Key Points
- The report shows that superannuation tax breaks cost the budget $45 billion a year.
- Grattan Institute suggests that reforming the system could save the budget more than $11.5 billion a year.
- This follows the government's plan to reduce tax concessions to people whose super balances exceed $3 million.
Tax breaks for retirees will soon cost more than the age pension, requiring a rethink in the federal budget, a new report says.
The Grattan Institute report showed superannuation tax breaks cost the budget $45 billion a year, or about two per cent of GDP.
Two-thirds of their value benefit the top 20 per cent of income earners and retirees with large super accounts pay much less tax per dollar of earnings on them than younger workers do on their wages.
The government has already flagged reform in the area, announcing in February it intended to reduce super tax concessions available to people whose total balances exceed $3 million.
The changes - which are now open for public consultation via Treasury - would apply from July 1, 2025 and save about $2 billion a year.
'Inheritance scheme'
There is strong evidence suggesting much of the boost to super balances from tax breaks is never spent.
By 2060, one-third of all withdrawals from super will be via bequests, up from one-fifth today.
"Super has become a taxpayer-funded inheritance scheme," report lead author Brendan Coates said.
"Reining in super tax breaks is a responsible way to boost government revenues in a world where the government has committed to higher spending on defence, health care, aged care, and disability care."
Reforming the system could save the budget more than $11.5 billion a year, the report said.
One of these measures could include taxing earnings on super accounts larger than $2 million (rather than $3 million under the government's reforms) at 30 per cent ($3 billion a year in budget savings).
Another cost-cutting measure would be the taxing of all superannuation earnings in retirement at 15 per cent, the same rate that applies to super earnings before retirement ($5.3 billion a year in budget savings).
The report also suggested abolishing carry-forward provisions and government co-contributions, lowering the cap on pre-tax super contributions and curbing tax breaks to high-income earners on their pre-tax super contributions.
Mr Coates said the superannuation system was "unfair and unsustainable" and changes would make it fairer and boost the budget.
Treasurer Jim Chalmers will deliver his second budget on May 9.
The latest finance department figures put the budget deficit for the 2022/23 financial year to February 28 at $12.9 billion, down from $33.4 billion forecast in the October budget.
This was due to $13 billion in higher receipts and $7.5 billion in lower payments.
The government has pledged to bank most of the upward revisions and keep a lid on spending.
But it admits the revenue boost won't make up for the big five spending pressures: funding the NDIS, aged care, health, defence and servicing debt.
