Tax breaks for retirees are too generous says think tank

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OLDER Australians are receiving “unduly generous” tax breaks that should be wound back to save the government $1 billion a year, a new report claims.

Independent think-tank the Grattan Institute says the proportion of over-65s who pay income tax has halved in the past 20 years, and Australia can no longer afford it.

Its report recommends reducing the Private Health Insurance rebate for seniors to the same level as younger workers, making more seniors pay the Medicare Levy and winding back the seniors and pensioners tax offset.

The 40 per cent of seniors who receive a full age pension would not be affected, it says, but about 500,000 part pensioners and wealthier retirees would pay more tax.

Grattan CEO John Daley said the current generation of retirees received much more from the Federal Government than previous generations.

In retirement you can be earning up to $58,000 a year as a couple, plus whatever you have in superannuation, plus your own home, and you are still not paying tax, he said.

Its a terrific time to be a 65-year-old we are not talking struggle street.

The Grattan report says under current rules, a retired couple with $1.9 million in shares and superannuation would earn $94,500 a year and pay $4049 in income tax, while a 40-year-old couple on a combined income of $70,000 would pay almost $2900 more tax than the retirees.

Ian Yates, the CEO of seniors group COTA Australia, said it would be politically risky to target retirees who were already facing tougher super and age pension restrictions next year.

We are talking about people who are still on relatively low incomes, he said.

If you reduce the private health insurance rebate for lower income retirees who cant afford it, it would without question place extra strain on the public system in terms of things like joint replacements.

Mr Yates said seniors were not eligible for government support payments that younger families received, and there were many other tax loopholes that benefited wealthy Australians much more.

I think the case is more complex than the Grattan document argues, he said.

Mr Daley said about 15 per cent of Australias over-65s paid income tax and he expected some retirees might be upset by Grattans recommendations.

People may say I paid my taxes and I dont have to do it any more, but that is a very shortsighted view, he said.

If you are in the business of budget repair some people are going to be worse off. You either have to spend less or tax more.