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.

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.

Australia’s super system won’t be sustainable so long as most superannuation earnings remain tax-free in retirement. Nearly 90 per cent of the tax breaks on retirement earnings go to the top 20 per cent of retirees by wealth. All super earnings in retirement should be taxed at 15 per cent – the same as earnings before retirement – saving more than an extra $5.3 billion a year.

Australia’s current superannuation system is unfair and unsustainable. The reforms recommended in this report to super tax breaks would make the system fairer and the budget stronger.