Releasing its submission to the Government’s retirement incomes review today, the Australian Council of Social Service is calling for structural reform of inefficient tax breaks for superannuation to improve retirement incomes for the majority while helping to fund future growing needs in health, aged care and social security as the population ages.
“Security in retirement is not just about income, it’s equally about access to essential health and aged care services and having an affordable place to live,” said ACOSS CEO Dr Cassandra Goldie.
“We must strengthen all three foundations of a secure retirement: incomes, housing, health and aged care. Too much is spent supporting the retirement incomes of a well-off minority, and too little on income support and basic services for all who need them.”
“There’s a serious imbalance in the federal government’s support for retirement, with an estimated $30 billion ‘spent’ each year on inefficient tax concessions for super.
“We need a comprehensive Retirement Incomes Review, to settle the core purpose of superannuation, including the minimum adequate income level which should receive public support, and to design the changes we need to deliver on this goal. We need to recognise that, crucial to setting this income measure over time, is understanding the key drivers of adequacy, including the costs of health and aged care, and housing, in later life.
“With the ballooning costs of tax expenditures, the need for structural reform of superannuation is compelling. At the same time, health funding to the States is about to be cut by $10 billion a year and those older people who are struggling the most – those on Newstart Allowance and those who rent privately – get too little help.
“The Age Pension is a cost-effective way to reduce poverty in retirement, especially now that the assets test has been tightened to target those most at risk. In stark contrast, one-in-seven people relying on income support aged 45-65 are struggling on the $37 a day Newstart Allowance whilst looking for paid work.
“Generous tax breaks come at a high cost and are skewed overwhelmingly towards people on higher incomes. For instance, a person on the top marginal tax rate saves five times as much per dollar invested in super as one on the lowest rate.
“Half the value of these tax breaks goes to the top 20% of taxpayers. These concessions should be replaced by a simple 20% rebate for contributions made to superannuation from all sources, as the Henry Report recommended.
“In the retirement phase, for too many, superannuation has become a tax avoidance and succession planning scheme rather than a retirement income system. This is inequitable, costly to the budget and bad for the economy, with our need to drive investment into more productive economic activity.”
“High income earners are ‘churning’ their income and assets through their super accounts to reduce their tax rate to 15% or zero. Combined with a tax free threshold for a couple over 64 years of $58,000, only one in five people in that age group pays any income tax.
“The recent COAG meeting was a ‘wake-up call’ on health funding. Governments cannot continue to provide universal essential health and aged care services unless tax revenues are restored.
“The fairest way to help restore revenue levels needed for future health and aged care needs includes removing tax shelters so that people who can afford to pay income tax – regardless of age – do so on an equitable basis. This should be pursued before governments look at less equitable options including health co-payments and a higher Goods and Services Tax.
“ACOSS has consistently argued that gaping holes in our income tax base, including negative gearing and the use of private trusts and superannuation to avoid tax, should be closed.
“In our submission to the Government’s review of retirement incomes, we raise two options for consideration as part of the wide-ranging tax reform process, to strengthen the personal income tax to fund essential services:
“First, the exemption from income tax for superannuation fund earnings after retirement should be removed. This would extend the existing 15% tax rate to fund earnings in that stage (but not to super benefits, which are also tax-free). This could be offset by a rebate for people below the tax free threshold.
“Second, consideration could be given to extending the 2% Medicare Levy to incomes sheltered from tax by these and other arrangements. This is different to proposals to increase the rate of the Medicare Levy advanced by two State Premiers last week.
“It would extend the existing 2% Levy to income that is currently sheltered from tax such as the 50% of capital gains that are not taxed. This is a first step towards curbing inefficient tax shelters in the tax system generally.
“The revenue from these and other personal income tax reforms could be used in the short term to restore the health care funding cut by the Federal Government.
“In the longer term, it could be used to strengthen service guarantees in health and aged care such as Medicare and the Pharmaceutical Benefits Scheme as part of wider reforms to federal state financial relations.
“The other urgent priority is to address the main flaws in social security support for people struggling to get a job including older people – the $37 a day Newstart Allowance (which 1 in 7 social security recipients aged 45-65 now relies on) and the $64 a week private rental subsidy, Rent Assistance, which is well below housing costs for the 1 in 10 Age Pension recipients who rent privately. Both should be increased for all recipients regardless of age.”
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