Superannuation tax reform: Fiscal consequences

In his 2006 Budget speech, Treasurer Peter Costello announced 'the most significant change to Australia's superannuation system in decades'. The reform objectives were to 'sweep away the current complexity faced by retirees, increase retirement incomes, give greater flexibility as to how and when superannuation can be drawn down, and improve incentives for older Australians to stay in the workforce' (Costello, 2006). These four objectives were motivated by the broader economic challenges of population ageing, insufficient savings the baby boomer generation, and a shortage of skilled workers. We focus on the announcement that, from 1 July 2007, income from a taxed superannuation fund would not be taxable for individuals aged over 60. What was not announced in the budget, nor subsequently announced, is the expected budget cost of these reforms, and it is this particular aspect of the reforms that we investigate here.