Interaction of the age pension means test and the taxation of superannuation

Abstract

The Australian social security system is probably the closest in the world to a negative income tax (NIT) or guaranteed minimum income (GMI). However, there is a difficulty in reconciling a pure NIT solution directing assistance to the most needy with the desire to encourage retirement savings generally and enhance living standards of the retired. The economic cost of means testing can be reduced by making the means test more gradual. The further step of means test abolition may be attractive in conjunction with certain proposals for the heavier taxation of superannuation but may not otherwise be warranted. The means test could be further rationalised by abandoning the separate assets test and returning to something more like the "merged means test" that prevailed in Australia up until the mid-1970s, modified to reflect current costs of annuitie