Do older people get too much from the public purse?
Are older people getting too god a deal? Photo: Getty
As the Australian population ages, political power is slanting towards retirees, with people over 65 getting too big a slice of the national taxation pie at the expense of the young, according to the Grattan Institute.
Grattan CEO John Daley told The New Daily that the balance needed to be tilted back toward the young.
“People over 65 are paying less tax relative to younger people on similar incomes,” Mr Daley said.
“Changing that can be politically difficult, but when we’ve got a $40 billion deficit we can’t afford what we’ve got. We have to move to a fairer and more sustainable system.”
Research released by Grattan on Monday shows that in the past 20 years, many older people have been moved out of the tax system. In 1995, 27 per cent of people 65 or older paid some income tax but, as the following table shows, it is now about 14 per cent.
Ageing gracefully.
Not only have older people dropped off the taxation lists, but where they do pay tax they get a better deal.
Seniors on $35,000 a year pay $1129 in tax compared to $3447 for working-age Australians. For incomes of $40,000, it is $3654 compared to $4947 and for $45,000 it is $6107 compared to $6747.
Pay less as you age.
The old are also getting more out of the public purse compared to their younger cohorts. Between 2004 and 2010 net budget payments to older households increased by about $22 billion a year.
“Younger households have not benefited as much from government budgets, yet they will pay substantially higher future taxes to repay accumulated deficits. Each year of deficit between 2010 and 2016 has increased the tax burden on younger households by about $10,000 over their lifetime,” the Grattan report said.
While the older cohort pays less tax and gets more benefits, they have also seen their wealth increase disproportionately.
Seniors have more
Over the 10 years to 2013-14, average household wealth grew by 32 per cent with older households capturing most of this growth, while younger households’ wealth stagnated.
“Despite the global financial crisis, households aged between 65 and 74 years today are $400,000 (or 47 per cent) wealthier in real terms than households of that age 10 years ago,” Grattan found. “By contrast, households aged 25 to 34 years are no more wealthy than the equivalent households a decade before.”
Seniors face cost hikes. Photo: Getty
Grattan is calling for the winding back of three measures to redress the balance, which would save the government around $1 billion a year. They are Seniors and Pensioners Tax Offset (SAPTO), the higher Medicare levy income threshold available for seniors, and higher private health insurance rebates only available to older Australians.
“Only pensioners should qualify for SAPTO, while those with enough private income that they do not qualify for a full Age Pension should pay some income tax,” Grattan said.
The proposed changes would have little effect on the 40 per cent of seniors who receive a full Age Pension and would most affect seniors wealthy enough to receive no, or a part, pension, the research says.
Bruce Lloyd, national vice president of the Association of Independent Retirees, said he opposed the suggestions. “Many self-funded retirees don’t pay much tax because most of their money is in super, which is tax free.”
There are new imposts
“They have paid tax all their lives and won’t be very happy about having more impositions placed on them. A number of changes from next year to the pension assets test, superannuation and aged care all have the potential to increase costs for people in that age group,” Mr Lloyd said.
The Australian Council of Social Service CEO Cassandra Goldie supports Grattan’s position, saying it will tackle a “budgetary time-bomb”.
“The findings of the report echo the view of ACOSS that the Seniors and Pensioners Tax Offset (SAPTO) is unaffordable and unsustainable,” Ms Goldie said in a statement.
Overall, the resulting savings “could be well spent on health and aged care services”, she said.
Both the government and the Labor opposition reacted circumspectly to the proposals. Treasurer Scott Morrison said “the Grattan Institute have speculated on any number of different types of measures that can be considered”.
“Our priority at the moment is there is already a fiscal consolidation plan before the Parliament.”
Labor has not considered the proposal yet, said shadow treasurer Chris Bowen.
