age Pension.
- Seniors should also start paying the Medicare levy at the point where they are liable to pay some income tax.
- The private health insurance rebate should be provided at the same rate irrespective of age.
The institute says the changes would have little effect on the 40 per cent of seniors on a full Age Pension. Those affected would be wealthy enough to receive no pension, or only a part Age Pension but they would not pay any more tax than younger households on similar incomes.
But to understand fully how the Grattan Institute’s recommendations would affect you, we suggest you talk to your financial adviser.
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