Speaking at the Conference of Major Superannuation Funds on the Gold Coast yesterday, Mr Daley said there has been a “substantial deterioration in underlying budgets” for Australian governments in the last decade.
“A lot of that's been driven by health; some of it's been driven by the age pension; and some of it's been driven by superannuation tax concessions,” said Mr Daley, who was participating in a roundtable 'Q and A' discussion on retirement and longevity hosted by the ABC's Tony Jones.
People over the age of 60 pay “very, very little tax” even if they are working, and at the same time are taking “very substantially” from the public purse, said Mr Daley
Asked why younger Australians don't “get angry” about the state of affairs by Mr Jones, Mr Daley said it was largely down to the complexity of the system.
Mr Daley admitted that he was “blissfully unaware” of the size of the superannuation tax concessions and how “poorly targeted” they are until the Grattan Institute conducted some research on the subject.
“[The tax concessions go] overwhelmingly to old rich men, and that's not a very good piece of tax design,” he said.
He pointed to two superannuation tax concessions in particular as being particularly inequitable: concessional (before tax) contributions and the tax-free status on investment earnings for people aged over 60.
“By definition, anyone who's putting more than $10,000 a year into their super [before tax] is not badly off. And that tax concession costs us about $6 billion a year,” said Mr Daley.
The tax-free status on earnings over 60 costs the taxpayer around $3 billion a year, and it goes “overwhelmingly” to those who are in the top 10 per cent of incomes, he added.
“Just those two [tax concessions] are worth $9 billion a year. To put that in context, you could lift the GST by about two per cent and that would be worth about $9-10 billion a year,” said Mr Daley.
But UNSW professor John Piggott said policymakers need to be “very careful” with tax concessions.
“We're asking people essentially to postpone their consumption until retirement – and we're doing that by insisting that they pay nine, maybe going up to 12 per cent [of their wages into super],” said Mr Piggott.
“You've got to give a carrot to that, and a natural carrot is to offer them a tax break,” he said.
Without the incentives, the money that people contribute to their superannuation could go elsewhere, said Mr Piggott.
“The competitor to superannuation for retirement resources is owner-occupier housing. It gets similar tax treatment,” he said.
“If you made radical changes to the tax treatment of superannuation you would find many people pulling back on their superannuation contributions and investing in larger and larger owner-occupied houses,” said Mr Piggott.
“This has happened in New Zealand, which is not a dissimilar system. I don't think that's good for the economy,” he said.
The solution may be to gradually increase the tax-free access to superannuation from 60 to 63, he added.
