Making tax fair and equitable

However, people on low incomes are reluctant to lock away their voluntary savings into accounts that they can’t access for long periods of time, as they tend to have more short-term needs such as their children’s education expenses, the purchase of major household durables etc.

Thus in addition to the above reforms to superannuation support for saving for short term needs can be achieved by a government funded Matched Savings Account to allow people to save for more immediate needs. The government would then encourage and assist people to save by paying a direct tax free co-contribution into their account, up to a cap, once people have reached their savings goal. Current initiatives such as the First Home Saver Account and the Education Tax Refund would then be rolled into this more coherent and flexible system.

There are already small-scale schemes around that show how this can be done. Saver Plus, a matched savings scheme for families on low incomes developed by the Brotherhood of St Laurence in partnership with ANZ, shows that well structured and targeted savings programs can help people on low incomes build assets for their future wellbeing.

Not only are these measures fair, but they also have the potential to increase aggregate savings, because people on lower and middle incomes are more likely to respond to incentives to save, whereas those on higher incomes are more likely to substitute from other forms of savings and investment into tax preferred options rather than increase their overall savings and investment levels.