New research shows the cost to the federal budget of generous superannuation tax concessions is now on par with the cost of the entire aged pension, and greater than the total cost of the entire NDIS in 2022-2023.

Economists say billions could be saved if rules governing tax concessions for a minority of ultra-wealthy accounts were tightened in a new report Self-funded or State-funded Retirees: the cost of Super Tax Concessions.

The findings come as the Government prepares imminent legislative reform to narrow the purpose of superannuation, foreshadowing limits on generous tax treatment for multimillion dollar accounts.

Key Points:

• The annual cost of super tax concessions ($52.6b) is on par with the value of the entire age pension program ($55.3b)
• Tax concessions for super now cost more than the entire NDIS, the third most expensive spending program in Budget 22-23
• Assistant Treasurer Stephen Jones has flagged legislative reform to super as experts and industry chiefs support tighter rules
• Some super accounts now worth hundreds of millions, the largest worth $401m
• 2022 Tax Office figures show 897 self-managed super funds producing incomes of $1 million or more
• Tax concessions for super dwarf items such as medical benefits at $31.3 billion and assistance to the states for hospitals at $26.6 billion

Figure 1: Tax concessions for superannuation and age pension compared

“Super tax concessions now rank in the top three expenditure programs in Budget 2022-2023, costing more than the NDIS and on par with the cost of the entire Aged Pension,” said Dr. Richard Denniss, Executive Director of the Australia Institute.

“This data shows the idea of “self-funded” retirees is a misnomer. There are now two classes of state-funded retirees in Australia, both costing the taxpayer roughly the same amount: those living on the aged pension, and a smaller group of wealthy account holders with lavish tax loopholes.

“The current system is not taking pressure off the budget to provide a dignified retirement for all Australians, but it certainly is providing an lucrative tax avoidance facility for multimillionaires.

“Reasonable people will disagree about the role of super in modern Australia, but this data shows an unsustainable system with a small number of account holders reaping the benefits. This was never the purpose of superannuation.

“There is a strong case for limiting tax concessions for high-income groups and it’s telling that even super industry chiefs agree reform is needed.

“ATO data shows around 897 self-managed super funds are producing incomes of $1 million or more, and some funds worth as much as $401m.

“For years, dating back to the Murray Review in 2014, Governments from all sides have attempted to fix super concessions to make them responsible and sustainable. In the current fiscal environment this data shows the reform job remains incomplete.”

Under current rules, retirees with more than $1.7 million in super can leave the excess funds in their accumulation account and receive a generous concessional tax rate of 15 per cent on earnings and contributions, well below the top marginal income tax rate of 45 per cent.