Australia's tax system has become skewed towards a growing and apparently untouchable group of "taxed nots": older Australians who pay about $1 billion a year less tax than younger ones with identical incomes, according to a Grattan Institute report.

"It used to be that between one-quarter and one-third of seniors paid tax," said the report's author John Daley. "Now it's half that. We gave them a Low Income Aged Persons Rebate, then we gave them a Senior Australians Tax Offset, then we made their super tax-free, and hey presto, they dropped out of the tax system."

Mr Daley said many of the changes took place during the prime ministership of John Howard, while Peter Costello was treasurer.

"It's not rocket science that's been driving this. Throughout that time, the proportion of enrolled voters who are aged at least 55 and over had been edging closer to 40 per cent."