With tax breaks for high earners seemingly untouchable, the Grattan Institute has turned the focus to seniors – the new group of “taxed nots”.
In its report Age of entitlement: age-based tax breaks, the Grattan Institute calls for the reduction of three tax breaks that it considers ‘unduly generous’ with ‘no sensible policy rationale’, with estimates that the Government could save almost $1 billion per year by winding them back.
By paying less tax through the Seniors and Pensioners Tax Offset (SAPTO), receiving a higher rebate on private health insurance and having higher Medicare levy income thresholds applied, seniors pay less tax than younger workers on the same income.
According to the Grattan Institute, over the last 20 years the proportion of over 65s paying tax has halved, despite many working longer and having higher incomes. Meanwhile, the Government is running an annual budget deficit of about $40 billion. Tough calls on savings and spending must be made to ensure future generations do not have to manage unsustainable budget deficits.
In order to redress the generationla income balance and make savings, the Grattan Institute has called for the SAPTO to be available only to those on the Age Pension and for the Medicare levy to be wound back. These two measures combined would save $700 million per annum, and the realignment of the private health insurance rebate to the same as that available to younger Australians, would save a further $250 million.
Quoted in The Age, the report’s author, Grattan Institute CEO John Daley said, “It used to be that between one-quarter and 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.
“Each senior household used to take out [in] the order of $22,000, and now it’s $32,000, that’s is, in real terms. Part of it is super, part is a jump in health spending, part is a jump in aged pensions, and part is a jump in things like the Senior Australians Tax Offset,” Mr Daley said.
In the media release issued by the Grattan Institute, Mr Daley said that, “Some people think that the tax breaks are a fair reward for paying tax while under 65.”
“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,” says John Daley. “These tax breaks might have been affordable when they were introduced over the past 20 years, but the country can no longer afford the bill.”
Mr Daley concludes that it’s not difficult to see why such senior-friendly tax benefits, that were introduced by the Howard Government when Peter Costello was treasurer, have continued.
“It’s not rocket science that’s been driving this. Throughout that time, the proportion of enrolled voters who are aged at least 55 and over has been edging closer to 40 per cent.”
The economic reality may be that offsets and preferential thresholds are no longer be sustainable, but surely taking a swipe at pensioners’ income is a little below the belt?
Calling for the SAPTO to apply to only those on the Age Pension is an indication that too few of those making calls on policy don’t understand the reality of living in retirement. Having a level of income that discounts you from being able to claim an Age Pension by no means indicates that you are wealthy enough to fully fund your own retirement.
On the face of it, the $1918.20 per fortnight threshold at which you lose an Age Pension entitlement may seem a considerable income, but when you factor in rent, often increased medical bills, and other living allowances, such as utilities, transport costs and food, there’s not much left. There is the assumption that pensioners who don’t receive an Age Pension are wealthy enough to fund their own retirement and are living in multi-million dollar properties – this couldn’t be further from the truth. Many are living below the poverty line, 15 per cent are living in rented accommodation and as for those ‘lucky’ enough to live in a large family home – they’re probably struggling to be able to afford to maintain it and pay their utility bills.
Then there’s the language that is so often used. In his comments, Mr Daley refers to pensioners as “them” and that’s a large part of the problem. Pensioners, over 65-year-olds, retirees, baby boomers, or whatever label you wish to bestow, are people. They are people who have worked, raised families, fought for their basic human rights and in many cases, for their country. And now they are people trying to get by on a limited income when within the community, people simply see “them” as a burden. Mr Daley may well refer to our seniors as “them” because, let’s face it, it’s highly unlikely that he will face the same trials of an underfunded retirement.
It seems that older Australians can’t win. They are blamed for being part of a demographic spike, they are blamed for higher health care costs and they are blamed for living longer. Yet these same ‘guilty’ seniors will face massive bills should they ever need to enter an aged care residence when ‘user pays’ has become the new norm.
What do you think? Do you think those pensioners not on the Age Pension receive too generous tax concessions? Or do you think these tax concessions are indeed an entitlement for years of working and paying tax? How would you differentiate bewteen those seniors who need the concessions and those who don’t?