How to increase the workforce by 0.5 million without immigration

I argued on Monday that, instead of importing hundreds of thousands of migrants each year to address labour shortages, Australia should abolish the income test for the aged pension to encourage more seniors to enter the workforce.

Despite two decades of extreme immigration, which saw Australia’s population grow 2.5 times faster than the OECD average, Dr Cameron Murray’s latest research showed that the share of non-workers in Australia is no lower than in most other developed countries:

Even Japan, which has one of the oldest populations in the world and whose population is shrinking, has a lower share of non-workers than Australia does.

Under the current aged pension rules, people who are working and receiving the aged pension face effective marginal tax rates of up to 77%:

These high effective marginal tax rates discourage older Australians from working because for every extra hour they work in paid employment, they get taxed punitively because they lose access to the aged pension, so most don’t bother. It represents a massive disincentive.

New Zealand is a stark counterpoint to Australia.

New Zealand boasts one of the highest rates of workforce participation among those 65 and over in the OECD, a trend that has accelerated in recent decades.

Data presented below from Statistics New Zealand’s Household Labour Force Survey (HLFS) shows that participation rates for those aged 65 and over have climbed from around 12% two decades ago to over 26% today. This isn’t accidental; the universal New Zealand Superannuation (NZS)—a non-means-tested pension providing financial security—enables many senior Kiwis to work by choice.

In other words, pensioners and veterans in New Zealand can earn income without their entitlements being clawed back.

Australia’s labour force participation rate for those aged 65 and over is just over 10% lower than New Zealand’s at 16%:

According to the Australian Bureau of Statistics (ABS), there were just under 5 million people aged 65 and over in Australia as of the March quarter of 2026, roughly double the number in 2002:

My policy solution for labour shortages is for Australia to meet New Zealand halfway by maintaining the pension assets means test while eliminating the income means test. This would allow pensioners to work without incurring financial penalties.

The policy would likely be budget neutral or potentially positive, as standard income tax could then be levied on combined earnings from the aged pension and any income earned from work.

The following chart shows the additional 65-and-over workers that would be gained by the economy if Australia’s labour force participation rate matched New Zealand’s:

Australia would gain just over 500,000 workers if its 65-and-over labour force participation rate matched New Zealand’s, equivalent to just over 3% of the current labour force.

These people already live in Australia. Therefore, unlike new migrants, they will not place extra strain on housing, infrastructure, and services.

They would provide additional labour supply without adding to demand, bolstering the economy without the negative externalities that come from immigration-driven population growth.