AUSTRALIA’S tax system has become skewed towards a growing and apparently untouchable group of "taxed nots": older Australians who pay about $1 billion a year less tax than younger ones with identical incomes, according to a Grattan Institute report.
"It used to be that between one-quarter and one-third of seniors paid tax," said the report's author John Daley. "Now it's half that. We gave them a Low Income Aged Persons Rebate, then we gave them a Senior Australians Tax Offset, then we made their super tax-free, and hey presto, they dropped out of the tax system."
Mr Daley said many of the changes took place during the prime ministership of John Howard, while Peter Costello was treasurer.
"It's not rocket science that's been driving this. Throughout that time, the proportion of enrolled voters who are aged at least 55 and over had been edging closer to 40 per cent."
Entitled Age of Entitlement, the report compares two couples, "James and Linda" who are over 65, and "Michael and Jenny" who are aged about 40. Each earns a combined taxable income of $70,000, the older couple from superannuation and investments, the younger couple from wages. The older couple enjoys two Commonwealth Seniors' Health Cards and pays $4049 in tax. The younger couple pays $6894, including a much higher Medicare levy.
"Of course, the older couple will say: I've paid my taxes so it's fair," Mr Daley conceded. "The answer is: No, they haven't paid particularly much tax, and that's the problem.
"They would have paid less tax than the generation before them will pay less tax than the generation coming after them, because they are taking more out of the tin.
"While they have been dropping out of the tax system and their incomes have been going up materially, the amount the government spends on them has been going through the roof, particularly on health. They are taking a lot more out and putting substantially less in."
"Each senior household used to take out of the order of $22,000, and now it's $32,000, that's is, in real terms. Part of it is super, part is a jump in health spending, part is a jump in aged pensions, and part is a jump in things like the Senior Australians Tax Offset."
The offset cuts by $2230 the tax paid by a senior single and by $1602 the tax paid by each member of a senior couple, whether or not they qualify for the age pension.
It means an Australian over the age of 65 can earn $32,279 before paying tax, almost 60 per cent more than a younger working Australian who starts paying at $20,542.
Because of the higher tax-free threshold, an older couple only begins paying the Medicare levy when its income passes $46,966, compared with $36,001 for a working-age couple. An older couple only pays the full 2 per cent Medicare levy when its combined income passes $58,707, compared with $45,001 for a younger couple.
As well, older couples get an enhanced Private Health Insurance Rebate. When the arrangements were introduced, it was 35 per cent for those aged between 65 to 69 (and 40 per cent for those aged 70 and over) compared with 30 per cent for younger couples.
"The higher rebate does not have an obvious policy rationale," Mr Daley said. "It doesn't appear to increase private health insurance take-up, nor is it needed to protect seniors from high premiums. The private health costs of seniors are already protected by so-called community cover arrangements, under which younger households cross-subsidise the costs of older households."
The institute wants the private health insurance concession removed and the Senior Australians Tax Offset wound back to a threshold just above the age pension of $27,000 for singles and $42,000 for couples. It says combined the measures will save $1 billion a year, about half as much as this year's omnibus budget saving bill.
Sydney Morning Herald