The National Farmers’ Federation (NFF) and National Seniors Australia (NSA) have proposed reducing the income tax rate on pensioners’ earnings in order to address labour shortages.
At present a single person can earn up to $480 per fortnight without affecting their pension entitlement, but they incur an effective marginal tax rate of 50% if their income exceeds this.
NFF president Fiona Simson contends that relaxing this rule would encourage more pensioners to enter the workforce, including travelling to regional areas to harvest fruit crops.
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Pensioners in New Zealand can work without affecting their income and 25 per cent of them earned income from paid work, compared to just 3 per cent in Australia. A parliamentary briefing prepared for the Morrison government found an extra 445,000 people could enter the workforce if tax on pensioners’ earnings was cut…
National Seniors spokesman Craig Feldman said cutting the tax on pensioners’ earnings “would be a great incentive” to get more people into the workforce.
“We surveyed about 3000 of our members, which is a pretty good sample and 20 per cent of them came back to us and said yes, we would actually consider going back into the workforce,” Feldman said…
Employer groups have expressed support for NSA’s proposal with Australian Chamber of Commerce & Industry CEO Andrew McKellar estimating it could encourage at least 400,000 people over the age of 65 to return to the workforce.
Treasurer Jim Chalmers also signaled that he is open to NSA’s proposal with the issue to be raised at the government’s Jobs and Skills Summit in September:
“We listen respectfully to anybody who’s got ideas about how we can deal with the challenges in our economy,” Chalmers said.
As noted above, New Zealand’s labour force participation rate among pensioners is a whopping 25%, versus just 3% in Australia (15% for all Australians aged over 65). The reason New Zealand’s is so high is because the pension is not means tested and is offered to everyone. Therefore, pension-aged Kiwis do not lose the pension if they chose to work more, they simply pay tax on their extra earnings.
Two other top pension systems – The Netherlands and Denmark – have defined benefit schemes, or universal basic pensions, in place and have much much higher labour force participation than Australia.
NSA chief Ian Henschke has also previously noted that labour force participation among pensioners in the USA (20%), Israel (21%) and Sweden (20%) puts Australia’s (3%) to absolute shame.
In addition to the labour force participation benefits, a universal-style of pension would eliminate complexity and administration costs, since their would no longer be any need to apply any means tests, taper rates, deeming rates, etc.
A universal pension would also eliminate the game-playing and manipulation undertaken on the part of older citizens to get the best deal out of the Age Pension.
Instead of continually importing hundreds of thousands of migrants into Australia to ‘solve’ labour shortages, and placing undue pressure on infrastructure, housing and the environment, why not make better use of pensioners that want to work, but are precluded from doing so because of punitive pension rules?
It’s a policy no-brainer.
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