The superannuation preservation age should be lifted, generous super tax concessions wound back and changes made to how the family home is assessed for the Age Pension, according to a pre-budget report from the Grattan Institute.
The 2023-24 Federal Budget is due to be delivered by Treasurer Jim Chalmers next month and Australia is on track to record its 25th consecutive year in deficit.
The structural deficit is projected to be about 2 per cent of GDP, or nearly $50 billion every year, by the end of the decade.
Ahead of the Budget announcement, think tank the Grattan Institute has delivered a report, Back in black? A menu of measures to repair the budget, with a series of controversial proposals to try to get the books back into positive territory.
Without action, the institute says, the deficit problem will get worse over time as an ageing population will require more spending on health and aged care.
Raising the super preservation age
Top of the list of proposed actions is an increase to the superannuation preservation age, or the age at which you can access your super. Currently, for people born after 1 July 1964, the preservation age is 60.
Under the Grattan Institute proposal, this would be lifted to 65 over the course of five years. The institute says that has the potential to save around $8 billion per year.
The report notes that the super preservation age should be looked at in the same light as the Age Pension eligibility age, which increases to 67 from 1 July, and quotes a Productivity Commission report that found increasing the super access age would boost workforce participation by about 2 per cent.
Earlier access could be granted to those with a disability, carers, and First Nations people who typically have a lower life expectancy, the report notes.
Super tax concessions
In addition to lifting the super preservation age, Grattan also wants changes to superannuation tax concessions.
It wants super earnings in retirement taxed at 15 per cent and pre-tax contributions from those earning more than $220,000 a year taxed at 35 per cent.
It also wants to see pre-tax contributions capped at $20,000 per year and earnings on balances over $2 million taxed at 30 per cent.
Grattan says tightening super tax concessions could save the budget more than $11.5 billion per year. Currently, the tax breaks cost about $45 billion per year and are estimated to cost more than the Age Pension by 2036.
Family home and the Age Pension
The Grattan Institute also suggests changing the way the family home is assessed in the Age Pension assets test. The institute recommends including all equity in the family home above $750,000 in the test.
“Under this change, older Australians who are asset rich, but cash poor would not need to sell their homes if they didn’t want to,” the institute says.
They could draw down against the equity in their home, via the Home Equity Access Scheme (HEAS). If their home equity dropped to the threshold, then they would qualify for the pension, so they would still be left with significant positive home equity.”
Do you agree with these changes? Or should budget repair be focused on other areas? Let us know what you think in the comments section below.
Also read: How wealthy are Australians compared to the rest of the world?
If super earnings are taxed at the same rate in retirement mode as accumulation, many people will leave their money in accumulation mode. In that way money can be withdrawn as needed instead of the current mandated percentages. In this scenario there will be more money left in your super account for your children to inherit!
I have a question for the Grattan Institute. What is the age of the Grattan analysts who in their fairyland cocoons on their shiny backsides having never had a real job other than staring at a screen suggesting to the money-hungry broke government to start taxing the hard-earned retirement savings on drawdown of earnings?
I am still young at 78 and with my wife worked our arses off to save for a comfortable self-funded retirement. Our super balance is well below the threshold required for the pension. We want to stay self-funded as long as possible in control of our own money not be under control of a corrupt Orwellian government in Canberra with Big Brother watching our every move.
I would love to get at least a part-time job in my field of qualified expertise. The Proles at Centrelink have absolutely no idea how to help older Australians get work. They can only suggest running down our super until we are eligible for the full pension.
I would suggest to the Grattan Institute to take the same advice the Ukrainian Commander on Snake Island give to the Captain of the Russian warship.
What a joke these people at the Grattan. Where can you buy a home for $750K. It is just a way of taking money off the older Australians before we die. I’m surprised they didn’t include death duty in their rubbish. Keep giving politicians more money to spend and they’ll dig a bigger hole. The Younger people who have developed this plan can’t see far enough ahead to realise they will be an older Australian one day and the way they are plundering the country, there will be nothing left.
I disagree because the reason many older Australian’s are asset rich is because the home they bought for $50,000 forty years ago is now worth $1,550,000 and they did no work to earn that additional one and a half million.
In effect they won the world’s most expensive housing lottery without even buying a ticket. All they had to do is live in a capital city.
I think the Grattan ideas are pretty fair.
Spot on David. The other comments here are from those who have been catered for by Howard and Costello. The comment that alluded to leaving money for your children is way off what superannuation and retirement savings are intended to be used.
That might be the case, but a policy like that will have many looking for cheaper regional housing (you can still easily buy a $750,000 home in regional areas) that will send the price of regional housing up. What seems like a solution can easily cause bigger problems.
What Grattan should be suggesting is full retrospective taxation on any lump sums taken from superannuation or left in an estate and minimal tax where it is taken as an income. Incentivise people to use super as intended to support themself.
Wonder why these experts never talk about putting the money back into the consolidated funds that were meant to fund future welfare, but were stolen to balance the budget of the Parliament house blow-out. To quote the then treasurer, “future governments will need to replace it”. Instead of replacing it, politicians are hell-bent on rewriting history to pretend it never happened. Suits the thinking of the people at Grattan. Wonder how many of them have ever held a real job, worked to create something and saved to be able to survive without their weekly pay check. I doubt any.
I think I can see the future – any government trying to introduce these draconian, left-wing policies thrown to the wolves by the electorate!
Once again the Grattan Institute is way off the mark. Obviously they have little idea of real estate values, as anything over $750,000 for a family home should be taxed. Where do you buy a livable family home these days for under $750,000, certainly not in Australia. Perhaps the Grattan Institute has Australia mixed up with Angola. This is what happens when you have Academics trying to run the show, people who have never worked in normal situations wanting to tell the average Australian how to live, work and plan for the future. Not unlike the Psychologist/Psychiatrist who explains to you how you should live your life and what you are doing wrong, after he or she have been married & divorced three or four times. Just a thought, Jacka.
Any earning under 1 million in super tax free. over I million earnings taxed at 15% and over 2 million earnings taxed at 30%.
Include all equity in the family home above $1,500,000 in the asset test With a yearly adjustment for increased housing prices. As above they could draw down against the equity in their home.
Do away with family trusts for the rich.
Start taxing millionaires that aren’t paying tax.
Start taxing the hundreds of companies that pay no tax because of loses offshore. You make the money here you pay tax. bottom line.
Stop the rip off with companies who pay no tax because they made a loss last year or the year before or the year before that. You made a profit this year then you pay tax.
phase out negative gearing
Phase out franking credits. If you can’t survive as a SFR on your share portfolio then diversify like everyone has to.
Do this and the gap between the rich & poor will stop increasing.
I don’t begrudge people having or creating wealth but they need to start paying their fair share.
I am also a SFR. Well off so assets exclude me from a part pension but I live my life very well. I have no issues with paying my fair share. What about you.
Hope I’ve ruffled a few feathers.
I wish to point out to the Grattan Institute that self funded retirees, by definition, do not have their retirement funded by the government, unlike those on the old age pension who receive upwards of $55 billion/year in govt. handouts.
I worked until age 72 and paid all my due taxes. it was only during the latter years of my working life that I was able pay off my home loan etc. and build up my super fund balance for a comfortable retirement.
I suggest the Grattan institute focus its attention on the big corporates & multi- nationals who avoid paying their due taxes.
Best regards,
Paul Brown