Should older Australians pay more tax?

The idea of taxing older Australians more might seem counterintuitive. Surely the older among us, having been taxed through their working lives, and facing potential age-related challenges have paid enough?

A new report from the Australian Council of Social Service (ACOSS) and the University of NSW has floated that idea. However, before you jump to any conclusions or instinctively kick back against the suggestion, let’s look at it in detail.

The report, Inequality in Australia 2024 is a joint undertaking of ACOSS and UNSW, and is described by the authors as “a companion piece to Inequality in Australia 2023: Overview”. The focus of the new companion piece is revealed in its subtitle: ‘Who is Affected and How’. 

It is within this framework we can find its examination of older Australians being undertaxed. 

How can further taxing of older Australians be a good thing?

ACOSS’s approach to the analysis is driven by its stated core aims: “To reduce poverty and increase opportunity.” Addressing inequality is key to achieving those aims, it believes, and this report identifies some of those inequalities. 

Some of them do indeed lie among the older Australian age groups. And ACOSS says the wealthiest older Australians are getting an easier ride when it comes to tax.

“In 2022-23, most of the wealth of older households was owned by a minority belonging to the highest 10 per cent of all households,” the report says. “By taxing the flow of income from investment assets, income tax can reduce wealth inequality.” However, “The wealthiest older households paid much lower rates of income tax than other age groups.”

While an imbalance in tax paid between younger and older Australians is understandable, ACOSS says, the low tax paid by the wealthiest of them is not. 

“Only 28 per cent of older households paid any income tax compared with 88 per cent of young households and 85 per cent of middle-aged households. One reason for this, of course, is the lower average incomes of older people, as discussed earlier.

“However, less expected was the low average tax rate for wealthy older households.” Here ACOSS is defining the wealthy as “those in the highest 10 per cent, whose average wealth was $5.6 million”. 

The average income tax rate for this high-end group of older Australians was 16 per cent, the report states. This compares with “28 per cent for both young and middle-aged households in the highest 10 per cent by wealth”. 

Furthermore, “Only 62 per cent of wealthy older households paid income tax.” This was a stark comparison to wealthy young households (91 per cent) and wealthy middle-aged households (93 per cent).

Taxing the right older people

So, while ACOSS does indeed float the concept of older Australians not paying enough tax, its focus is on the wealthiest. In particular, it points the finger at “concessional tax treatment of their main investments”. 

According to the report: “The low level of tax paid by older wealthy households (and their superannuation funds) is due in part to the higher tax-free threshold applying to older people (currently $33,000 compared to $22,000 for a person under 65 years), and to the concessional tax treatment of much of their investment income. This includes:

• the exemption from income tax of investment income from superannuation accounts paying pensions to individuals who have retired;

• the low rate of tax on capital gains (from growth in the value of assets such as shares and investment property).

Recommendations

Inequality in Australia 2024 outlines a number of policies that it says will reduce both income inequality and wealth inequality. These are detailed on page 23 of the report. 

And while ACOSS is suggesting that some older Australians should be paying more tax, it does not mean you, unless you are one of the 10 per cent with an average wealth of $5.6 million.

As an older Australian, do you believe you pay the right amount of tax? Should the richest 10 per cent pay more? Let us know via the comments section below. 

Also read: The ATO is reviving old tax debts, threatening some with bankruptcy

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