Grattan Institute: Cut retiree tax breaks

21 November 2016
An independent think tank has called for the government to wind back the tax breaks given to older Australians.

A new report from the Grattan Institute has revealed the Australian Government could save around $1 billion a year by reducing three particular tax breaks for older Australians.

Older Australians are entitled to the Seniors and Pensions Tax Offset (SAPTO), a higher Medicare levy income threshold and higher Private Health Insurance rebates.

The Grattan report, Age of entitlement: age-based tax breaks argues that these tax breaks are unduly generous and have no sensible policy rationale.

The research demonstrated that the proportion of Australians over 65 paying tax has halved over the past 20 years, despite their rising incomes and workforce participation rates.

Grattan Institute CEO John Daley said the tax breaks might have been affordable when they were first introduced, but not now.

“Some people think that the tax breaks are a fair reward for paying tax while under 65,” he said.

“But in fact, large tax breaks for seniors are a relatively new invention not provided to previous generations. And the current generation of seniors receive much more than their predecessors from government spending, particularly on their health.

“Age-based tax breaks are badly designed to achieve valid policy purposes, such as increasing workforce participation or preserving adequate retirement incomes for poorer Australians.”

Grattan Institute proposed changes

Wind back SAPTO and Medicare Levy – Government Savings: $700 million/year

The report recommends that only pensioners should qualify for SAPTO, and that those who earn enough to not qualify for the full Age Pension should pay income tax.

This would have little effect on the 40 per cent of seniors who receive a full Age Pension, but would most affect the seniors wealthy enough to receive no pension or a part pension, according the report.

Reduce private health insurance rebate – Government Savings: $250 million/year.

The Grattan institute proposes that the health insurance rebate for seniors should be reduced to the same rebate that younger Australians receive.

The report argued that the higher rebate does not increase the take-up of private health insurance. It pointed out that seniors are already adequately protected from higher health insurance costs through “community rating” arrangements.


In an interview with Fairfax, Mr Daley pointed out that it used to be that up to one-third of seniors paid tax.

“Now it’s half that, we gave them a Low Income Aged Persons Rebate, then we gave them a Senior Australians Tax Offset, then we made their super tax-free, and hey presto, they dropped out of the tax system,” he said.

“Of course, the older couple will say: I’ve paid my taxes so it’s fair”.

“The answer is: No, they haven’t paid particularly much tax, and that’s the problem.”

“They would have paid less tax than the generation before them will pay less tax than the generation coming after them, because they are taking more out of the tin.”

“While they have been dropping out of the tax system and their incomes have been going up materially, the amount the government spends on them has been going through the roof, particularly on health. They are taking a lot more out and putting substantially less in.”

Treasurer to consider the Grattan Institute proposals

When asked by about the Grattan’s proposals, Treasurer Scott Morrison said he was focusing on getting his superannuation tax changes passed through parliament.

“The Grattan Institute have speculated on any number of different types of measures that can be considered,” Mr Morrison told reporters in Canberra.

“There is no shortage of advice or suggestions provided to the government but our priority at the moment is there is already a fiscal consolidation plan before the parliament.

“It’s important the Parliament deals with that business and that business needs to be dealt with over the next fortnight and indeed in the autumn sittings of next year before we bring down the next budget.”

ACOSS backs Grattan’s calls

CEO of the Australian Council of Social Service Cassandra Goldie welcomed the Grattan report’s suggestions, saying it backs ACOSS’s long-standing call to tackle special tax breaks for wealthier older people.

ACOSS described these tax breaks as a ‘budgetary time-bomb.’


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