Billions in super tax breaks should be wound back: Grattan

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.

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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