CIS: Home must be in Pension assets test

By Leith van Onselen

Simon Cowan from the Centre for Independent Studies (CIS) has released a well-argued piece today in Business Spectator backing the Productivity Commission’s call for the family home to be included in the assets test for the Aged Pension in the interests of equity and Budget sustainability:

A properly functioning retirement system enables retirees to use their assets to have a decent standard of living in retirement, with the pension there as a safety net for those who can’t support themselves. Exempting the family home from the pension means test undermines the whole system…

Typically, those on the full rate of the age pension who own their home have more than $400,000 in additional net worth over those who receive a similar pension but don’t own their home. This is a clear equity issue; we should be providing the most assistance to those who need it most.

It is not only unfair to non-homeowners, it is also unfair to taxpayers.

It is particularly galling for young people — who already feel locked out of the housing market… to be asked to fund welfare for pensioners refusing to touch the $700bn they have in housing wealth.

…including the family home in the assets test, boosting the take-up of reverse mortgages through a government backed-product, and deeming that income under the pension income test could save taxpayers $14.5 billion a year and boost incomes for 98 per cent of pensioners by an average of just under $6000 per annum.

For mine, the CIS’ reasoning is impeccable. With the ratio of workers supporting retirees set to decline for decades, reforming the Aged Pension system will become inevitable, so better to achieve reform by targeting cuts at wealthier pensioners while helping the poorer ones.

ScreenHunter_6106 Feb. 17 07.33

Indeed, just to show how out-of-whack the Aged Pension has become, analysis released earlier this year by the National Centre of Social and Economic Modelling (NATSEM) showed that around 260,000 Australian households have a net worth of more than $3m and yet are ­enjoying welfare payments of about $800 million a year:

Within the group of Australian households worth more than $3m, those of pension age are receiving about $3700 a year in cash payments, NATSEM found…

This shows starkly the ease with which retirees can qualify for the Age Pension — the federal government’s biggest and among the fastest-growing expense…

Ben Phillips, a principal researcher at NATSEM, confirmed the main cash payment going to high-wealth retiree households was the Age Pension..

As I noted earlier this week, around 80% of retired Australians own their homes of which $926 billion in equity is locked up. Meanwhile, the Aged Pension (currently $43 billion per year) is the largest and one of the fastest-growing Budget expenses. This makes reform an absolute priority. My solution is:

  1. For one’s principal place of residence to be included in the assets test for the Aged Pension at some point in the future (e.g. 1 July 2020), thus allowing current retirees and prospective retirees adequate time to make arrangements.
  2. Replacing stamp duties for everyone with a broad-based land values tax.
  3. Extend the existing state sponsored reverse mortgage scheme, the Pension Loans Scheme, to all people of retirement age so that asset (house) rich retirees can continue to receive a regular income stream in exchange for a HECS-style liability that is recoverable from the person’s estate upon death, or upon sale of the person’s home (whichever comes first).

Under this plan, house-rich pensioners could continue to receive an income stream as they do now under the Aged Pension, but with less drain on the Budget and on younger taxpayers. The stamp duty to land tax switch would also deliver more efficient use of the housing stock.

While the economics is simple, unfortunately the political economy is not. Watch retirees fight like wounded bulls against reform, just like National Seniors chief executive, Michael O’Neill, did earlier this week:

National Seniors chief executive Michael O’Neill said he did not believe either the current government or the opposition would favour the suggestion of including the family home in the pension assets test…

“The family home is sacrosanct. It very much defines who we are and what we aspire to as a nation”…

“Australians would fiercely resist any government that forced them to take up reverse mortgages in retirement,” he said.

The sub-text of which is: young people should bear the full burden of balancing the Budget.

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Unconventional Economist
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  1. That’s ok Michael O’Neill, I won’t be paying taxes forever (or not much longer) and once the parasite eats the host your members will be lucky to be eating dog food. You can’t eat bricks and mortar!

    • ” You can’t eat bricks and mortar!”

      And thus this: “Extend the existing state sponsored reverse mortgage scheme, the Pension Loans Scheme”

      “That’s ok Michael O’Neill, I won’t be paying taxes forever (or not much longer) and once the parasite eats the host your members will be lucky to be eating dog food. ”

      So you don’t care that fully exempting the family home (regardless of its value) creates significant distortions in the economy, is a drain on the budget, and is viewed by many as unfair?

      • Huh? I’m opting out of the madness, boomers can have their pensions, mansions and deluded sense of self-entitlement while I set myself up so I no longer pay (direct) taxes to the ATO.

        I really don’t give a shit about this country anymore as the majority of the population doesn’t give a shit about fellow human beings. It’s all about equity maaaate and a political class grafting and grifting as much as they can before the holes in the dyke explode. No wonder they want to increase and expand the GST – they are desperate and don’t want to touch boomer and specufestor entitlements.

      • The distortion, Rob, is that you want to treat people as simple economic items on the production line of life and pack them up and send them away when you decide they are no longer useful to your economy. Your view is little better than that held by the Nazis towards Jews. People have a right to continue to live in their community where they have lived for perhaps their whole life and not to be shipped Soilent Green like into a lower standard of living area to make you and others wealthier.

  2. Of course it should be included.

    Who honestly believes it is fair that someone residing in a house worth now 2 mil can justify in any sense, receving a handout (which it is) from taxpayers???

    And, it does not matter about what the reality is of the current price or not, in terms of “not being my fault my house has gone up in value”. No, what matters is that Australia can simply not afford to continue to subsidise those same entitled folk who wish to continue to shirk any responsibility of help repairing Australia for future generations….a future that currently is fairly bleak, predominantly courtesy of inaction by governments, and a political mass (boomers) that have largely done diddly squat to help remediate the situation that they themselves largely created.

    Just because you stayed in the same place for X number of decades and profitted from sitting there, does not entitle you to receive in addition, a taxpayer funded handout?? And just because you had the lazy luxury of staying in the one house for X number of years, does not mean you should remain immune from the stressors of having to pack up and piss off, like so many younger ones are forced to do on so many countless occasions these days, all courtesy to unemployment, job casualisation, globalisation…all things that largely, you did not have to endure to the same extent, and in some cases, such as globalisation, to nil extent.

    Why are we even discussing the ridiculous?

    Just remember when you counter this argument, that not everyone is so fortunate and “entitled” to own a home.

    If they do, then we can have a different discussion….But just ask a lot of young people if they will ever own a home?

    These oldies whining about the thought of the home being part of the test should remember the following:
    1.When they had the privilege to buy, their house, relative to their incomes, was NOTHING like it is now.
    2.A pension is a handout, welfare, off the back of taxpayers.
    3.Sell your home, and move out to the country, where, supposedly, it is cheaper to buy. At least this is the same line coined by those now complaining about how young people cannot afford to buy. What is good for the goose, is indeed, good for the gander.
    4.If the age of entitlement is well and truly gorn, then it should not just be focussed on the youth who can least afford it, but on those that are much more wealthy and can afford to share the burden much much more than their youthful counterparts. And just remember….it was not the youth of today, who are now destined to lifelong rent, that contributed to this ridiculous escalation in property prices….it was their ELDER couterparts that felt that entitled to ride the way of escalating prices pocketing that accumulated wealth, and conveniently avoiding what the ramifications would mean of their self-centredness and inaction for their kids.

    Get in the real world oldies.

    You are not immune from taking the pain like the rest of us in the real world.

    The problem with this discussion is that the oldies are glued in a static mindset which has no relevance in 2015. They simply cannot put themselves in a position of their younger counterparts, to understand what it means to be a young person in the year 2015.

    Until they do, expect more of what boomers are famous for – self-centredness entitlement. Very sad, predictable, but will change as they pass on to the next world.

    I can only hope that my generation, will counter what boomers have left, and pass on to younger ones a message that we do care about you, that we will not consume to oblivion everything, that we will indeed, leave the world in a better place than we were left it. And, that things like property, were never meant to be a vehicle for wealth creation, but to put a roof over ones head, and that to inject what wealth is amassed into country-building activities such as investing in small business, instead of silo, insular behaviour such as property investment, which only serves to put more and more people on the scrap poverty heap than anything else. But boomers will never admit this as they buy up their next IP.

    • I have family members (boomers) who sold two houses to buy one – somewhere in that $2M range. The motivation was to use their PPOR as a tax shelter so they can receive full pensions. It’s a massive four bedroom house in inner east suburbs (Melbourne). You duplicate that story tens/hundreds of thousands of times and you can see the mess the government has got itself in.

    • Steernorth….

      Too bad that you focus your “feelings” on the consumer [citizen] and not on the architects – Economists – which were funded by corporatist.. too set up the markets in such a manner….

      Skippy…. your agency is so Pete Peterson its FB shtick…

      • Penny store rationalizations are the domain of the breather… not my sort of methodology.

        Skippy…. Control fraud… look it up and BTW inform yourself on Bernays…

      • Welfare for the poor only! Social safety NET. Would be great to see a quick demographic analysis of when the cohort below the boomers will actually outnumber the boomers and all this fruitless gnashing of teeth can actually bring about some real change at the ballot box. Is there a nice economic marker in age terms of those who took most advantage of our debt fueled inequality machine? Or will bribes be offered as we age too so nothing changes?

    • The truth,Steernorth, is that you want to treat people as simple economic items on the production line of life and pack them up and send them away when you decide they are no longer useful to your economy. Your view is little better than that held by the Nazis towards Jews. People have a right to continue to live in their community where they have lived for perhaps their whole life and not to be shipped Soilent Green like into a lower standard of living area to make you and others wealthier.

      • ‘Naturaltrust’, I call Godwin’s Law on you. Furthermore, this is blatant ad hominem attack plus misrepresentation of Steernorth’s points and argument. Bad work.

      • That is a good point T. But I think I am directing against his position. I mean you no personal harm or attack Steernorth. My apologies to you if it seams that way.

        ad ho·mi·nem
        ˌad ˈhämənəm/
        adverb & adjective
        (of an argument or reaction) directed against a person rather than the position they are maintaining.
        “vicious ad hominem attacks”

      • Total Godwin’s law fail, and one of the lamest I’ve ever seen. Apparently denying government handouts to millionaires makes one as bad as the Nazis.

        I notice natural trust ONLY ever posts to support the status quo for housing. Very interesting.

  3. Josh MoorreesMEMBER

    I’m sure this will be implemented in the near future…..for those born after 1965 of course. Can’t disadvantage the boomers.

    • I believe Australia will go further and simply eliminate pension for those born after 1965 due to the ‘Baby Boomers’ living longer than expected.

  4. as I said before, home price should not be used for tests because home prices are very volatile and don’t reflect real value and utility of those homes. If we go with the idea and decide that for example that $1m or $2m is some kind of limit, when house prices crash in a year or 5 years we’ll suddenly have everyone on age pension (destroying budget) despite the fact that nothing changed in financial situation of those people – still have same income, same utility from the same home, can afford the same lifestyle …. Same if prices double so every poor person’s homes end up over limit.
    Argument that limit should be changed every year or so to reflect volatile house price movements is unfair and impractical.

    Instead, imputed equivalent rent should be included into their ordinary income. That would much better reflect real utility and value of their home regardless of home price volatility (rents are much more stable and better reflect general inflation and cost of living); it would make it fair to retirees who don’t own a house. Imputed rent should be added to the income of public housing tenants as well to avoid them being rewarded twice as opposed to retirees who have to pay rent in private market. it would be much easier for government to plan expenditure as well.

    • doc,
      Australia has a problem. And, the budget is already destroyed. What you are talking about is highly probable, but hypothetical.
      Everything should be looked at.
      If we dont, we neglect our kids, and our kids have been neglected for far too long already in this country. Have a look at mental health and homelessness among that cohort for more proof.

  5. There’s an easier answer, guys!
    Juts give everyone the Aged Pension at the determined age , presently 65, and leave it fixed there for simplicity. Get rid of this mucking about with Means Testing – it’s too easy to manipulate. Then bring in a Comprehensive Land Tax on ALL property. Anyone holding a property will get .compensation’ to the value of their Land Tax via the Pension, and after that….it’s your choice as to what you do.

  6. You know Janet, there could be some truth in what you say. My advocacy is on youth, the future, not on inequity, nor the ridiculous unfair status quo.

    • The issue is that if the family home is included in the assets test, then it just means that the estate left to the kids you are talking about is reduced by the amount saved. So, from the point of intergenerational equity it takes money from some of those kids, and redistributes it where?

      Also, while there are some wealthy people doing this, anyone who wants an up market lifestyle needs far more than the pension. Sure, you could hide $millions in a big house and get the pension. But you’d struggle to eat well and drive a nice car or have overseas holidays. You certainly couldn’t eat well, drive well and holiday well on a pension. No way. Most pensioners are not that well off as far as cash flow goes, so this will be the low and middle low demographics that get hit. Houses will be liquidated, cas drawn down, no inheritance left.

      My bet is that money taken from inheritances will go to corporate tax cuts. 100% inheritance tax falling on low to middle income youth, going to fund business tax cuts.

      I am not sure how what is effectively an inheritance tax on low to middle income youth which will likely end up in corporate coffers is an improvement over the present situation.

      • Not sure you’ll get much sympathy for the “protect my inheritance” placard at your next protest. If they aren’t paying wealthy people a pension, they aren’t taxing the working poor as much into the future. That’s what you need to focus on. Sure the corporations should pay their share, but you’re asking wealthy people to get a handout they don’t need, from a government that has to borrow to keep paying, so that people get an inheritance they didn’t earn? Balls!
        And the money doesn’t go to government, it’s spent in local shops hopefully.

      • I suspect that you are right, Emess.

        This plan amounts to a 100% inheritance tax on the children of working and middle class people, quite apart from the fact that many of their parents will not have enough money left for aged care. Once an ordinary elderly couple have taken out a reverse mortgage to pay for their basic living expenses, plus the land tax, plus compound interest, there won’t be much left. Even a debt at 5%, as in the Pensions Loans Scheme, will double in less than 14 years. Confiscating savings is hardly a great way to encourage people to put money aside for their future. On the other hand, a rich elderly couple, one of those who may well have really done something to earn Steernorth’s wrath, will easily pay for their basic living expenses and land tax out of current income. No need for a reverse mortgage and all it entails. Effectively, a very modest inheritance tax for their children.

        Raising money via an inheritance tax isn’t necessarily bad, but why restrict it to the lower orders? 61% of Australia’s wealth belongs to the top 20% of the population

        Many of these people have benefited far more from our society than a working class pensioner whose home has become valuable due to the government’s Big Australia policies. The cost of superannuation tax concessions, mostly going to high income earners, is nearly as great as the cost of the aged pension and set to surpass it, but no one is calling for this money to be repaid, even though some people have received tax concessions worth far more than the full pension.

        Flat or progressive inheritance taxes on all Australians would be a far fairer solution and avoid burdening current workers. Why do most of you want to give a free pass to the rich?

      • You’ve got to start somewhere weening Australians off welfare. There is simply no argument worth having beyond the simple premise that we have all lost in the years of government bribery that have gone before. Welfare for the poor only! Keep it simple and get it done.

      • The problem that I have with the CIS proposal is that it is not simple, it is an inheritance tax on one section of the population only, and the likely beneficiaries are not our youth or the taxpayer generally, but big business, the retirement home industry and the banks will be those that benefit.

        Fair enoigh if that’s the outcome you want.

        But let’s be honest and call this for what it is: a grab for money by the big end of town at the expense of the small end. Tax reform it isn’t.

  7. I seriously believe that Australia is one of the dumbest nations on the planet. Why on earth have we allowed ourselves to nosedive on a trajectory to 3rd world status? Tell me what does Australia stand for now in 2015? What is its identity, other than dog eat dog and self-centredness? And we want our kids to hold on to a myth about how patriotic we all should be when our olders do the exact opposite eg.think selling out of the country, turning a blindeye to illegal property investment, think anti-inclusiveness by shielding a section of the community against sharing the economic burden we so desperately need to put Australia back in a good postion etc etc.
    Property should not be expensive in this country, and yet it is ludicrous. People should have incentive to work, not slave to work to only hand over to banks all of their hard-earns. There is no incentive in Australia to stay any more. There is only a drive to leave a once lucky country. Kids will learn that property is somehow utopia when in actual fact, to get onboard now is a recipe for misery and anxiety to find the next massive mortgage repayment. When their elders tell them work hard and you too can buy property, this is the biggest LIE of all time. It no longer applies. It did maybe 30 years ago, but that advice is just plain cruel to the younger generations. All that does is break their spirit, as they feel they have to work 100 hours a week to do what mum and dad could do in 20. It is just plain unfair, irresponsible, bullshit advice.And boomers should take a good hard look at themselves when dishing out such ill-informed rhetoric that points their youth on the complete wrong path in the year 2015. You know, wisdom is the ability to admit fallability, many a boomer could adhere to this. Second guess yourself for the betterment of your kids, please. If I had my way, I would collect together a cohort of like-minded individuals, and embarass what political forces we currently have that are supposedly representative of the interests of the common man, and decimate all that stinks in politics today. I can hope. Hot air must be a thing of the past, but alas, even the current “articulate” verbage maker in Turnbull, is just that. We need truly intelligent people in a system that is not broken. Thus, not just people, but a new system.

    • I seriously believe that Australia is one of the dumbest nations on the planet.

      you haven’t lived anywhere else in the West recently?

      What we do is no different to other western countries. Some of them are even worse. It’s the dominant ideology not country or people. Media can make people think whatever our masters want and in that sense Australia is no different.

      The poorest Americans are the loudest against welfare state, even state health care system they would probably benefit them the most – they are all brainwashed and indoctrinated

      • Yep,

        And the people likely to be hit worst by this sort of proposal are those shouting in favour of it.

      • And this proposal will steal more from them. The value of the eventual inheritance they would have gotten swallowed up like an inheritance tax. A tax falling on the poor and middle income earners.

        And any tax savings will go where? Corporate tax cuts most likely.

        The only people to win out of this will be:

        Bankers via reverse mortgages and fees, and
        The residential care industry as people move out of their homes, and
        Big business getting tax cuts.

        Losers will be :

        Youth losing inheritances, and
        Taxpayers paying for higher institutional health care vs home care (US style).



    • It’s not so much dumb as greedy and dishonest.

      Probably the number one redeeming feature of living in Oz is the health care system, PBS, etc. but with TPP even that will no longer be a point differentiation. It’s going full retard banana republic without the military coups (they are behind closed doors).

    • I genuinely feel sorry for you Steernorth, carrying such a heavy load of hatred and emotional baggage is bound to be personally debilitating.
      Get over it dude, it is what it is. From what I can tell nobody planned to be where we are they just failed to plan and execute for Australia to be somewhere else, in the economic sense.
      I remember my father describing the insanity of housing in Sydney pre WW2 this all changed post war with the returning diggers deciding they should be rewarded. To be honest they gifted themselves their own good fortune, in effect boot-strap funded their very own startup country.
      Honestly it’s time for young Australian’s to repeat this feat, shake off the shackles that bind you to a life of servitude and take control of your own future but don’t sit there and complain that your BS parasitic job (with the fancy title) in Sydney CBD doesn’t pay enough for you to buy a boomers home. Pot, Kettle, black …..etc

      • Hi China,
        Firstly, I dont want your pity.
        Secondly, with a name with anything to do with hacking, or illegal property investment in it, you know the likes of mine are one step ahead of adhering to anything youd say.
        The “get over it dude” lazy spiel will never be words that Ill buy, since given I have kids, I have a personal obligation, the likes of which sounds like you dont, in this country. But if you do, I suggest you get over yourself and advocate.
        Thanks for the response, but its a thanks that will fall on deaf ears my way.
        Have a great rest of the day.

      • with a name with anything to do with hacking, or illegal property investment in it, you know the likes of mine are one step ahead of adhering to anything youd say.
        Yea I know a fair bit about systems hacking, mainly because I know a heck of a lot about anti-hacking measures.
        As for facilitating illegal Chinese RE transactions …you’re dead wrong on that count, I could have made a fortune selling Sydney RE to some very rich Chinese but I said no thank you

        I also have kids, 4 of them, so I’m real interested that I leave a better world for my kids, however I dont believe my kids are entitled to anything in this world, except possibly a good education and that’s something that I advocate for all children. However my kids are not entitled to live on the North shore or anywhere else, if they can afford to buy there and they like the area then good on them otherwise Australia’s a big country so I’d suggest if their means are more modest than they should make a life for themselves where their means can supply their needs. They don’t need to conspire to get Granny out of her house for half what it’s worth rather they should develop employment skills that will price their labor at some reasonable (say 1/3) fraction of the RE prices.
        IMHO Aussie RE prices aren’t the problem, the real problem is the ratio of income to price, if granny wants $1M for the house than I want $330K pa for my labor. If this income is impossible than I’ll simply move elsewhere or figure out what jobs pay this much and start training.

      • China Bob, It appears that you want to treat people as simple economic items on the production line of life and pack them up and send them away when you decide they are no longer useful to your economy. Such a view is little better than that held by the Nazis towards Jews. People have a right to continue to live in their community where they have lived for perhaps their whole life and not to be shipped Soilent Green like into a lower standard of living area to make you and others wealthier.

      • It appears that you want to treat people as simple economic items on the production line of life and pack them up and send them away when you decide they are no longer useful to your economy. Such a view is little better than that held by the Nazis towards Jews.
        I’m a Nazi ….yet you’re the one that wants to misappropriate Assets without paying the owners their current market value…hmmm?
        I’m simply saying that if labor is not properly remunerated than it should be voluntarily withdrawn and applied to endeavours where it will receive adequate reimbursement.

      • My wife just looked over my sholder and removed all my inherent pomposity,
        If you’re not getting a living wage, than you need to look elsewhere

  8. FYI when RE corrects, much of the problem will resolve itself.

    Whats really going to screw the proverbial pooch is the final coup de grâce, the complete destruction of the commons with everything privatized and then monetized.

    Skippy…. good luck buying a house even at traditional metrics…. or affording raising kids… as the job market goes completely survival of the fittest. Try it on Uber wages….

    • Skippy….
      good luck buying a house even at traditional metrics…. Like many families today, my family have accepted we cant buy ever, we dont mind and have moved on.
      ………or affording raising kids…..this one i am concerned about.

      I am actively looking at alternative places to live other than Australia, the place I was born, since my place of birth does not want nor need people like me. It has plans to cater for all and sundry, all, other than those that live and work here legitimately.
      My son had a cute Indonesian girlfriend in prep, who unfortunately left to go back to Indonesia. When asking her parents why they are leaving, they said “Australia is just too expensive to live”. Says it all.

      • Indonesia… groan….

        Indonesian companies are shedding jobs as they grapple with the weakest economic growth in six years, adding to the troubles facing President Joko Widodo, who was elected last year on pledges to dig the country out of a rut.

        Government data might suggest no cause for alarm – unemployment was 5.81 percent in February, up only slightly from 5.70 percent a year earlier – but the official numbers are notoriously unreliable and don’t adequately cover the informal sector, which is two-thirds of Southeast Asia’s biggest economy.

        Recent reports of heavy lay-offs across the country paint a bleaker picture, and business executives, recruitment firms and jobseekers say it is getting worse.

        Young people are being hit hardest; the International Labour Organization estimated the youth jobless rate was more than 20 percent in 2013, and economists believe it is higher now.

        About a third of the workforce is aged 15 to 29, a youth bulge that could bring Indonesia, a country of 250 million people, the sort of demographic dividend China and South Korea enjoyed a generation ago – but only if there are jobs for the 2 million people joining the workforce every year.

        “The government doesn’t have a blueprint for labor absorption,” said property businessman Hariyadi Sukamdani, chairman of the Indonesian employers’ association.

        “If this condition is allowed to continue, what we would get is not a demographic bonus, but a demographic disaster. There could be social turmoil and higher crime rates.”

        Even from the far right wing Heritage cult… world ranking of 105

        Corruption remains endemic, including in the parliament and other key institutions like the police. The judicial process is slow and inefficient. In June 2014, the former Constitutional Court chief justice was sentenced to life imprisonment for accepting more than $4.8 million in exchange for favorable rulings in regional election disputes. Property rights are generally respected, but enforcement is inefficient and uneven.

        Skippy…. Go Galt Gulch – !!!!!!

  9. Unconventional Economist, I agree with much of your argument here, except for your recommended point no. 2: replacing stamp duties for everyone with a broad-based land values tax. I say that stamp duties, because they are an inefficient and inequitable tax prone to boom-bust property cycles, should be replaced with a tax that minimises these negatives.

    Thus, an annual tax on property that comprehends its “total improved value” or “annual economic value” would be fairer and less open to avoidance than a land tax per se. Municipal rates formulae already do this, e.g. Capital Improved Value, Net Annual Value, Gross Rental Value. Some extra “spatial” factoring could be built into the replacement annual property tax formulae that comprehend the scale of cost efficiency and minimisation of externalities in delivering public services and infrastructure to each property.

    The annual land-value tax, which so many commentators and even politicians are obsessed with, goes part of the way to a good fix, but would still be inequitable. This is because owners and occupants of high-density strata title apartments and offices would pay much less tax per capita than those who occupy or hold homes or other property on a single-unit freehold land title basis.

    Keep in mind that governments spend money to deliver services and benefits to the population which is sub-aggregated into HOUSEHOLDS. Thus there should be little variance between HOUSEHOLDS in the annual taxes they would pay to fund government services, except for differences in the level of property value wealth of each property.

    A simple tax on land values would encourage a large shift to high-density strata unit housing with consequential leakage from future tax inflows, just as what occurs now with sales of off-the-plan strata units which minimises stamp duty payments.

    • You are right Peter, Land Tax in inequitable. There are many more inequities about Land Tax that I have previously written about in these columns. Unconventional economist has contrary views that apparently ignore the inequities.

  10. There’s one fundamental problem with this whole argument.


    Didya hear that?

    The Bretton Woods Agreement was snuffed out in the 1970’s. The Australian dollar is not a convertible currency. The gold standard has been dead and buried for decades. Australia floated the currency thirty years ago.

    Federal taxation exists to support the fiat currency, to act as a signal for economic behaviour and as a fiscal lever. Federal taxation is not banked anywhere, it is a keystroke in the Treasury accounts. It is a tool which is used with monetary policy to shape the economy.

    The endless shrieking hysterically about “your” taxes paying for something is nonsense.

    Any chance of having a real conversation about the “real” economic and social costs and not this envious harping on about how some old buggers are enjoying the fruits of their labour.

    Didn’t the CIS released a report a few months ago revealing that over 60% of aged pensioners are living below the poverty line? No doubt a minority of the 40% are gaming the system, just like some wealthy double income households lap up welfare payments for their offspring and gather wealth through the government largesse of negative gearing and capital gains rebates. But seriously, this meme that wealthy pensioners are rattling around in valuable properties just sets off the baying hounds of ageism and it’s a bad look.


    • Nope… ridge beliefs trump operational realities… conversely it might give the wrong sorts ideas…

  11. Do it for the kids? How does losing any chance of an inheritance do that? None of this solves ridiculous house prices nor would there be any reduction in real terms of taxation. There will be levies and gouging at the corporate and government level AND you lose accumulated family wealth for Gen X and below that may have alleviated it over the long term.
    But then, if I was trying to sell a reverse mortgage, I’d do the same. Just wind back the Howard/Costello Super breaks and things would improve overnight. But then, this whole thing is about more than balancing the books.

  12. I think we should all view this as rather positive. Political change is slow and 10 years ago including the family home in the assets test was discussed by virtually no one (apart from me with all my parents friends). The debate is shifting slowly yes and we have property lobbyist everywhere in Canberra to fight against but still the argument is being heard.
    We need to be patient. As painful as the political process is perhaps the right decision will eventually be made

  13. Yes, the money involved is a big issue, however so is the social and human side. Do we want and are we happy if 30% of our homes are lone occupants? To me, the social isolation and loneliness that would result would cost us dearly in health costs and human costs. It is not something we want as an advanced society.

    Family Assist Part S (carrots and sticks), would allow a sole pensioner be able to sell up their PPOR and the proceeds remain asset test free for the pension test, if they live with another ‘family’ and put a majority of their investments into Govt Bonds or an approved govt savings account. They could also park the capital into a mortgage offset account in their name with the interest going to the couple/family mortgage. The rent the ‘family’ receives would be tax free and the ‘family’ would as get a $5k govt grant, to help house the pensioner.

    At the same time a Land Tax needs to be introduced to create the ‘stick’.

    The ‘family’ could be actual family or not. Perhaps just a young FHB and need not have a direct family relationship with the pensioner who have a granny flat.

    We can create a system where we keep paying pensions and it helps the young as well as the old.

    ”Mary”, who owns the house, is in her late 80s and has lived there alone since the death of her husband several years ago. In popular parlance, she is the archetypal little old lady rattling around in the old family home. In the language of public policy and economics, Mary is an ”over-consumer” of housing and her choice of dwelling is ”inefficient”. Put another way, she is helping to reduce supply and inflate prices.
    The number of older Australians who live alone in large homes is startling. An analysis of 2011 census data reveals that of homeowners aged 70 and over who live alone, 62 per cent have a house with three or more bedrooms. That adds up to 238,078 houses with at least three bedrooms occupied by just one person. Among houses owned by older couples (with at least one partner aged over 70), 82 per cent – or 332,752 houses – have at least three bedrooms.

    • The truth is that most elderly people want to age in place in the house that they no doubt slaved for decades to pay off. There is quite extensive literature on deteriorating health and premature deaths among elderly people who are forcibly relocated. (The effect of your ‘stick’.)

      Some of you, of course, will regard these deaths as a bonus.

      • Willy Nilly,

        I suggest that you look at the magnitude of excess deaths in the study in my second link. People don’t always want to live on top of each other, and elderly people who are forced to move are also generally being forced to move away from their friends and extended family, creating that social isolation. Do you really care about the welfare of those elderly people or just getting them out of their houses?

      • Tania,

        “Some of you, of course, will regard these deaths as a bonus”.

        I don’t think that Tania.

        Whatever peoples opinion is of me and my views, I don’t want that.

        My wrath is not what a lot on here believe.

        Have a good night.

      • No one is advocating kicking anyone out of anywhere! This is misdirection and emotional manipulation. If you have a massive, expensive house you are not poor! You therefore are not eligible for payments that are designed a baseline support and social safety net in our otherwise lucky country. If you are asset rich then you have the option to buy somewhere else and free up some capital – if you want. If you have built your life around an unsustainable policy bribe then the sale you make now should have been made many years ago so at least thank the government for making you hold on for a few years longer with a massive % increase. Honestly, stop this abuse of the taxpayer. The vast majority of the tax base are poor PAYE suckers and the fact that they are least able to jump on a juicy tax avoidance scheme like many others is humiliation enough surely without this. Bottom line is, welfare for the poor only!

      • T,

        It was Willy-Nilly who talked about using land tax as a stick to get elderly people out of their houses. If you have read my posts, it is true that I think that elderly people should be allowed to live out their days in peace, to downsize if they want to or age in place if they want to. I have no problem with the government imposing an inheritance tax once they have passed on, so that some or all of the money that has been spent on their pensions and health care can be recovered for the community.

        The people who live in those big fancy houses would almost certainly belong to the top 20% of the population and have considerable other assets besides the pension. How else could they maintain that house? Due to the government’s policies of restricting land release, boosting the population through immigration, and abandoning decentralisation, urban land has become very valuable, even in previously unfashionable areas with very basic cottages for low income workers. In this case, it isn’t the house that is valuable, just the land under it. And no, that isn’t me. I have a decent amount of super.

        Your problem is that you accept the framing provided by media and politicians, whereby various benefits and concessions that go to the rich are not welfare. Thus, the pension is welfare, but not superannuation tax concessions that may be worth far more, nor the benefits from negative gearing, capital gains tax concessions, etc. In fact there is no difference. It is just the same if you are given $50 or let off an obligation to pay the community $50. Either way you are $50 better off. If an effective 100% inheritance tax is good enough for middle and working class people, then it is also good enough for the rich.

  14. I wait with interest to see which party includes the family home in the asset test for the pension.
    People in Dubbo will get the pension still, but noone who has a house n Sydney east of Parramatta.
    If it comes it will be restricted to houses worth more than say $2m, which will make it mainly at Sydney and Melbourne uppper middle class and 5%ers all over the country.
    It will be disincentive to save for a home and work hard to pay it off, and an encouragement to just spend rather than save unless you can really aspire to be worth more than about $5m
    Low interest rates mean that if you capitalise the expected value of the pension to a lump sum it is worth far more than the modest super balances of even middle class Australians and it’s government guaranteed. Hockey should have increased that assets threshhold to make up for lower interst rates, not reduced it.

  15. Sunshine Coast Daily Poll…

    Should everyone be entitled to an age pension?

    Definitely, I have paid taxes my whole life, why should I be punished for my success – 45%
    Only to a point. Why should my taxes go to rich people who do not need it – 42%
    No. We need to encourage people to save for their own retirement – 13%

  16. Gradual change, but constant change is how to bring about reform.
    what about changing the assets test thus:

    At present for a couple to receive the full pension, assets outside the family home must be less than $291,500, and for non home owners $440,500. Why not take $100,000 from the homeowners ($191,000) and add it to the non homeowners (540,500).

    The same can be done for singles, and adjustments for assets to receive part pension.

    A change to include the family home in an assets test will not run politically, political suicide I would think.

    • Totally depends on how it is ‘sold’ to the sheeple.

      If it is like and sold by Malcom….

      “I am sure we all agree that we should not be paying multi millionaires welfare. If you own a house worth $2 million, then as the cap is $1.5 million, $500k will be added to your assets test and this may or may not reduce your pension, depending on what other assets you have. The Pension Loan Scheme is being extended to cater for you if you fall into this small category. As well, we are crafting a plan to enable you to downsize and keep any left over profit asset test free if you invest into certain products, like an annuity and the transaction will be stamps free. This may enable you to help your children or other children by moving into a family home that has a granny flat attached as we are also providing them with the option of having any rent paid by you as tax free income. It is time we made a system where the benefits of any changes are available to both the aged and the youth of today.”

  17. Not a problem.
    If the next generation is going to be able to afford the taxes to look after the last generation, property prices will fall by 50%… IF the central bank doesn’t stand in the market’s way.
    Let markets clear… allow the market to work.
    Let Mr Bear do his job.

  18. The oldtitlements will continue until the government literally can’t raise sufficient money to extend them further.

    Australia’s future is Spain. In the meantime, I’m getting a green card. Enjoy Australia’s self imposed collapse, peeps.

    • Regarding your earlier reply to me LordDudley:

      It is not sufficient to use a slogan to reject what I have said about Nazis. The Nazis were real and did what they did. Therefore it is justified to use them as an example and not hide history behind a wall of political correctness by throwing slogans at the truth.

      Secondly: Please go back and read my previous posts as I am clearly not in support of the status quo for housing. I strongly opposed negative gearing for one; and I have made many other alternative suggestions. Please check your facts before being critical of people.

      • You should reply on that thread then. As for Nazis, we were discussing using means-testing for the pension including PPOR, and you went all Godwin on everyone. At that point it’s discussion over. The end. Goodbye.