One might initially presume that centralising decisions on tax rates and welfare thresholds would resolve the distortions in effective marginal rates. Yet upon reflection, it becomes evident that such coordination is precisely the function entrusted to the Treasury.
It is reasonable to assume the Productivity Commission has already documented these pitfalls in some unheralded report—a testament to how easily vital insights fade without public engagement.
To advance understanding, one could undertake a constructive endeavour: assemble a transparent database on effective tax rates. Much of the data resides in the public domain; judicious Freedom of Information requests might fill remaining gaps.
Further, compiling all tax and welfare rules, then applying them to a randomised sample of citizens to calculate their marginal rates, could yield revealing results. Publishing such analysis—even with modest estimations—might usefully illustrate systemic complexities.
Should the effort require substantial resources, a crowdfunding campaign (Kickstarter or similar) presents a practical solution. The very act of seeking public support may itself draw prudent attention to the issue.
In this vein, entrepreneurial approaches to disseminating ideas remain essential. Your work merits earnest admiration—may it continue to illuminate.
I think the reason it doesn't resonate so much as a policy priority is the households pass through high EMTR situations for just a few years then pop out the other side as their incomes and children grow. High EMTRs mostly hit families.
It is well known in economics and the Centrelink phaseouts are a compromise between political palatability of broader welfare and high EMTRs from fast phase outs.
Economists understand things voters do not. Even when voters know, they may not care. Your paper interests specialists like me—but ordinary people won’t read it. Economists should step outdoors more. Most don’t even grasp marginal taxation to begin with.
The stamp duty vs. land tax debate is technical—its benefits hypothetical and long-term. By showing welfare cliffs, we reveal the system’s absurdity in relatable terms. This builds momentum for broader reform.
As your guest noted, income tax reform may be Australia’s most achievable major change. Politicians could back it to appeal to "youth"—though today that includes 40-year-olds for some reason.
More broadly, people are much more likely to be working preferred hours today (i.e. lower underemployment/wanting more hours per ABS labour force survey) than pre-COVID, and unemployment is low too. EMTRs have not changed drastically meanwhile.
A part of EMTRs is that the system mixes individual tax with a lot of joint (couple) benefits and payments.
There's also a lot of income flux via casual and part-time employment that is more for most earning up to $40000.
The transfer system is important to balance income through the year (alongside PAYG) and income tests for low-income health care cards and similar do need to be sensitive to movements of income across the year.
Admin. burden of course should be reduced where possible and MyGov systems are improving things. Different forms of income (and assets) and circumstances, and the difference of individual tax from household benefits do mean that there is joining up to do.
Super should be just lifetime forward income averaging - untaxed until paid out at any time as a super pension or annuity for the contributor and his dependants. With a dollar for dollar income test against all government income support payments, age, disability and other payments would be vastly reduced to those who really can't support themselves.
Asset testing is probably most important to the question, and the interaction of payments and benefits with tax as John and Cam cover.
Tighter income tests would have to refer an overall income basis and whether workforce participation is due incentive.
Dollar for dollar is a 100% effective tax rate on income support before other supports night federal and state are considered.
Some at retirement age people want to keep up work a bit and that has benefits broader than tax and economics.
Tightening income tests for working-age payments would work against workforce participation.
Moreover people may take jobs (per John and Cam's note on tobacco) outside the tax and transfer system because incentives to PAYG income are net negative.
We test assets for working-age payments, but not super and its income that people cannot access. If that happened their eventual Age Pension access would increase.
As governments have debt and prospect of debt via future spending, revenue has to be raised, and a lot of it is via PAYG on labour income.
Start-ups (discussed by John and Cam) and other things like home ownership or grants at birth (baby bonds) are where deferrals often aim, as well as other income averaging.
I hate the term "effective tax rate". To have a handout reduced is not to pay a tax. As for incentive effects that's why it should be dollar for dollar so it's not that comfortable to live on and it should be assets tested and a charge against a pensioner's estate. At the moment the age pension is an inheritance subsidy of homes. As for baby bonuses, tax deductions would recognise labour, like plant and equipment, wears out and has to be replaced.
There's care needed with non-income producing assets,.noting a lot of current retirees have not had lifetime super access.
That means a lot of tax paid on savings over decades, and as ever no tax breaks for works on their main res. (and rates paid).
A 1:1 means-test to payment level is really setting the threshold of eligibility. The taper rate above the current eligibility threshold isn't far wrong for mine.
Depending where retirees live, house price changes are not always extreme. Sometimes people buy later (or buy again after a separation) and are not sitting on big gains by retirement, or have struggled to pay off a mortgage post haste.
We don't test or tax main res. across federal payments at any stage of life, and non-homeowners do have this disadvantage recognised in the pension test.
In aged care there are new settings to have both means-tested payment levels and a $130,000 lifetime cap for everyone. That is the sort of balance most want to see.
On the main topic, appreciate John's perspective, retirement planning being a long-term individual and family question.
The purpose of a concession is important. Scott Morrison said plenty about the purpose of super concessions to fund retirement, and the legislated super objective speaks to that too.
Many tax concessions have caps and that includes super contributions, both concessional and non-concessional.
The caps on contributions reasonably align to $3 million in retirement, and to the capacity of an ordinary earner who is a keen saver.
The cap on concessional contributions at $30k a year sees many on medium income dollar-matching compulsory contributions. Non-concessional contributions are there for balances up to $2 million.
There are also new caps on the contributions via the sale of main residence ('downsizing incentive') at $300k/$600k single/couple. That comes to a small part of $3 million, but is a lifetime windfall for many and a real benefit.
A cap on concessions in the retirement phase is at least a consideration para. accumulation phase caps, a new retirement phase cap for main res. proceeds, and the how the overall retirement system functions.
Most with super are pensioners too, and the average punter and their accountants are right across all assets bar main res. being considered liquid in the retirement system.
For most retirees, cost of living is met first from the pension and benefits attached from both Commonwealth and State Govs, like supplements and the health care card.
A balance above $3mill is taxed at 30% without the concession, not 100%. Balances will still grow strongly.
Some of the questions raised of precedent around asset valuation is about how pre-digital systems have evolved. Beck when people were scanning statistical tables from the latest almanac and filing paper tax returns many things were not possible, including at-will asset valuation.
The tax and transfer system and its underlying digital infra. are now long past that, as are most super funds.
Super funds would be able to deduct concession changes as appropriate. For SMSF it can be possible to transfer funds or particular assets (in-specie/non-sale transfers included).
Most whether it's super or other savings are not active investors - dividend stocks, annuities and bank deposits are exceedingly popular, and so is a steady Aged Pension with attached benefits. This is especially true for those with middle or lower wealth levels.
There is not a shortage of 'set and forget', and the main market watch is the pass through of RBA rate decisions to savings and mortgage accounts, and indexation of payments. They don't look to the latest US Fed. statements, compare international index trackers quarterly, or look all the time at how the AUD is faring vs. the Yen or the Euro.
There will be resistance to changes to tax concessions, and to change in general, but as above this has strong context.
As far as the prominence of the issue, there was campaign attention, but in due proportion to the constituency involved across the country. Some local campaigns were strong on it, and in some areas (or readerships) it is a big constituency and a high priority.
It was also a proposal that had been before Parliament throughout the term, rather than a new policy contest for the campaign.
What matters acutely in super is whether it is truly inclusive and supports key groups that do not have an exact accumulation path.
Apart from low-income groups generally, an important question is the fit to the migration program, with many who move into the system midway through working life, with less chance to accumulate and compound super. Many too have not been paid fully all the super they were due when working on temporary visas.
There was a similar debate in the US about the offshore income deferral rule that many hedge funds took advantage of until it was eliminated. Some leftish politicians railed against the program as a give-away. In reality, the program generated positive NPV for the government (and the private agents that used it). The government can borrow very cheaply to replace the foregone revenue in the year of deferral. The hedge fund manager leaves the deferred amount in his fund, where it earns (generally) very high returns. At the conclusion, the government taxes the accreted value of the deferred amount. In effect, the government earns leveraged carry on the deferred amount, fee-free. It's kind of obvious -- investment generates returns. The deferred amount is fully invested in (usually) productive ventures by the manager. Government spending is mostly consumption. So the deferral program raised the level of investment. NPV positive for everyone. The problem is that it doesn't work well with fiscal accounting norms. The government could not "recognize" the deferred tax "asset", so it made the fiscal deficit look worse in the year of deferral. The program was eliminated in 2008 or 2009.
**On Illuminating Effective Tax Rates**
One might initially presume that centralising decisions on tax rates and welfare thresholds would resolve the distortions in effective marginal rates. Yet upon reflection, it becomes evident that such coordination is precisely the function entrusted to the Treasury.
It is reasonable to assume the Productivity Commission has already documented these pitfalls in some unheralded report—a testament to how easily vital insights fade without public engagement.
To advance understanding, one could undertake a constructive endeavour: assemble a transparent database on effective tax rates. Much of the data resides in the public domain; judicious Freedom of Information requests might fill remaining gaps.
Further, compiling all tax and welfare rules, then applying them to a randomised sample of citizens to calculate their marginal rates, could yield revealing results. Publishing such analysis—even with modest estimations—might usefully illustrate systemic complexities.
Should the effort require substantial resources, a crowdfunding campaign (Kickstarter or similar) presents a practical solution. The very act of seeking public support may itself draw prudent attention to the issue.
In this vein, entrepreneurial approaches to disseminating ideas remain essential. Your work merits earnest admiration—may it continue to illuminate.
— A Well-Wisher to Sound Policy
Some very good points. Thanks
Ben Phillips has done extensive analysis.
https://onlinelibrary.wiley.com/doi/epdf/10.1002/ajs4.356
I think the reason it doesn't resonate so much as a policy priority is the households pass through high EMTR situations for just a few years then pop out the other side as their incomes and children grow. High EMTRs mostly hit families.
It is well known in economics and the Centrelink phaseouts are a compromise between political palatability of broader welfare and high EMTRs from fast phase outs.
**Economics Needs Public Eyes**
Economists understand things voters do not. Even when voters know, they may not care. Your paper interests specialists like me—but ordinary people won’t read it. Economists should step outdoors more. Most don’t even grasp marginal taxation to begin with.
The stamp duty vs. land tax debate is technical—its benefits hypothetical and long-term. By showing welfare cliffs, we reveal the system’s absurdity in relatable terms. This builds momentum for broader reform.
As your guest noted, income tax reform may be Australia’s most achievable major change. Politicians could back it to appeal to "youth"—though today that includes 40-year-olds for some reason.
There's EMTR coverage at 6.5 (PDF page 19) of the Full Employment Paper https://treasury.gov.au/sites/default/files/2023-09/p2023-447996-08-ch6.pdf .
The full paper goes to a range of factors to full employment /participation beyond EMTRs https://treasury.gov.au/employment-whitepaper/final-report .
Key to EMTRs are childcare subsidies that the PC weighed https://www.abc.net.au/news/2024-09-18/productibity-commission-free-child-care-rejects-universal/104364108
Jobs programs are rolling out including https://www.abc.net.au/news/2025-05-28/remote-community-jobs-program-niaa-nt-maningrida-expo/105335954 .
More broadly, people are much more likely to be working preferred hours today (i.e. lower underemployment/wanting more hours per ABS labour force survey) than pre-COVID, and unemployment is low too. EMTRs have not changed drastically meanwhile.
A part of EMTRs is that the system mixes individual tax with a lot of joint (couple) benefits and payments.
There's also a lot of income flux via casual and part-time employment that is more for most earning up to $40000.
The transfer system is important to balance income through the year (alongside PAYG) and income tests for low-income health care cards and similar do need to be sensitive to movements of income across the year.
Admin. burden of course should be reduced where possible and MyGov systems are improving things. Different forms of income (and assets) and circumstances, and the difference of individual tax from household benefits do mean that there is joining up to do.
Super should be just lifetime forward income averaging - untaxed until paid out at any time as a super pension or annuity for the contributor and his dependants. With a dollar for dollar income test against all government income support payments, age, disability and other payments would be vastly reduced to those who really can't support themselves.
Asset testing is probably most important to the question, and the interaction of payments and benefits with tax as John and Cam cover.
Tighter income tests would have to refer an overall income basis and whether workforce participation is due incentive.
Dollar for dollar is a 100% effective tax rate on income support before other supports night federal and state are considered.
Some at retirement age people want to keep up work a bit and that has benefits broader than tax and economics.
Tightening income tests for working-age payments would work against workforce participation.
Moreover people may take jobs (per John and Cam's note on tobacco) outside the tax and transfer system because incentives to PAYG income are net negative.
We test assets for working-age payments, but not super and its income that people cannot access. If that happened their eventual Age Pension access would increase.
As governments have debt and prospect of debt via future spending, revenue has to be raised, and a lot of it is via PAYG on labour income.
Start-ups (discussed by John and Cam) and other things like home ownership or grants at birth (baby bonds) are where deferrals often aim, as well as other income averaging.
I hate the term "effective tax rate". To have a handout reduced is not to pay a tax. As for incentive effects that's why it should be dollar for dollar so it's not that comfortable to live on and it should be assets tested and a charge against a pensioner's estate. At the moment the age pension is an inheritance subsidy of homes. As for baby bonuses, tax deductions would recognise labour, like plant and equipment, wears out and has to be replaced.
The conversation around the deeming rate (capital income) might be of interest https://www.afr.com/politics/federal/albanese-coy-on-payment-cuts-for-900k-welfare-recipients-20250426-p5luei .
There's care needed with non-income producing assets,.noting a lot of current retirees have not had lifetime super access.
That means a lot of tax paid on savings over decades, and as ever no tax breaks for works on their main res. (and rates paid).
A 1:1 means-test to payment level is really setting the threshold of eligibility. The taper rate above the current eligibility threshold isn't far wrong for mine.
Depending where retirees live, house price changes are not always extreme. Sometimes people buy later (or buy again after a separation) and are not sitting on big gains by retirement, or have struggled to pay off a mortgage post haste.
We don't test or tax main res. across federal payments at any stage of life, and non-homeowners do have this disadvantage recognised in the pension test.
In aged care there are new settings to have both means-tested payment levels and a $130,000 lifetime cap for everyone. That is the sort of balance most want to see.
On the main topic, appreciate John's perspective, retirement planning being a long-term individual and family question.
The purpose of a concession is important. Scott Morrison said plenty about the purpose of super concessions to fund retirement, and the legislated super objective speaks to that too.
Many tax concessions have caps and that includes super contributions, both concessional and non-concessional.
The caps on contributions reasonably align to $3 million in retirement, and to the capacity of an ordinary earner who is a keen saver.
The cap on concessional contributions at $30k a year sees many on medium income dollar-matching compulsory contributions. Non-concessional contributions are there for balances up to $2 million.
More than balances >$3 mill., these contributions caps are where the action for aspirational Australians is, and thresholds have evolved considerably ( tabled https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/concessional-contributions-cap ).
There are also new caps on the contributions via the sale of main residence ('downsizing incentive') at $300k/$600k single/couple. That comes to a small part of $3 million, but is a lifetime windfall for many and a real benefit.
A cap on concessions in the retirement phase is at least a consideration para. accumulation phase caps, a new retirement phase cap for main res. proceeds, and the how the overall retirement system functions.
Most with super are pensioners too, and the average punter and their accountants are right across all assets bar main res. being considered liquid in the retirement system.
For most retirees, cost of living is met first from the pension and benefits attached from both Commonwealth and State Govs, like supplements and the health care card.
A balance above $3mill is taxed at 30% without the concession, not 100%. Balances will still grow strongly.
The pension system tests assets at 6-month intervals for current value. Everything is considered (as liquid) ex-main residence, and small increases require immediate update ( https://www.servicesaustralia.gov.au/asset-types?context=22526 ).
Some of the questions raised of precedent around asset valuation is about how pre-digital systems have evolved. Beck when people were scanning statistical tables from the latest almanac and filing paper tax returns many things were not possible, including at-will asset valuation.
The tax and transfer system and its underlying digital infra. are now long past that, as are most super funds.
Super funds would be able to deduct concession changes as appropriate. For SMSF it can be possible to transfer funds or particular assets (in-specie/non-sale transfers included).
Most whether it's super or other savings are not active investors - dividend stocks, annuities and bank deposits are exceedingly popular, and so is a steady Aged Pension with attached benefits. This is especially true for those with middle or lower wealth levels.
There is not a shortage of 'set and forget', and the main market watch is the pass through of RBA rate decisions to savings and mortgage accounts, and indexation of payments. They don't look to the latest US Fed. statements, compare international index trackers quarterly, or look all the time at how the AUD is faring vs. the Yen or the Euro.
There are researchers doing good analysis on this, for instance at ANU https://www.austaxpolicy.com/progressive-in-theory-regressive-in-practice-thats-how-we-tax-income-from-savings/ .
An interview from that team on the topic is at https://www.abc.net.au/news/programs/the-business/2025-05-27/australia-needs-to-stop-treating-rich-retirees/105345046 .
There will be resistance to changes to tax concessions, and to change in general, but as above this has strong context.
As far as the prominence of the issue, there was campaign attention, but in due proportion to the constituency involved across the country. Some local campaigns were strong on it, and in some areas (or readerships) it is a big constituency and a high priority.
It was also a proposal that had been before Parliament throughout the term, rather than a new policy contest for the campaign.
What matters acutely in super is whether it is truly inclusive and supports key groups that do not have an exact accumulation path.
Apart from low-income groups generally, an important question is the fit to the migration program, with many who move into the system midway through working life, with less chance to accumulate and compound super. Many too have not been paid fully all the super they were due when working on temporary visas.
SBS reported on this https://www.sbs.com.au/news/article/with-limited-super-migrant-women-in-australia-are-at-risk-of-becoming-homeless-in-retirement/le5kilegj .
There was a similar debate in the US about the offshore income deferral rule that many hedge funds took advantage of until it was eliminated. Some leftish politicians railed against the program as a give-away. In reality, the program generated positive NPV for the government (and the private agents that used it). The government can borrow very cheaply to replace the foregone revenue in the year of deferral. The hedge fund manager leaves the deferred amount in his fund, where it earns (generally) very high returns. At the conclusion, the government taxes the accreted value of the deferred amount. In effect, the government earns leveraged carry on the deferred amount, fee-free. It's kind of obvious -- investment generates returns. The deferred amount is fully invested in (usually) productive ventures by the manager. Government spending is mostly consumption. So the deferral program raised the level of investment. NPV positive for everyone. The problem is that it doesn't work well with fiscal accounting norms. The government could not "recognize" the deferred tax "asset", so it made the fiscal deficit look worse in the year of deferral. The program was eliminated in 2008 or 2009.