Treasurer Joe Hockey has today warned that the Government can no longer ignore Australia’s ageing tsunami and has flagged an increase in the access age for the Aged Pension and tighter means testing, with an announcement possibly as early as next month’s Budget. From The AFR:
Mr Hockey issued the warning in a tough-talking address in Washington. He was armed with new figures from the International Monetary Fund estimating Australia’s healthcare and pension spending will blow out and require an extra $93 billion a year by 2030 unless corrective budget action is taken. That is more than the revenue the entire goods and services tax raises, the Treasurer said.
Adding to the long-term strains on the economy and budget, the number of working age people paying taxes to support those aged 65 and over will halve by 2050…
“Government benefits must be sustainable, fair and targeted to those in genuine need,” Mr Hockey said.
“Welfare must be a safety net, not a cargo net.
“We cannot allow large numbers of society to remain in an entitlement culture.”
Hockey’s statements are music to my ears.
An objective examination of the data shows that the aged are the group that have received the biggest increases in taxpayer support over recent years, with the Pension becoming much more than a safety net (see next chart).
And without reform, Australia’s Gen Xers, Ys and Zs will become a nation of tax slaves, forced to pay more tax (and consume less) in order to fund the growing army of retired Australians, many of whom are in much stronger financial positions than their children.
While details are obviously scant, judging by the Treasurer’s comments, the Government will seek to raise the pension age, presumably following the Productivity Commission’s recommendation last year that it be raised to 70, up from 65 currently and the scheduled increase to 67 by 2023. According to the Commission, such a reform would reap around $150 billion in savings over the period from 2025-26 to 2059-60 and increase participation rates among older workers by around 3% to 10%.
Tightening the income/assets test around the Aged Pension is also a sensible move, to ensure that assistance only goes to those in genuine need, and to preclude wealthy retirees (many of whom also live in expensive homes currently excluded from means testing) from receiving welfare.
That said, even bigger Budget savings could be made if the Government also reformed Australia’s inequitable and unsustainable superannuation system, so that the lion’s share of concessions no longer flow to higher income earners.
Regardless, Hockey’s acknowledgement that the Aged Pension system is both unsustainable and inequitable is welcome, and will hopefully begin the long path to meaningful reform. Unfortunately, recent comments from the Opposition’s Jenny Macklin opposing changes to the Aged Pension suggests that Labor will not provide bipartisan support, which could make meaningful reform of the retirement system much more difficult.
