The cost of superannuation tax concessions will experience “staggering” rises year on year and must be slashed before it becomes a drag on Australia’s finances.
This is according to independent public policy think tank The Australia Institute, which yesterday published a research paper called sustaining us all in retirement
that supports a change to a universal aged pension.
The report is particularly timely given Treasurer Joe Hockey’s recent
speech in Washington that indicated the Australian Government will raise the retirement age and crack down on the eligibility for the age pension as part of an urgent effort to trim, cut or scrap unsustainable expenditure.
It seems the cut dates for this are imminent and federal government's Commission of Audit report will be released publicly within days, the Sydney Morning Herald
But The Australia Institute says that the tax concessions, most of which are being claimed by people able to afford early retirements if they choose, need the most urgent attention as they will soon cost more than the entire age pension.
The paper said the age pension currently costs $39 billion and superannuation tax concessions will cost the budget around $35 billion in 2013-14.
These concessions are the projected to rise to $50.7 billion in 2016-17, an increase of around 12% a year. By this time superannuation tax concessions will be the single largest area of government expenditure, it stated.
“The overwhelming majority of this assistance flows to high income earners. Low income earners receive virtually no benefit,” the paper said. “The combined cost of these two policies will be $74 billion in 2014 alone.”
Rather than trimming and slashing expenditure to address this problem, The Australia Institute suggests a completely different model altogether.
The paper proposes that Australia abolishes tax concessions for superannuation and creates a universal (non-means-tested) age pension.
It claims that a universal pension would create a level playing field amongst income groups and reduce the inequality in Australia’s retirement system.
Superannuation could then act as a top-up for those who can afford it, the paper said.
“It is suggested that the single pension be lifted from 30% of male total average weekly earnings to 37.5 per cent, with a consequent lift in the partnered rate. This would raise the pension rate for singles from $21,018 per annum to $26,273 per annum and the pension rate for couples from $31,689 per annum to $39,611 per annum,” it stated. “This system would cost $52 billion a year, almost 30% less than we spend on both the pension and superannuation tax concessions.”