Report reveals $900k shortfall in government savings per taxpayer lifetime

Revealing how Australia’s $1 trillion tax and spending system is distributed across generations, the Actuaries Institute's Intergenerational Equity Index: Spotlight on the Australian Tax and Transfer System report has found that over the past two decades, government spending has risen faster than taxes.

“When you look at net income – after tax, transfers and government spending – Australians aged 20 to 30 stand out as the only age group not to have seen a gain over the past two decades,” said Dr Laura Dixie, one of the report’s authors.

The report found that the government spends $3.4 million over the course of an average Australian’s life, compared with $2.5 million in taxation.

In addition to these increases, the findings revealed a “U-shaped” government spending pattern across ages and an inverted-U for taxation.

This U-shape is seen in the government spending averages, where, annually, $41,000 goes to the average child, $23,000 to the typical 30-year-old, and $93,000 to the average 80-year-old.

The inverted-U is seen in the government’s taxation, with 30- to 64-year-olds contributing 73.4 per cent of total taxation, peaking at more than $50,000 for an average 43-year-old.

“This reflects Australia’s reliance on income tax, which is around double the size of consumption taxes. This highlights the central role working Australians play in funding government services,” the institute said.

Another one of the authors, Taylor Fry principal Dr Hugh Miller, told Accounting Times that this imbalance is mostly covered by a favourable demographic mix.

The institute’s researchers estimated that the average 30-year-old and 71-year-old have the same broad outcomes; however, the former is a net taxpayer, and the latter is a net beneficiary, leading to a $42,000 difference in financial outcomes.

“The report also projects forward existing policy settings to understand the fiscal consequences of an ageing population. It finds a combination of fiscal discipline, plus continuation of the existing trends for older people to work for longer, should offset the fiscal consequences of aging,” Miller said.

“Government tax changes to negative gearing and capital gains are consistent with our findings, in that differential taxation of capital gains compared to other income is a key driver of intergenerational differences.

“People aged 25-35, who have seen the smallest income growth over the past 20 years, are less impacted by the changes.”

Miller also noted that continued policy reform is likely over the next decade.

“Current policy settings treat similar incomes differently depending on age, rather than means,” he said.

“As the distribution of income and wealth changes (including more older people with considerable assets) and the population ages, these settings will be reviewed.”

Three potential areas to be reviewed in the settings are “age-based tax and income support offsets, retirement and superannuation taxation settings, and GST rates”, he added.

“Accounting professionals will need to ensure retirement planning can be adaptive to future policy changes.”