Seniors should pay more tax if Malcolm Turnbull really believes in a fairer Australia

Huge groups of protesters clash with Trump supporters in a verbal exchange outside a Trump rally at the San Diego Convention Center in May. Photo: iStock

Change is hard. But change is a constant of life, of evolution and the human condition, so we have little choice but to change and adapt.

Addressing this topic in a speech last week at CEDA, prime minister Malcolm Turnbull said “change is unsettling, and as people see things change around them, they are concerned they could be left behind”.

That’s true. And Turnbull went on to say “the impacts of change can be borne unevenly across the community” and “policy changes must be seen to be fair and be seen to be fair in a very broad sense”.

Not the narrow self-interest “of winners and losers”, but a broader context.

These are noble sentiments and John Daley and the Grattan Institute have thrown down the gauntlet to the prime minister and his Cabinet in a new report released today addressing the “Age of entitlement: age-based tax breaks”.

Grattan says (emphasis added):

The age-based tax breaks for seniors should be wound back. They might have been affordable when they were introduced but not any more. They are costly for the budget, they exacerbate unsustainable transfers between generations, and they are unfair. They are poorly designed for any plausible policy purpose such as to increase retirement incomes, seniors’ workforce participation, or savings.

Herein is a chance for Malcolm Turnbull to drive policy that is in keeping with his rhetoric. Does he really believe that change and fairness are important across all sectors of the economy or only when jobs from Geelong, Newcastle, Shepparton or Whyalla are being sent overseas?

It’s almost a rhetorical question because you’ll recall the narrow self-interest of wealthy superannuants (from within Liberal heartland, government MPs said at the time) defeated a government policy aimed at marginally tipping the scales of balance away from the wealthy superannuants this year.

But Grattan says the government needs to wind back the “generous policy changes” made during the past 20 years – “the Seniors and Pensioners Tax Offset (SAPTO); and a higher Medicare levy income threshold for senior Australians”.

Grattan says these policies (emphasis added):

Are part of a series of policy choices made as the electorate was ageing that have disproportionately benefited older Australians. As a result seniors pay less tax than younger workers on the same income.

The idea that seniors should pay less tax on the same income as their child, or grandchild, in the workforce earning the same income strikes me as the very definition of unfair.

Grattan highlights the different situation between Ruth, as single pensioner aged 70 who gets the pension + term deposit income adding to income of $25,645 and Isabella, a 25-year old studying for a Masters Degree and working in a cafe earning the same amount as Ruth.

Ruth pays no tax or Medicare levy. Isabella pays $1,159 in tax and a Medicare levy of $531 on the same income as Ruth.

It might sound marginal. But is it fair?

The report also highlights the reality that SAPTO means wealthy self-funded retirees can pay less tax than workers on the minimum wage.

Grattan says these tax breaks are not “a fair reward for those who think they have already paid their fair share of taxes over a lifetime”.

Rather “large tax breaks for seniors are a relatively new invention that were not provided to the previous generation of seniors. And the current generation of seniors benefit far more from government spending, particularly on their health”, the report said.

Grattan has three recommendations for change.

  • Recommendation 1: Wind back SAPTO so that it is available only to pensioners, and so that those who do not qualify for a full Age Pension pay some income tax.
  • Recommendation 2: Impose the Medicare levy on seniors at the level where they are liable to pay some income tax under Recommendation 1.
  • Recommendation 3: Provide a Private Health Insurance rebate at the same rate for Australians irrespective of age.

If Malcolm Turnbull really believes change is necessary, can be uncomfortable, but must be judged by broader notions of fairness, then John Daley and the Grattan Institute have just shown him one area of the Australian economy ripe for the picking.

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