The head of the Abbott Government’s Commission of Audit (COA), Tony Shephed, penned a curious article in Fairax over the weekend in which he questioned whether the Baby Boomer Generation was the “greediest generation ever” and called for a wind-back in generous retirement benefits in the interests of Budget sustainability and inter-generational equity, but then effectively contradicted himself.
Shephed began with a good explanation of the problems with the current retirement system:
The Baby Boomers should not expect future generations to pay for their current benefits…
We have an ageing population, increasing life expectancy, an aged pension benchmarked to average male weekly earnings (the highest possible index) and the family home excluded from the asset test. The aged pension costs us $42 billion a year and is estimated to grow at 6 per cent a year over the next 10 years – far higher than any predictions of inflation, GDP growth and real wage growth.
A person earning $80,000 who cannot afford a home pays taxes to support an aged pensioner in a $3 million family home . That home eventually passes tax free to the descendants. Hardly fair.
As we age our health care demands increase significantly. We provide a Senior’s Health Card, which excludes from its means test any untaxed income from superannuation…
The cost of aged care and ageing is more than $13 billion a year and is estimated to increase at 7.5 per cent a year over the next 10 years. The means test for aged care does not include the full value of the family home…
The dole, refugees, single parents and foreign aid are not the problem. Support for those most in need is threatened by support for those who are more able to look after themselves…
The over generous super provisions are another wealth transfer from the young to the old and should be tightened while not discouraging thrift and self-sufficiency…
We must bite the bullet and rein in expenditure, focusing our support on those who cannot look after themselves. The Baby Boomers should tighten their belts in the interests of their children and grandchildren.
So far so good. Shephed has expertly nailed the key issues, which have been enunciated on MB for several years now (most recently last Friday). If this was all that Shephed argued then I would be in 100% agreement.
The problem is that Shephed then went on to spruik the COA’s recommendations as the solution:
The Audit Commission recommended a single asset test for the aged pension including the value of the family home above $750,000 for couples to be phased in over 15 years giving time to plan and adjust. We recommended that the benchmark for the aged pension be tied to average weekly earnings again with the adjustment being phased in over 15 years. In aged care we recommended including the full value of the family home in the means test. For the Seniors Health Card we recommended that untaxed superannuation income be included in adjusted taxable income to determine eligibility…
We recommended the superannuation preservation age and the age pension age be adjusted in line with greater life expectancy. We suggested that the superannuation tax concessions be tightened because they did not appear to be working to encourage more people to be self-funded.
In July, Baby Boomers should vote for posterity and not for themselves.
Let’s take a look in more detail at the COA’s proposed sweeping changes to Australia’s retirement system:
- lowering the indexation rate of the Aged Pension to 28% of Average Weekly Earnings (from 28% of Male Weekly Earnings currently);
- tightening means testing around the Age Pension, including capturing the value of one’s principal place of residence above $500,000 for a single and $750,000 for a couple;
- gradually increasing the Aged Pension access age to 70 by 2053;
- increasing the superannuation preservation age to 5 years below the Aged Pension access age, so that by 2027 it would reach 62; and
- restricting access to the Commonwealth Seniors Health Card by adding deemed income from tax-free superannuation to the definition of Adjusted Taxable Income used for determining eligibility.
Taken at face value, the COA produced a sensible set of recommendations, which are similar to those espoused on MB for years.
However, there was a nasty sting in the tale in the COA’s recommendations that totally undermines Shephed’s arguments and should anger Australia’s younger generations, which is summarised in the below statement:
…changes to eligibility should only affect new recipients and even then there should be a reasonably long lead time recognising that people need sufficient notice given the importance of decisions that are often taken ahead of retirement. No existing recipient of the Age Pension will have their eligibility or pension amount reduced as a consequence of any of the Commission’s recommendations…
The Commission considers that people born before 1965 should not be subjected to this change or any other further changes to the eligibility age to ensure they have adequate time to plan for their retirement…
With any changes recommended to apply from 2027-28 onwards and only to new recipients of the Age Pension, no current pensioner would be affected by this change. That is, no existing recipient of the Age Pension would have their eligibility or pension amount reduced by the proposed inclusion of the principal residence in the Age Pension means test.
That’s right, the COA panel – dominated by baby boomers like Shephed – conveniently chose to spare its own generation from wearing Budget cuts. Meanwhile, the younger generations – “generations rent” – would have been required to bear the full burden of adjustment while their relatively well-off parents continued to enjoy their full entitlements while living in their expensive homes.
Let’s also not forget that the COA recommended that the Government curb Newstart – at the time a measly $13,273 per year (versus around $20k for the single Aged Pension) – by forcing young singles without dependents aged 22 to 30 who have already been on benefits for 12 months to move to higher employment areas or lose their payments, as well as increasing the rate at which Newstart payments are decreased for extra income to 75%.
The COA also recommended slashing the minimum wage from 56% of average weekly earnings to 44%, as well as slashing family tax benefits, which could effectively lower families’ disposable income by 10%, according to COA modelling.
And of course, the generation that mostly received free university education recommended decreasing Commonwealth Grant Scheme funding for higher education from 59% to 45% and increasing the proportion of costs paid by students from 41% to 55%, along with increasing the interest rate on HELP loans.
While many of the COA’s recommendations were justifiable in isolation on the basis of restoring the Budget back to long-run health, they were a bitter pill to swallow when the wealthiest generation – the baby boomers – were effectively quarantined from bearing any Budget pain.
No Tony Shephed, genuine and equitable budgetary reform is about sharing the burden of adjustment. By excluding your own generation from cuts, the COA failed miserably, and in the process declared war on the younger generations.
