I am fast warming to the Australian Greens under new leader, Senator Richard Di Natale.
After recently adopting as policy the quarantining of negative gearing, so that rental losses on both houses and shares could no longer be claimed against unrelated wage/salary earnings, the Greens have backed the Abbott Government’s sensible reforms of the Aged Pension, thus reversing the Howard Government’s infamous blunder.
In 2006, then Treasurer Peter Costello announced that the taper rate by which the Aged Pension is phased-out would be halved from $3 per $1,000 of assets over the threshold to $1.50. This change greatly relaxed the assets test for the Pension, and led to the ridiculous situation whereby retiree home owning couples with $1.15 million in other assets, and home owning singles with $775,000 of other assets, could still qualify for the part Aged Pension along with the Pensioner Concession Card.
In effect, a large number of wealthy retirees were qualifying for welfare – an unsustainable and inequitable situation given the rapid ageing of the population and the projected diminishing number of workers available to support retirees (see next chart).
Under the Abbott Government’s sensible reforms, Peter Costello’s changes to the taper rate were to be reversed. And while some wealthy retirees would no longer keep receiving the part Aged Pension (but would keep their concession card):
The Government would provide additional funding to pensioners with fewer assets:
Basically, it is a reform that would save the Budget (and younger Australians footing the bill) some $2.4 billion over four years, whilst improving the lot of pensioners without significant assets. It is a no-brainer.
Yesterday, the Labor Party recklessly vowed to block the Abbott Government’s proposed reforms. But thankfully, The Greens have shown the hallmarks of a sensible opposition, and have struck a deal with the Government to pass the changes in return for agreement from the Government for a broader review of retirement incomes:
“The Greens opposed the Howard Government changes to pensions back in 2007. Now we’re restoring the system to ensure that everyone has a decent retirement,” said Greens Leader Richard Di Natale.
“All Australians deserve a system that supports them in retirement, not just the wealthy.
“When I took on the leadership of the Greens I said I was here to get positive outcomes for the community wherever I could, so I’m pleased to be able to deliver on this.
“The government has agreed to give special consideration to retirement incomes in its Tax White Paper, which means we can finally look at superannuation as part of the equation,” said Senator Di Natale.
Greens community affairs spokesperson Senator Rachel Siewert said changing the assets thresholds and taper rate will make the pension system fairer.
“More Australians who don’t have the advantage of a healthy super balance will be able to access a full pension when we undo John Howard’s tampering with taper rates,” Senator Siewert said.
“The broad retirement income review we’ve secured will be delivered as part of the Tax Review process. The terms of reference are explicit about involving stakeholders at every stage, to build on the already strong appetite for further change, particularly to the super tax concessions.
“The review will have a focus on pensions, superannuation, taxation and workplace discrimination, to guide the important reforms that Australians need.
“Passage of the assets test will not be linked to the other budget measures in the Pensions Bill, which are still under consideration by the Australian Greens,” said Senator Siewert.
While this is no doubt a huge step in the right direction on retirement policy, the job is still less than a quarter done. Here’s a list of other reforms that are necessary to make the retirement system both more sustainable and equitable:
- Including one’s principal place of residence in the means test for the Aged Pension. Around 80% of retirees own their homes, and excluding what for many is their biggest asset from their ability to fund their own retirement makes little sense. It makes even less sense when home ownership amongst the younger generations – those that being called upon to fund the Aged Pension – is plummeting.
- Extending the government’s Pension Loans Scheme – a state-run reverse mortgage scheme that allows eligible retirees to borrow against their homes to receive payments from the government equivalent to the full Aged Pension – to all retirees. The interest rate through the Pension Loans Scheme is only around 5%, repayable from the estate or sale of the property, and home owner retirees could continue to live in their home as they do now. For all intents and purposes, they would experience no change in their living standards, but with less long-term drain on the Budget.
- Changing the superannuation contribution system so that everyone receives the same concession, such as marginal tax rate less 15% or 20%. This way, lower paid workers, who are currently penalised under the 15% flat tax system, would receive greater benefit, whereas higher income earners (e.g. those earning between $180,000 and $300,000, who receive a 30% concession currently) would receive less benefit. Put simply, the current concession system needs to be made progressive.
- Re-instating the 15% tax on superannuation earnings for those aged over 60, bringing it back into line with those aged under 60. After all, why should a retiree earning $100,000 through their superannuation investments pay zero tax, whilst those aged under 60 and earning $100,000 via their salary pay around $25,000 in tax?
In short, the agreement struck between the Greens and the Government is a small victory in what is a mammoth ongoing campaign on retirement reform.