The Actuaries Institute has put forward the ingeniously inequitable plan to allow retirees to sell-off their expensive large homes, pocket the money, continue to collect the Aged Pension, and be exempted from paying stamp duty on their next (smaller) dwelling. From The AFR:
In a new report, the Actuaries Institute says the government could make downsizing more appealing by exempting a proportion of the proceeds from selling the family home from the assets test. The same would apply to the equity released by a reverse mortgage.
State governments should also offer relief from stamp duties to downsizers, the report says.
The institute does not nominate what the exempt proportion should be and concedes the move would add to the national pension bill. However, the changes would free up housing supply and allow “asset rich, income poor” retirees a better standard of living…
The institute insists retirees should not be forced to sell or take out a reverse mortgage. But the government should consider policies that make it easier to downsize and release equity for a better lifestyle.
As regular readers will know, I am strongly oppose stamp duties on equity and efficiency grounds. One of my biggest concerns around stamp duty is that it discourages housing turnover by unnecessarily penalising people that move to homes that better suit their needs. As such, stamp duties inevitably lead to an inefficient use of the housing stock, such as empty nesters occupying large homes with multiple spare bedrooms, or young families cramming into small apartments.
That said, I cannot support abolishing stamp duties for retirees only, whilst continuing to financially penalise young families upgrading to more suitable accommodation. Such age-based measures will unfairly shift the tax burden even further onto the younger generations, burdening the very segment of society (young families) that are arguably already under the most financial strain.
Nor can I support the Institute’s plan to allow oldies to pocket some of the windfall from their sale without affecting their access to the Aged Pension. The Institute must honestly believe that it is equitable for younger people’s taxes to rise in order to pay for the bloated entitlements of those who had the good fortune of purchasing their homes cheaply before they skyrocketed in value, to the detriment of their children and grandchildren, who must now support them in old age?
Genuine and equitable budgetary reform is about sharing the burden of adjustment. However, by creating a special class of citizens exempted from bearing any pain – i.e. home owning retirees – the Institute’s plan would effectively shift the burden of repairing the Budget to the younger generations.
If the Institute had any budgetary sense, they would instead advocate:
- 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.
- Replacing stamp duties for everyone with a broad-based land values tax.
- Extending 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, asset 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, but without favouring one generation over the other.
Inter-generational inequity would be worsened under the Actuaries Institute’s plan, which places the welfare of asset rich retirees well above their children and grandchildren, who will be left picking up the tab for Budget repair.
