Super shouldn’t be a taxpayer-funded inheritance scheme

by Brendan Coates, Joey Moloney

14.03.2024 Submission
Submission to the Senate Economics Legislation Committee inquiry into the Treasury Law Amendment (Better Targeted Superannuation Concessions) Bill 2023

Tax breaks on superannuation mean less tax is paid on super savings than other forms of income.

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These tax breaks are excessively generous – extending well beyond any plausible purpose for Australia’s superannuation system to provide for income in retirement – and their costs are unsustainable.

Super tax breaks cost $45 billion a year – 2 per cent of GDP – and will soon exceed the cost of the Age Pension.

Two-thirds of the value of super tax breaks go to the top 20 per cent of income earners, who are already saving enough for retirement and whose savings choices aren’t much affected by tax rates.

Superannuation should not be a taxpayer-funded inheritance scheme. Yet that is exactly what it has become.

Much of the boost to super balances from tax breaks is never spent. By 2060, one-third of all withdrawals from super will be via bequests – up from one-fifth today.

Nor do super tax breaks materially reduce Age Pension spending. That’s because the cost of super tax breaks far outweighs the Age Pension savings they produce, with the bulk of the benefits going to higher-income earners who would never receive the Age Pension.

With the federal budget facing a deep structural deficit and big spending pressures looming, curbing super tax breaks should be an urgent priority.

Without reform, super tax breaks will increasingly just end up boosting the inheritances of the children of well-off parents.

Joey Moloney

Economic Policy Deputy Program Director
Joey Moloney the Deputy Program Director of Grattan Institute’s Economic Policy program. He has worked at the Productivity Commission and the Commonwealth Treasury, with a focus on the superannuation system and retirement income policy.