PC: Family home must be in pension assets test

By Leith van Onselen

The Productivity Commission (PC) has released a new research paper, entitled Housing Decisions of Older Australians, which examines the factors influencing the housing choices made by older Australians along with the intersection between the tax and transfer system.

The Paper finds that “the vast majority of older Australians are living in private dwellings, and about 80 per cent own their home”. Around 75% of older Australians aged over 75 also live in detached houses and a similar proportion have homes with three or more bedrooms, suggesting significant spare capacity (see next chart).

ScreenHunter_10658 Dec. 01 10.25

Most older Australians are also reluctant to downsize during their retirement (see next chart).

ScreenHunter_10659 Dec. 01 10.29

Older Australians are also generally very wealthy, but income poor, when compared against their younger peers:

ScreenHunter_10660 Dec. 01 10.32

And yet they refuse to tap their housing wealth (see next chart).

ScreenHunter_10661 Dec. 01 10.33

The PC is scathing of state government planning regimes, which hinder downsizing and the provision of retirement homes:

Operators of retirement villages and aged care services reported significant red tape in dealing with planning and development approvals, both for new facilities and for modification and redevelopment of existing outdated stock. Age specific housing development is often disadvantaged relative to other housing or commercial development. Planning rules that constrain the development of smaller, higher density residential properties inhibit downsizing, and innovative housing proposals often face NIMBY opposition. The desire of most older people to age in place strongly signals a need for revision of state and local government planning regimes, to reduce the barriers to the supply of new housing options. Reforms in this area could potentially deliver the greatest gains in affordability and diversity of housing options for older Australians.

Tax and transfer policies also encourage older Australians to stay put in their large family-friendly homes:

At the Australian Government level, owner occupied housing enjoys favourable treatment on both the taxation and transfer sides of the budget. The principal home is exempt from the means tests for the Age Pension. It is also exempt from capital gains taxes that apply to the sale of many other assets. There is also a range of government support arrangements for other forms of accommodation and aged care, for which the means tests treat owner occupied housing favourably, or exclude it altogether. On the other hand, at the state and territory governments level, conveyances of residential property are subject to stamp duties. The complex interplay of these policies can distort housing decisions and lead to inequitable outcomes.

The PC recommends replacing stamp duties, which hinder mobility, with a broad-based land values tax:

Multiple reviews have recommended the abolition of stamp duties, and there is a strong case to do so in principle. The lost revenue from this change could be recouped through extending the scope of state land taxes to principal residences. Land taxes are a far more efficient tax than stamp duties and the change offers an opportunity to improve overall efficiency, and remove a secondary impediment to optimal housing decisions for older Australians.
There are some implementation challenges in moving to a broad based land tax, including cash flow concerns for low-income retirees living in high-value family homes. One option to address this concern could be to allow low income older people to defer payment until the dwelling is eventually sold. A small number of local governments around Australia have already implemented similar schemes for council rates.

The PC also recommends eventually including the family home in the assets test for the Aged Pension:

…its exemption from the Age Pension means test creates an incentive for over investment in principal residences, discourages downsizing and generally reinforces the perception that the family home should not play a role in the retirement funding mix. In effect, by giving home ownership a special status, the means test distorts and constrains the range of accommodation and retirement income choices of older Australians. The exemption is also inequitable — it favours home owners over non home owners, who are typically less wealthy and possibly in greater need of assistance…

Removing the family home exemption would be the most efficient and equitable outcome, but this appears intractable in the immediate future. At a minimum, there is a strong case on equity grounds to set a limit on its value…

Including the family home in the assets test would reduce the proportion of people on the Aged pension to 62.3% from 73.3% currently:

ScreenHunter_10662 Dec. 01 10.43

Adam Creighton at The Australian says this would save the Budget around $6 billion per year.

The PC also notes that most older Australian home owners on low incomes could boost their retirement living standards by drawing on their home equity. However, the reverse mortgage market is small and underutilised. In particular, “reverse mortgage products are inherently more expensive than standard mortgages because they place longevity and (perhaps) housing price risks on the financier, and the resultant higher interest rates and fees are an unavoidable barrier to greater demand”.

Regular readers know my views on this issue. With around 80% of retired Australians owning their own homes of which $926 billion in equity is locked up, and the cost of the Age Pension ($43 billion per year) being the largest and one of the fastest-growing Budget expenses, reform must be made a 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 such a plan, 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.

The economics is simple. Unfortunately the political economy is not. Watch retirees fight like wounded bulls against reform.

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Comments

  1. AN unfortunate outcome.

    Admittedly if we had a proper land release schedule, and fewer tax loophole which left sufficient funds for infrastructure, we’d have housing process so low it wouldn’t matter if they’re tested.

    But alas, you need to adjust your rules to chase the malinvestment..

    • Industry set the playing field from day one…. from RE speculation to forced participation in the criminal casino to seek self funded retirement.

      Now that decades of looting is becoming hard yacka its time to pull the plug and teach those fat cat boomers a moral lesson…

      Skippy…. BTW post WWII RE was built on the easy land, that has now come and gone, everything else gets more expensive at onset w/ increased maint price.

      • “Industry set the playing field from day one…. from RE speculation to forced participation in the criminal casino to seek self funded retirement. ”

        Industry may have set the field, but the puntertariat was a willing participant.

        They all had stars in their eyes when they were jacking the rent up 35% every 6 months as paving their path to fortune.

        “Now that decades of looting is becoming hard yacka its time to pull the plug and teach those fat cat boomers a moral lesson… ”

        If a boomer didn’t have many hundreds of thousands of dollars of debt less than 5 years from retirement, there is no means to ‘teach’.

        No one forced them to put their autograph on a loan document.

        “Skippy…. BTW post WWII RE was built on the easy land, that has now come and gone”

        😀

        Sure it has skip… sure it has.

        Fark, you live in Townsville…. you can’t reach certain point where you stare into the nether and think “man, all the land is gone !!!”

        Even in Perth, the 4th largest city in the country, and I can 3 different coastal/near coastal routes from Fremantle to Rockingham.

        Cockburn Road, Stock Road, Rockingham Road….

        and see a ton of unused land, probably more land than there is available in the whole of Hong Kong.

        Now, I would necessitate HK density, but you can fit some people in there.

        Now, lets extend that list beyond city number 4. You think someone gets to the southern most suburb of Darwin, continues to look south and will conclude “we’ve run out of land”

        or perhaps… jst perhapsd… it’s a manufactured restraint to preserve the price of land that has recently been acquired?

        You may not know the answer, or even understand the concept of what is being asked, so maybe ask the question on NC so you can develop your opinion.

        “everything else gets more expensive at onset w/ increased maint price.”

        Well I can look at prices in 1890, then 1950, and be awfully confused.

        I recall some centuries long dutch chart also conflicting with that assertion.

        Maybe you’re just parroting another NC line you have a dismal understanding of?

      • Industry may have set the field, but the puntertariat was a willing participant.

        I thought we cleared up your philosophical beliefs don’t refute nor do they supplant psychology or sociology. Bill Black’s expertise and experience provide a much more robust and evidence based approach.

        BTW I live in Brisbane, always have since the mid 90s, if your memory served you would note it was a trip to Townsville.

        You should stick to moralized economics and resist on opining – about stuff – where you have no knowlage base, formulating opinions on civil – commercial engineering and the relevant scientific disciplines which inform such undertakings.

        Skippy…. funny how you moralize about boomers [buy side] but not the architects [sell side], double standard morals…. where have I read about that before….

      • “Industry may have set the field, but the puntertariat was a willing participant.

        I thought we cleared up your philosophical beliefs don’t refute nor do they supplant psychology or sociology.”

        Well if you pontificating on a forum with ill founded assertions on subjects you don’t understand is “clearing things up”, then sure.

        But people are to be held accountable for their actions, despite the presence of clipboards and lab coats as you like to muddy the water with. There was a famous trial at Nuremburg that established that.

        “Bill Black’s expertise and experience provide a much more robust and evidence based approach.”

        It’s not Bill Black that fails here, but your lack of understanding, and subsequent stinking up of the forum that’s the problem.

        “BTW I live in Brisbane, always have since the mid 90s, if your memory served you would note it was a trip to Townsville.

        You should stick to moralized economics and resist on opining – about stuff – where you have no knowlage base, formulating opinions on civil – commercial engineering and the relevant scientific disciplines which inform such undertakings.

        Skippy…. funny how you moralize about boomers [buy side] but not the architects [sell side], double standard morals…. where have I read about that before….”

        I have also blamed the architects skips, plenty of times. I am the only one I know who calls for the death penalty for bank executives, due to the nature, privilege and power of the sector.

        That you fail to map that, only you can answer.

        I comment often on their actions being an easy forecast due to game theory, and how you resolve that is ‘death to the participants’, as game theory asserts.

        But as any transaction, the consumer ultimately has the power. And where I have commented, and your generational conscious ark up against is the due to the relevance of boomer behaviour, is why I isolate comments to boomers.

        A bank, i.e. the architects, can lends you money in any area.

        The choice was a result of a certain individual having stars in his or her eyes about 35% p.a. rent increases mapping their way to fortune. That’s the choice that is relevant.

        This led you to linking to a study that was a blurb on a theory about collaborative elements, and it completely failed to answer anything, address anything or have relevance to anything.

        It was clear you didn’t understand anything, and just hot-pieced something you observed on NC, but that’s your de jure behaviour here skip.

      • Death sentence – ????? – well that explains a lot…

        Consumerism and its antisocial effects can be turned on—or off
        Email

        Money doesn’t buy happiness. Neither does materialism: Research shows that people who place a high value on wealth, status, and stuff are more depressed and anxious and less sociable than those who do not. Now new research shows that materialism is not just a personal problem. It’s also environmental. “We found that irrespective of personality, in situations that activate a consumer mindset, people show the same sorts of problematic patterns in wellbeing, including negative affect and social disengagement,” says Northwestern University psychologist Galen V. Bodenhausen. The study, conducted with colleagues Monika A. Bauer, James E. B. Wilkie, and Jung K. Kim, appears in Psychological Science, a journal of the Association for Psychological Science.

        In two of four experiments, university students were put in a materialistic frame of mind by tasks that exposed them to images of luxury goods or words mobilizing consumerist values (versus neutral scenes devoid of consumer products or words without such connotations). Completing questionnaires afterwards, those who looked at the pictures of cars, electronics, and jewelry rated themselves higher in depression and anxiety, less interested in social activities like parties, and more in solitary pursuits than the others. Those primed to materialism by exposure to certain words evinced more competitiveness and less desire to invest their time in pro-social activities like working for a good cause.

        In two other experiments, participants completed tasks that were framed as surveys—one of consumer responses, another of citizens.’ The first experiment involved moving words toward or away from the participant’s name on a computer screen—positive and negative emotion words and “neutral” ones that actually suggested materialism (wealth, power), self-restraint (humble, discipline), transcendence of self, or self-indulgence. The people who answered the “consumer response survey” more quickly “approached” the words that reflected materialistic values than those in the “citizen” survey. The last experiment presented participants with a hypothetical water shortage in a well shared by four people, including themselves. The water users were identified either as consumers or individuals. Might the collective identity as consumers—as opposed to the individual role—supersede the selfishness ordinarily stimulated by the consumer identity? No: The “consumers” rated themselves as less trusting of others to conserve water, less personally responsible and less in partnership with the others in dealing with the crisis. The consumer status, the authors concluded “did not unite; it divided.”

        The findings have both social and personal implications, says Bodenhausen. “It’s become commonplace to use consumer as a generic term for people,” in the news or discussions of taxes, politics, or health care. If we use term such as Americans or citizens instead, he says, “that subtle difference activates different psychological concerns.” We can also take personal initiative to reduce the depressive, isolating effects of a materialist mindset by avoiding its stimulants—most obviously, advertising. One method: “Watch less TV.”

        http://www.psychologicalscience.org/index.php/news/releases/consumerism-and-its-antisocial-effects-can-be-turned-onor-off.html

        Supply side economics with a huge dollop of Bernays –

        http://workplacepsychology.net/2010/03/15/consumerism-affluenza-how-society-shapes-our-thinking-about-happiness/

        Skippy… your antiquarian beliefs are not applicable in modernity….

      • Ohhh…. forgot…. game theory is a large part of the problem, math applied to humans, reductivly [rational agent models].

        On October 12th 1950, Nash delivered a paper on game theory to the Cowles Commission – a group of mathematical economists who were intent on formalising the discipline. What Nash gave this audience was a means to close off the theoretical edifice of neoclassical economics once and for all – something that previous generations of neoclassicals had been unable to do and which leading figures like John von Neumann and John Maynard Keynes had essentially declared impossible.

        Nash employed some fancy mathematics to do this, of course, but, like all applications of mathematics, it was in the assumptions buried within the equations where the truly relevant assumptions lay.

        First Nash assumed a fearful and paranoid universe where everyone was constantly scrutinising each other and weighing up what each would do next. In Nash – as in any paranoid universe – there was a total elimination of trust. In their book Modern Political Economics: Making Sense of the Post-2008 World the economists Yanis Varoufakis, Joseph Haveli and Nicholas Theocrakis, put it as such:

        Nash proves that bargainers [that is, economic agents] will only settle for an equilibrium of fear agreement and then proves that there exists only one such agreement: his solution to the bargaining problem. [Authors’ emphasis]

        In his book Machine Dreams: Economics Becomes a Cyborg Science, the historian of economic ideas, Philip Mirowski, ties this directly to the ‘paranoid style’, as portrayed by Vannoy Adams above:

        The Nash solution concept was not a drama scripted by Luigi Pirandello or a novel by Robert Musil; it was much closer to a novella by Thomas Pynchon. Just as von Neumann’s minimax solution is best grasped as the psychology of the reluctant duelist, the Nash solution is best glossed as the rationality of the paranoid. Nash appropriated the notion of a strategy as an algorithmic program and pushed it to the nth degree.

        From these paranoid premises where all trust is eliminated and all action taken on the basis of perpetual fear, Nash then slips in an assumption that completes the circle and makes his vision of the economic agent truly in line by assuming telepathy on the part of the actor. From Modern Political Economics:

        [Nash’s proof] only holds water if we can assume that [the economic agents] can potentially share common knowledge of the probability of no agreement [taking place when one agents threatens another]. But how can they, given that [each agent] has an incentive to overrepresent it [in order to strengthen their bargaining position]? As rationality alone cannot bring about such common knowledge, something closer to telepathy is necessary.[Author’s emphasis]

        Or, Mirowski again:

        In the grips of paranoia, the only way to elude the control of others is unwavering eternal vigilance and hyperactive simulation of the thought processes of the Other. Not only must one monitor the relative ‘dominance’ of one’s own strategies, but vigilance demands the complete and total reconstruction of the thought processes of the Other – without communication, without interaction, without cooperation – so that one could internally reproduce (or simulate) the very intentionality of the opponent as a precondition for choosing the best response. An equilibrium point is attained when the solitary thinker has convinced himself that the infinite regress of simulation, dissimulation, and countersimulation has reached a fixed point, a situation where his simulation of the response of the Other coincides with the other’s own understanding of his optimal choice. Everything must fit into a single interpretation, come hell or high water.[My emphasis]

        Welcome to the concentration camp in which telepathy reigns and all privacy melts into ether!

        We should, of course, take this as a powerful critique of the game theoretic foundations of modern neoclassical doctrine – foundations which were then built upon by Nobel prize winners Kenneth Arrow and Gérard Debreu and many others. But we should also see this as something more.

        Those who came before Nash recognised that the economy – inhabited as it is by people whose decisions are impossible to pin down – cannot be wholly reduced to some model or others. Keynes’ theories were the most eloquent expression of this, but even von Neumann who did develop game theoretic and general equilibrium models which he deployed for the purpose of economic explanation recognised the limits of this axiomatic way of portraying a capitalist economy. And yet, after the war, the neoclassicals pursued their closed, autistic models with gusto.

        What we should see in this example is something about the very nature of trying to apply mathematical models to systems that are created and inhabited by humans. Modelling these systems is equivalent to trying to model those around us. And while many neoclassicals (we hope) would not try to write equations to explain their spouse’s or their child’s behaviours, they seem perfectly content to do so for everybody else – absurdity be damned!

        http://www.nakedcapitalism.com/2012/02/philip-pilkington-the-delicate-balance-of-terror-%E2%80%93how-neoclassical-economics-deploys-psychotic-reasoning-to-explain-human-behavior.html

        Skippy… Which at the end of the day becomes prescriptive and not descriptive… and whats worse… perfection of an inaccurate argument…. yet some crack a fat about totalitarianism [paranoia]…. shezzz

    • Arrangements to make rich old people tap their household wealth through a reverse-mortgage-type scheme carries the risk of permanently entrenching poor land release and planning rules.

      Just think, if the federal government lends retirees money against their (inflated) house values and then a state, SA for instance, implements a lassez-faire land release scheme crashing inflated house prices, the federal government won’t be too happy, eh?

      Hence the federal government will try to ensure that nothing crashes inflated land prices.

      In essence it will start to have exactly the same interests (house price inflation) as Megabank, because it’s balance sheet will also be chock-full of residential mortgages.

      LVR limits won’t help, because they will be stretched over time (as govt will prefer to capitalise the payments to retirees (as reverse mortgage advances), rather than just expense them as pension payments that are gone forever).

      • “Hence the federal government will try to ensure that nothing crashes inflated land prices. ”

        Jeez, I’d hate for that to happen

      • Peachy…. one would think with the posts on Gov privatizing its consultancy out to the private sector, where policy is informed, hence your grumbling about Gov this and that is a secondary state of action and not focused on the primary.

        Here this might clear stuff up…

        The reformulation of the definition of liberal did not sit well with a segment of the conservatives. Friedrich Hayek and his rich supporters launched the Mont Pelerin Society in 1947. The point of the MPS is to preserve and extend classical liberalism, in an effort to prevent FDR-style liberalism from turning the US and other countries to socialism or something even worse. It is a diffuse group, not secretive, but it doesn’t seek publicity. It seems to content itself with publishing papers and having meetings at which like-minded people can talk to each other and feel good about their brilliance.

        The name neoliberal comes from their desire to recapture the glory of small government capitalism. This is from a speech delivered by Edwin J. Feulner, the outgoing president of the group, in 1998:

        But with the onset of Progressivism and the New Deal, many Americans became attracted to a political philosophy that was diametrically opposed to Jefferson’s. The new statist philosophy had great faith in public man, but was deeply distrustful of private man. It maintained, quite incorrectly, that the uncoordinated activities of ordinary individuals were bound to culminate in economic catastrophes like the Great Depression, and it looked to an all-good, all-wise and increasingly all-powerful central government to set things right. In the view of these statists — who brazenly hijacked the term “liberal” to describe their very illiberal philosophy — what we Americans needed was more government, not less.

        The FDR socialists and communists brazenly hijacked the term “liberal” to cover their assault on the principles of small state property protection. That gives you some idea of the ressentiment of the neoliberals. They have a strong sense of entitlement, and they cling to grudges for decades. Hayek was perhaps most famous for his book The Road to Serfdom, written in the wake of World War II, a screed warning against socialism. That wasn’t going to happen, but it fit neatly with the ressentiment of the filthy rich capitalists who never forgave the Class Traitor FDR.

        The Statement of Aims of the MPS is here. It describes a limited choice: Communism or Free Market Capitalism This stark choice has

        … been fostered by the growth of a view of history which denies all absolute moral standards and by the growth of theories which question the desirability of the rule of law. It holds further that they have been fostered by a decline of belief in private property and the competitive market; for without the diffused power and initiative associated with these institutions it is difficult to imagine a society in which freedom may be effectively preserved.

        This statement shows why the filthy rich love neoliberalism: it feeds there sense of self-glorification. That it lends itself to exploitation for their cash benefit is a lovely side benefit.

        https://www.emptywheel.net/2014/12/14/the-neoliberal-inhabitants-of-mont-pelerin/

        Skippy… the curious bit is now that it is the operational system…. the junior space cadets are confused…

  2. ScoMo has already flagged he’s willing to create a window for oldies to flog their home without it hitting their pension. Obviously the window would have to be shut in the not too distant future and the PPOR included in the means test after that. Expect a flood of dusty inner city mansions onto the market in the years to come. Fingers crossed…..

  3. So the idea is, there’s a trillion dollars in inheritance for younger people that should go to the government instead.

    • Sounds like an idea any Government would approve of. One so easily recommended by careerist public servants looking forward to retirement courtesy ‘defined benefit Super underwritten by the taxpayer’.

      • Doesn’t happen anymore mate – “defined benefit” has gone the way of the dodo, you are constructing a straw man…

      • Careerist public servants likely enjoy defined benefits – a lot of these people have never had a non PS job in their working life and commenced employment when DB were the norm.

    • How so?
      You’ll have to map that one out, including all of your assumptions, before I can see how the suggestions of this report lead directly to “a trillion dollars in inheritance for younger people that should go to the government instead.”

      • Well, if the pension is reduced by the amounts claimed in the table above, where do you think it is coming from?

        Next, one of the reasons why our healthcare system is much cheaper than the US is because we actively try to keep older people in their homes, rather than into commercial retirement homes. Of course the retirement home industry is slavering to change that, because it is very costly and profitable for them.

        Who do you think will be paying for that? There’s plenty of material out there on the massive savings to taxpayers in keeping people out of retirement homesvfor as long as possible.

        This piece frankly sounds like cynical boosting for the US style retirement system, with great chunks going to retirement home operators and banks for reverse mortgages.

      • Via pension savings that go to the government instead of ones own family through a gov sponsored reverse mortgage scheme. Who wins out of that do think? Gen X, Y et al.? Then it will be ” the government shouldn’t be in the business of mortgages” and enters FIRE. It’s a litany of shell gaming being played in real time. I question the survival instincts of non Boomer generations. Ideologues in a rigged world. Breathtaking stupidity. No realpolitik awareness.

      • Hector, the DSS defines the Age Pension as “designed to provide income support to older Australians who need it” Define “need it” for us please, it’s the whole purpose of the debate after all, and then discuss how a government spending less borrowed money on pensions to people who don’t need it, may indeed help future generations of taxpayers. Seems logical? Or maybe you’re not a taxpayer?

    • Yep.

      This is a straight out inheritance tax of 100%, paid by gen x in the middle to low wealth groups.

      Of course, those whose families are already too rich to get a pension won’t be affected. Those on low to middle incomes will forgo inheriting the family home. 100% inheritance tax smacking gen x right in the face. Well, of course since it’s mostly gen x that are demanding it, I’d see no reason to oppose their selfless sacrifice. And since any reverse mortgage scheme will end up in the hands of the bankers, well why not give them 25% of the inheritance in fees too? Nobody seems to be too worried about fees either.

      Meh.

      • Yep, and the pretence that it will help younger generations cracks me up. Morrison is basically saying to Gen X and the rest is simply, “we don’t give a shit” about what happens to you, even though Australian society runs on a social compact that includes a pension for most working people. They are of course trying to break that now. Let’s vote on it first I say.

  4. Sorry, but need to vent. This is making my head spin.

    “Treasurer Scott Morrison has put ordinary Australian workers on notice that they should no longer expect to receive an age pension from the government when they retire.”

    http://www.smh.com.au/business/banking-and-finance/treasurer-scott-morrison-says-to-forget-about-relying-on-the-age-pension-20151127-gl9q2i.html

    Is the Treasurer suspending payments immediately for everyone? No.

    In other words, what he is saying is: “Gen X, Y and subsequent Generations, you need to make sure you keep paying for the current recipients so they can stay in their $1m plus houses, but don’t expect to get the same”

    If he *knows* something is not sustainable, then why the eff is he still paying it?

    • reusachtigeMEMBER

      Like derr. Votes. We live in a free and democratic society even if it’s commies galore on here.

    • And the best solution to this is giving your inheritance away. Lol. Lol .lol. Pathological Altruism comes to Australia.

      • It’s that, or income and consumption tax. No one is entitled to an inheritance. If your parents can’t pay their way, then you can have an inheritance… or they can get a pension. But both is theft from the taxpayers.

      • Au contraire, Hector. I think that living high on the hog while others pay for it is the very description of pre-revolution France. By attempting to compare Australia’s old-titlements to France’s pre-revolutionary peasants, you show just how utterly out of touch you are.

    • Agreed, but as a result there’ll be some full-on rumbles! It will be very interesting to observe.

  5. Can’t disagree with any of your 1,2,3 – many of us have been saying much the same for ages.

    Crafting a “fair” transition seems to be the only thing stopping it.

    As for the perceived cost of reverse mortgages/ equity releases – these will come down in time if there is enough market incentive.

    • Not really. Perhaps selfish to expect taxpayer largesse to maintain you in your expensive asset though.

      • A non-income producing asset that’s increased massively in value through no fault of their own.

        Ah, the politics of envy. Love it.

      • No, that pension they’re getting was taken from taxpayers. By taking money from other people when there are other options open, they are nothing but parasites.

    • “A non-income producing asset that’s increased massively in value through no fault of their own.”
      Where: “No fault of their own” = rent seeking and as Reusa has so aptly put it above, Votes.

      • Ya know, I’m no fan of the rent-seekers, but I fail to see how some oldie living quietly in the house waiting for god to come collect them is a rent-seeker. Let’s not abuse the term. Most of these folks are sitting on $1M+ properties now because of… nothing they’ve done. Innocent bystanders.

        So let’s have 1 question answered…

        If they are to be forced to “downsize”, where is it precisely they are to go? Are we comfortable moving them away from friends/family/infrastructure to go bush somewhere? Because in order to realise any sort of meaningful gains after the ticket clippers take their cut, and the state government collects its stamp duty, that’s what you’d have to do to most of them. Bear in mind, most of these folks aren’t living in palatial mansions drinking Moet from finest crystal. They’re just an ordinary 3 br house. Downsizing to a 1 or 2 br isn’t going to net them a fortune. Esp after aforementioned ticket clippers enrich themselves even further.

        No, there’s just too many problems with this “plan”.

      • No one’s forcing them to do anything Mr Walker. If they want the Age Pension, or some of it, they may have a different choice to make. They may have to….”gulp”…use an asset that they own, that is more than enough to fund some of their own needs, instead of the taxpayers footing every single bill they have forever….just personally can’t see how that is, what do you call it, the “politics of envy”? Social security is meant to be (I hope) a safety net. It seems a perfectly legitimate debate to have about who needs basic support, and who can look after themselves. Where is our personal pride?

      • Either hand over the pension entitlement or hand over the windfall you got “through no fault of your own” via an inheritance tax. It’s not hard. Why should their children pocket the windfall?

      • Bento. You didn’t answer the question.

        McPaddy. Please, feel free to answer the question as well.

      • Mr Walker, you are clearly all over the place!

        They go where they can afford to go. The people we are talking about are relatively well off you know?! Spoke to an old lady this week, has a $1.5m inner city terrace that she wants to die in. Reverse mortgage. Bingo. She goes nowhere, gets all the home care she needs. Assets gradually deplete. Until the ambulance comes. She has no kids so doesn’t care.

        See, the confected outrage at this policy isn’t always about the old people and their needs in my opinion. Anyone in inner Sydney who owns a house outright can live there comfortably without government support (Age Pension comfortably I mean) as long as they like. It’s the kids that don’t want to lose the big inheritance that are the obvious losers. So what?! Not my problem.

        My own father left his 3 bdr, 1/4 acre block house in the suburbs, into a new unit closer to the grandkids, pocketed the difference, topped up his super and is very happy with his seniors discount on the trains, doesn’t expect the Age Pension. He plans to spend as much as he can himself and I’m egging him on to do it as he never travelled or enjoyed the finer things. I’m glad he doesn’t want to just sit in the same place as he ages and die with a small fortune that he lucked on in a property bubble. He spends his money, supports local businesses blah blah.

    • @Mr Walker
      “It’s very selfish of old people to want to age in place” + 1000

      You’re making way to much sense for the usual serial jealous/envious mob on here — good to see.

      • The selfishness is not to age in place.
        The selfishness only comes if they are drawing down a pension when they have the means to look after themselves, but refuse to do so.
        LordDudley, as abrasive as he is, sums it up with “By taking money from other people when there are other options open, they are nothing but parasites.”
        I would be disappointed to hear about any adult, at any stage of their life, being able to financially look after themselves financially but refusing to do so.

      • I’m not abrasive. I’m lovely. Just ask my 3 daughters (who are all under the age of 10)… who won’t be paying everything they earn to prop up the lifestyles of oldies who refuse to accept that they might actually have to live within their means. And if they don’t have the means, we’re not asking them to drop dead. We’re just asking them to not pass money on to their kids (who are now in their 50’s) unless they are able to support themselves. It’s pretty simple.

        The old don’t get to cannibalise the young. If they try to, very very very bad things will happen. I’m one of the less abrasive people you will see if they succeed.

  6. I’ll bet the deteriorating budget and ratings downgrades are what will force the transition. Until ratings downgrades, the oldtitlements will remain.

  7. Has always been the been the biggest joke going around, ..the pension exempt house/tax free inheritance. Enabling people to go potentially right through life, and pay no tax, and be supported by the Government in full. Go Australia!

  8. The rearguard action has kicked off on ABC talk back in Perth. The idea is “insulting” apparently. “Why don’t they just take our homes?” was another good one. “I pay my daughter’s bills and she’s a single mum” was one of the more baffling arguments.

    • I think she’s saying that the transfer of resources goes from the old to the young for the oldies’ whole life. In strict cash terms, from one set of parents to their one set of children, that’s often true, but she’s not seeing the bigger picture of intergenerational transfer.

  9. There’s around two million aged pensioners and the ‘cost of the Age Pension ($43 billion per year) being the largest and one of the fastest-growing Budget expense’ – there is another that is equally worrying as it is in its infancy and already looks set to cost taxpayers $25-30billion per year. Current projections have it covering 400,000 individuals but trialling and pressure group activity suggest this number will likely expand significantly due to gradual inclusion of spectrums not currently covered.

    NDIS.

    • You’re right!

      To deal with all these future costs the government should’ve taken 100% of every dollar of iron ore sales above $50 as super-profits tax. If only a bunch of short-sighted greedy bastards and their mercenary foot soldiers hadn’t derailed such wise policy…. If only.

      • Stupid idea. It would already be unfunded.

        Point is, this is a newly created ongoing expense to the taxpayer. One likely to experience significant budget overruns and one likely to continue to grow in coming years. Negligible tangible benefits. Young people of today facing a cost burden similar and in addition to the aged pension. Governments will be squeezing taxpayers dry to pay for everything the taxpayer wants. Or thinks it wants.

    • OMG THOSE ARSEHOLES WITH DISABILITIES

      WON’T SOMONE THINK OF THE MINERS AND THE RICH

      Oh, wait, they did.

    • Ahh yes the NDIS. I will never forget all the well-meaning journalists on The Drum, at the ABC and so forth using the “cost of coffee a day” argument. Apparently that same argument no longer held when it came to the Medicare co-payment idea.

      • Ends up being lots of coffees a day given the amount of taxation the government would like to thieve from you. No wonder the barista business is so popular.

  10. Of course the family home should be in the assets test. When my gen reach pension age, there will not be a pension.There will be diddly squat left of anything if the boomers have their way. All this talk about boomers instead of the real issue in Australia – a disconnected youth. Boomers….Lets kick the can of debt and misery onto our kids.

    • And there will be a cohort of entrenched wealth who have inherited their fortune from the windfall sucked out of society by boomers who won the generational lottery. So much for the end of the age of entitlement. Never seen such attachment to entitlement.

  11. Let’s wait for the coming housing apocalypse to redefine housing values.
    If it doesn’t occur then the gens coming after the Boomers will do very well from their inheritances.
    Patience you young uns. Allthings comes to those who wait.
    I am a boomer , the only way I was able to buy my home was with the help of money left by my parents.

  12. There is nothing wrong with eliminating disincentives to downsizing. Nevertheless, a house is not just a financial asset. There are a number of studies showing that forcibly relocating elderly people is going to result in ill health and premature deaths for some of them. See for example

    http://scholarworks.wmich.edu/cgi/viewcontent.cgi?article=1926&context=jssw

    This Swedish study gives an idea of the magnitude of the effect

    http://eurpub.oxfordjournals.org/content/eurpub/6/3/212.full.pdf

    Are younger people really so greedy for these peoples’ houses that they can’t wait for them to die or have to move out due to poor health?

    With the MB plan, elderly people will be able to remain in their own homes if they wish to do so, in theory. In practice, if they live for any length of time, the reverse mortgage so that they can go on eating, plus paying the land tax, plus compound interest, is likely to consume much of the value of the house, especially if the entire value of the house is considered for the pensions asset test. ( Even with Leith’s preferred 5% interest, as in the Pensions Loan Scheme, the debt will double in less than 14 years.) The old folks’ children will see their inheritances evaporating and put their parents under intense pressure to move.

    There is also the social inequality issue. Middle and working class people miss out on an inheritance, but rich people, for whom the pension is chump change, get to pass on most of their wealth to their children. Nor are they expected to repay the superannuation tax concessions that they have received, which can be worth far more than the full pension.

    The obvious solutions to the lack of affordable housing are decentralisation, eliminating barriers to land release, and stabilising the population. If the major parties refuse to implement these things, put them both last at every election until they take notice. The solution to the costs of pensions and aged care is a progressive inheritance tax that will apply to the rich as well as lower income people. The laws can be written with proper exceptions and deferrals so that elderly widows aren’t thrown out on the street and we don’t force the sale of family farms and businesses.

    • Best comment on this thread. Compassionate and sensible.

      I’d only add that a distorted property market is the only reason an idea like the one promulgated above by the Productivity Commission could find favor. If the property market were to revert, and it well might, no savings to aged pensions will be forthcoming.

    • DECENTRALISE OZ

      Bout time MB picked this up.

      Start with a high speed broadband network to the regions

      Oh, wait.

      • You jest, but they already did…to marginal seats. My folks out in the middle of nowhere in Gippsland have excellent speeds and I in south east metro melb get nothing for another 2+ years and it’ll be the HFC garbage when I do.

    • “Are younger people really so greedy for these peoples’ houses that they can’t wait for them to die or have to move out due to poor health? “

      No. “Younger people” don’t care about their houses, or whether they stay or move out.

      What younger people want is to stop subsidizing their retirement.

      The Treasurer has come out and blatantly told “younger people” that they won’t get the Age Pension.
      Therefore on what grounds are the current recipients entitled?

      • +1000000. Plus, I will add that no-one’s kicking anyone out of a house. There are means for them to stay… but they don’t get to keep owning the whole thing if they draw a pension.

    • This comment is so many different types of wrong.

      “Are younger people really so greedy for these peoples’ houses that they can’t wait for them to die or have to move out due to poor health?”

      I second Jakub.

      “The old folks’ children will see their inheritances evaporating and put their parents under intense pressure to move.”

      If they have raised such terrible children, they get what they deserve.

      “There is also the social inequality issue. Middle and working class people miss out on an inheritance, but rich people, for whom the pension is chump change, get to pass on most of their wealth to their children. Nor are they expected to repay the superannuation tax concessions that they have received, which can be worth far more than the full pension.”

      You’re kidding? Rich people’s children are better off than the children of middle class children?!?!? Alert the media!

      What is the inheritance needed for? That’s right, stupidly priced property. Whoever thought you should be able to make your way in life via simple hard work and sensible choices? No, without an inheritance, what chance do you have. Given the stupid property prices.

      “The obvious solutions to the lack of affordable housing are decentralisation, eliminating barriers to land release, and stabilising the population.“

      Here we go. Instead of a simple solution, let’s propose 3 other measures that are so difficult they’ll never be implemented. Now we have a good reason to do nothing. Back to work.

      • Why do you assume that my solutions can’t be implemented? There are countries all over the world where the vast majority of the population isn’t crammed into a very few major cities, where the population is stabilised or close to it, and where governments don’t gouge people on the cost of residential land for their own benefit or that of their FIRE sector mates. We still live in a democracy, and have the right to put the major parties last. Other countries also tax inheritances, which you don’t mention, so a lot of the money paid out in pensions, etc. would eventually be repaid, and the government, as a bonus, would also recover the large amounts spent on superannuation tax concessions, which are almost as great as the cost of the aged pension. The children of ordinary people would not be stripped completely bare, while the children of the rich can use their dynasty’s wealth to buy our government,

        The stupid house prices are due to government policy, not inheritances.

    • If we want to consider the effects of moving elderly people into other houses, then maybe concurrently, we should consider the effects on the young of speculators (eg.baby boomer investors – remember those +80% who own their own homes and actively invest away in a market that should be hands off) artificially inflating housing prices, causing young people to rent forever, and pay exorbitant rents at that. It is not a god-given right to own a house. If you want proof, ask all those would-be first home buyers, who dont want to invest, but simply have the same opportunity as their parents to work hard, and purchase a tiny little property, but alas…..never will be able to, given 2 groups…….illegal property investors courtesy of China, and their baby boomer friends.

      • As a professional (wanker) supposedly CPA you certainly talk a load of rubbish. Blaming it all on so called “Boomers” is an obvious bucket of crap. The current house boom cycle has had very little investment from the older generation – – it was mainly those benefitting from high wages during the boom now ended that caused the problem. Repeating of the same mantra is stupid & boring. Grow up.
        Disclaimer – I’m NOT a Boomer nor do I get Govt assistance & I’m renting now 13yrs.

  13. My parents told of taxes introduced in the early 20th century which were to ensure everyone received the Aged Pension. They grew old thinking (rightly so) that they had saved for their pension and were therefore entitled to it because that is what they were told by the politicians AND they paid the extra taxes for it.
    The politicians and spin doctors have now eroded this so completely that we are proposing to strip frugal taxpayers of their assets in order that they pay for their own pension (AND they have still paid their extra taxes!). Talk about the government double-dipping.
    I am of the firm belief that part of the taxes collected in Australia should go to provide a basic Aged Pension for all, and the more frugal who accumulate assets during their lifetime should be allowed to keep those assets either to spend or pass on to their children. The majority of human beings seek to prosper and create a better future for their family. Any politician getting in the way of this will not survive.

    • Yes, I agree. This focus on cutting the aged pension is a complete furphy, and diversion away from the fact that neoliberal governments (ALP and Liberal) have for decades been eroding the tax base and profit share in favour of the wealthiest, best resourced, and best-connected. It’s a good indication of how far the neoliberal rot has set in that younger generations are now cheerleading the abolition of the aged pension.

    • They were also born and raised into a society where the rules supported a white Australia policy, and women and blacks couldn’t vote. Some rules need to change because they’re stupid and unfair on everyone else. Life expectancy was expected to be mid-60s when the rules were made and their “extra taxes” weren’t enough to pay for anything meaningful, let alone a lifetime pension, indexed, to their mid 80s and possibly beyond. If they have a million or two worth of stuff, houses, shares, super or cash (it all should count) through their hard work and good fortune, then stop whining and use it. The system wasn’t designed for the children of boomers to receive regular handouts from their parents and a large tax free inheritance off the back of every other taxpayer.

    • “I am of the firm belief that part of the taxes collected in Australia should go to provide a basic Aged Pension for all, and the more frugal who accumulate assets during their lifetime should be allowed to keep those assets either to spend or pass on to their children”

      Then go back in time and tell Menzies, Gorton, McMahon, Whitlam, Fraser, Hawke, Keating and Howard to run some more budget surpluses and Current Account surpluses.

      Otherwise, you’ve spent all your tax dollars. You’ve spent more of my tax dollars than you’re entitled to, as evidenced by stripping away monies from my kids education and health.

      You’re spending my kids tax dollars with the debt you leave behind.

      Get it through you’re selfish skulls.

      You’ve spent all you’ve earned, and more.

      You’re not entitled to it.

      • Dear AURules,

        O dear. We did touch a nerve. Never mind.

        Just so we understand each other. Your posts are quite comical. If that’s your intention, you’ve succeeded. If not, I suggest you direct what intellect you do have to a cognitively-challenged audience.

        No offense intended.

        Good luck on your journey.

        Have a great evening.

    • “Any politician getting in the way of this will not survive.”

      Absolute rot this line ggbarber..

      They survive and keep surviving, since the general sheep public keep voting for these 2 pathetic political parties.

  14. “Are younger people really so greedy for these peoples’ houses that they can’t wait for them to die or have to move out due to poor health? “

    It would appear so.

    • Nope. It’s that maintaining pensions without means testing is fiscally unsustainable. That money has to come from somewhere, and right now it comes from taxing labour and consumption. Those taxes are inefficient, and keeping them higher than necessary decreases economic activity.

      But don’t worry… no pollies will tackle oldtitlements until the budget has been well and truly trashed, there have been a few government credit rating downgrades, and every dollar of extra tax decreases the tax base by a dollar. Then change will be forced. We have about 4 years; 2 years until the depression starts, and another 2 for government finances to be totally wrecked.

      • Means testing someones primary place of residence isn’t the way to do it. What happens if the housing market goes so insane even a 1 br house goes above the limit? Cardboard boxes under bridges time?

      • Very good point. I think calculating it based on imputed rent is probably the way to go. Thank you for providing excellent food for thought.

    • Young people are homeless and desperate. We can’t blame them for self preservation. This is the world Boomers built for them, after all.

      • I suggest that the us and them thingy boomers V all of us is falling for a divisive strategy that may completely hobble necessary policy reform.

        There is only good policy and bad policy, don’t get sidetracked its their strategy and you are being sucked in.

    • “Means testing someones primary place of residence isn’t the way to do it. What happens if the housing market goes so insane even a 1 br house goes above the limit? Cardboard boxes under bridges time?”

      This is a very good point and it is why that any changes can not be done in isolation. You would hope that the powers that be introduce a raft of reforms that drive down the cost of land and set the asset test at a suitable level so that the vulnerable are not affected and those that are able to financially look after themselves stop receiving the pension.

  15. Report reads like the Productivity Commission and the Property Council have been sharing ideas (and the Property Council just loves to share its ideas with government at all levels. Why, it’s so generous it even lends its own paid town planning consultants to councils to help them develop policy !).

    If it weren’t for those pesky local Councils and low-rise loving suburbanites, we’d be able to construct multi-story retirement villages everywhere they’re needed !

  16. they should not include home price for age pension asset test because current price is not good proxy for home value and utility that it provides. They should instead include adequately assessed imputed rent into ordinary income. Imputed rent should also be included into income for people living in public housing That would make plain field and not discriminate based on ownership/tenancy status.

    • “adequately assessed imputed rent” Ah, now there’s 4 words that will make any Investment banker worth their salt rub their hands together with glee…the first two, especially….

  17. I think that all would agree that a couple living in a $5million dollar home that tey own outright, should not receive any welfare. The trolls will say, how many like that? If there is only one couple, I am sure they would still agree with the premise. So it is about the numbers only.

    Either tax payers pay more tax or assets are tested more.

    $10 billion extra for aged costs by 2017/18… it is happening now. See table 9.1 here.
    http://budget.gov.au/2014-15/content/bp1/html/bp1_bst6-01.htm

    • How brave and fearless.
      There are 150 members of the House of Representatives and 76 Senators. Yet one would struggle to find a spine amongst them.

  18. Funny conversation this.
    There won’t be enough people to pay the taxes to pay the aged pension in 35 years time!
    Everyone here needs to wage up and realise that they need to take care of themselves to the best extend possible.
    Reason for this:
    In 1970 there was about 7 tax payers for each person over 65. In 2010 this ratio changed to 5.2.
    And the catch is… by 2050 the ratio will be 2.8!!! (according to estimates/current trends).
    That is due to our aging population. We are looking down the gun barrel and there is not much to do about changing your population’s demographics. The government is going to be bankrupt by then, there is going to be little money available for spending on the aged.
    It is not pretty, but it will become a reality and the picture will become clearer/darker over the next decade.
    There is no gain from arguing entitlements to the aged pension or not. There won’t be money to pay for it. The lucky generations that benefited will remain just that… lucky.
    It is like getting into a Ponzi scheme and getting out with all the unearned benefits before it collapses.
    I wish it was me, but I will miss the boat turning 67 (current pension age) in 2040.
    Good luck to everyone who thinks the government will be their nanny in their old age.

  19. There is an acute shortage of decent housing a decent commute from a decent job.
    This shortage has been caused by boomers and oldsters inviting in too many immigrants and releasing too little land and building too little transport infrastructure and building too few extra cities.

    Now some young people are suggesting that the few decent houses be taken from the oldsters (via taxes) and redistributed to more deserving younger people.

    Do I support this as a good solution to the problem? No. I understand the feelings behind the proposal, but I think there are better solutions to the shortage.

    As I have stated elsewhere. Old people require water, food, clothing and shelter to survive. I believe strongly that an advanced decent country can and should provide these basics for its older citizens. If I am given a fair go in life I will be able and willing to provide this stuff for my own elderly parent(s) and several other old people.

    Instead of thinking in basics we talk dollar dollar dollar. How many dollars must we give oldsters and how many dollars we should take back because of how many dollars their house could now sell for.

    • Claw,

      Do you seriously believe that the politicians (at least from the major parties) take any real notice of what ordinary people think. The vast majority of the population, and nearly half of the non-English speaking migrants, were against Kevin Rudd’s Big Australia policy. See

      http://www.smh.com.au/national/big-australia-vision-goes-down-like-a-lead-balloon-20100803-115g7.html

      Julia Gillard told a few porkies about “not hurtling down the track to a Big Australia”, but went ahead and implemented Big Australia policies anyway. Without such high immigration, it would have been far more difficult for the government to drive up house prices. Politicians do what Big Business tells them. The oldsters clearly didn’t want all those immigrants, and I doubt that they were in favour of restricting the supply of land or packing most of our population into a very few big cities either.

      http://www.businessinsider.com.au/princeton-and-northwestern-study-on-elite-influence-in-politics-2014-4?r=US&IR=T

      There is no reason why the government could not recover a lot of the costs of the old people through inheritance taxes rather than stressing them with worries about whether their money will run out, especially since they don’t know how long they are going to live or what expensive problems they might have.l

      • Do you seriously believe that the politicians (at least from the major parties) take any real notice of what ordinary people think.
        They take enough notice to do or say just enough to get the votes from the ordinary people. That turns out not to be very much at all.

  20. Um, interesting read…… the divide will ensure that no meaningful reform will be implemented any time soon and hence status quo prevails…..

    Meanwhile, our big consumer staple oligopoly sector can sell the likes of $2 noodles from Vietnam or somewhere to the oldies aging in place, and send the meagre profits offshore…… well, the profit margin of $2 noodles is pretty thin, you know.

    After all, they cannot afford much else living off pension, can they?

  21. I also think it is not just about the money. At 23.5% of our homes as lone occupants and projected to rise to perhaps 30%, social isolation and loneliness is not something we should accept in an advanced society. We want people to downsize, move into granny flat, live with others, not die alone in a big old house.