Report – Breaking the deal: why LISTO needs to be fixed

Tax concessions are central to the success and fairness of super. At its heart, there’s a deal: Australians put aside a portion of their money for their future – in exchange the government gives them a low tax rate of 15% on their super. The Low Income Super Tax Offset (LISTO) was introduced to ensure this tax benefit is also received by lower-income workers, given their lower marginal income tax rate. It’s a fairness fix.

But LISTO has never been updated. It’s been frozen and fallen behind other system changes. As a result, the deal as it applies to lower-income workers is breaking down, with millions no longer getting the tax benefit they deserve. This challenge will become even more acute when income tax changes for low income workers take effect on 1 July 2027. These changes will result in 1 in 4 working Australians paying a higher tax rate on their super than on income. Workers will be financially penalised for putting aside savings for their future – the opposite of what was intended. The only way to address these issues is to fix the LISTO.

How to fix the LISTO

To make super tax settings fairer for low-income earners, the Government should lift eligibility for the LISTO to fully cover the first two tax brackets, and increase the amount paid to fully refund the tax that low-income workers pay on their super. These changes will restore the original deal at the heart of the super system, where all workers get a tax benefit in return for saving for their retirement. These changes will also immediately lift the projected retirement balances for the nation’s lowest-paid workers, giving them more financial security in retirement.