Tax breaks on superannuation mean less tax is paid on super savings than other forms of income. These tax breaks are excessively generous – extending well beyond any plausible purpose for our superannuation system to provide for income in retirement – and their costs are unsustainable.

Super tax breaks cost $45 billion a year – 2 per cent of GDP – and will soon exceed the cost of the Age Pension. Two-thirds of the value of super tax breaks benefit the top 20 per cent of income earners, who are already saving enough for retirement and whose savings choices aren’t much affected by tax rates.

As debate flares about what the objective of superannuation should be, everyone seems to agree on what it shouldn’t be: a taxpayer-funded inheritance scheme. Yet that is exactly what super has become. Much of the boost to super balances from tax breaks is never spent. By 2060, one-third of all withdrawals from super will be via bequests – up from one-fifth today.

With the federal budget deep in deficit and big spending pressures looming, curbing super tax breaks should be a priority.

Contributions tax breaks should be made more progressive. Raising Division 293 tax from 30 per cent to 35 per cent, and lowering the income threshold from $250,000 to $220,000 a year, would save $1.1 billion a year. The Low-Income Superannuation Tax Offset, which rebates contributions tax paid by low-income earners, should be extended to people earning up to $45,000 a year (from $37,000 now).

This would come at a cost of $530 million a year. These changes would mean low- and middle-income earners would receive at least a 15 per cent tax break on their contributions, compared to just 10 per cent for people earning more than $200,000 a year.