Super a 'taxpayer subsidised inheritance scheme': Grattan

Grattan Institute housing and economic security program director Brendan Coates has slammed the government's superannuation tax concessions, reinforcing his view that the super system is no longer being used to fund retirements.

"The concessions available through superannuation, they are very generous. [If you] combine the taxes on all the concessions on contributions and earnings, [it's] worth about $50 billion a year. That's foregone revenue that the government doesn't have to spend elsewhere," Coates said.

"Those concessions will, in short order, cost more than the Age Pension, which is how most Australians in retirement are supported by the government. And those tax concessions, it's not just that they're large, it's that a lot of them don't support any plausible policy aims."

Coates said two thirds of the value of superannuation tax concessions are supporting the top 20% of income earners, who he said are already saving enough for retirement.

"Also, not a lot of this money looks like it's actually being spent in retirement. The typical super fund member is a net saver in retirement," he said.

"Their balances continue to grow for decades after they retire. And by 2060, the federal Treasury expects that one third of all withdrawals from super will be via bequest. So, it's really turned into a taxpayer subsidised inheritance scheme."

Grattan deputy program director of housing and economic security Joey Moloney added that the Albanese government's proposed tax increase on superannuation balances over $3 million is a "generous threshold", even without being indexed.

"I think it's an exaggeration that'll really hit young people hard. And I think it's not unprecedented to have unindexed thresholds in our tax system," Moloney said.

"The most important tax thresholds there are the personal income tax scales. They're not indexed, right? And we have recurring debates about whether they should be reset."

Moloney said Grattan projections show that keeping the threshold at $3 million over the next 30 years would still only impact the top 10% of income earners.

"We've recommended maybe the threshold should come down to $2 million on the grounds that there's probably not a strong rationale for tax breaks on balances between $2 million and $3 million. If you zoom out and think, 'what's the purpose of the super system?' Well, it's to deliver income in retirement," Moloney said.

"Tax breaks on balances above $2 million is money that's going to someone who's already got enough for a comfortable retirement.

"If you reduce it to $2 million, you could index it straight away, and then you've set up the policy for the long term. Then we don't have to have a recurring debate about what the right level is."