Tax breaks to encourage older people to remain in the workforce could be on the horizon in order to address the demographic challenge of an ageing population, according to Treasury chief Ken Henry.
"Generally, older people demand a lot more from governments than younger Australians, especially in health and aged care services," Henry said at the Australasian Tax Teachers Association conference in Sydney yesterday.
"It would be prudent to plan on the basis that the tax system will, over time, have to generate revenues to meet substantially larger fiscal costs."
Marginal tax rates may need to be adjusted in order to reflect the changing ability to work of different groups at different times in their lives, Henry said.
"In theory, marginal tax rates should be lower where there are more people whose participation is most responsive to tax rates," he said.
"It makes sense ... to provide especially strong incentives for those people whose productivity is relatively high. Older people are less likely to be in the workforce due to retirement or working less hours."
Henry said tax policy design has to recognise a growing fiscal need for encouraging highly productive workers and increasing participation by being mindful of the costs to the community of high marginal tax rates applying to particular groups of workers.
He also said the government will shortly publish a new intergenerational report that will look at the latest demographic and fiscal projections.
