Billions in super tax breaks should be wound back: Grattan


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A new report by the Grattan Institute has found that tax breaks in superannuation are costing the Australian budget $45 billion a year and aren't fairly targeted.

The report found that two-thirds of the tax break value benefit the top 20% of income earners, who it says already have enough savings going into retirement.

The institute has proposed a range of packages off the back of the report that it says will save the budget $11.5 billion for the federal budget.

government begins super tax change consultation

The proposals include taxing earnings in retirement by 15% and lowering thresholds for tax breaks on extra contributions.

"Super has become a taxpayer-funded inheritance scheme. 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, healthcare, aged care and disability care," says Grattan Institute economic policy program director Brendan Coates.

This includes raising the Division 293, which curbs tax breaks to high-income earners on their pre-tax super contributions to 35% and lowing the threshold for that tax to $220,000 a year.

"This would save the budget about $1.1 billion a year and stop many high-income earners benefitting from larger tax breaks," says Coates.

The report also suggests the government lower the cap on pre-tax super contributions to $20,000 a year which would save the budget $1.6 billion a year.

Perhaps most controversially, considering the blowback to the government's recent super proposal, Grattan has suggested taxing all super earnings at 15%, the same rate the applies to super earnings before retirement.

The report also found the government's $3 million threshold is too high, and instead all accounts with over $2 million should be taxed at 30%.

These two proposals combined would save the budget $8.3 billion each year.

"The warning signs are everywhere: Australia's current superannuation system is unfair and unsustainable.

"The reforms we recommend would make the system fairer and the budget stronger," says Coates.

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Eliot Hastie was a senior journalist at Money magazine in early 2023. He was previously a producer and presenter at ausbiz where he covered startups, small caps, cryptocurrency and every other investible opportunity for Australians. Eliot has a Bachelor of Arts (Honours) in Journalism from the University of Westminster. He tweets at @Hastie93.
Daniela Kmet
April 5, 2023 11.08pm

Thanks for your info.lm78 years yong self funded,and wonder if my and my late husband hard work safe make my any better

I come here as refugee after so called Soviet union of Czechoslovakia

Rob F
April 8, 2023 10.42am

Grattin Institute should be commenting on the last tax the Government has pushed through in regards to $3 million plus Super accounts. They fail to comment on the unfairness for a defined government pension not being effected. For example the PM getting $400K P/Year in retirement which would equate to approx $10 million account UNTAXED. Gratten institute look elsewhere for the Labor Government Taxes and not at the people that have have planned for years to retire & have also paid there taxes all there working life!

April 11, 2023 11.25pm

Labour government by undermining the confidence in superannuation will cause that the future governments will get less revenue from superannuation. Superannuation will grow at the slower rate and even by applying higher tax they will receive smaller revenue. Is that so hard to understand?