More reform threatened

January 10th, 2016

The Turnbull government is apparently keen to undertake more reform, in this case applying to the welfare system. This weekend I saw a couple of media reports, unsourced but apparently based on material supplied by Social Services Minister Christian Porter, based on the “alarming” projection that welfare payments will rise from $154 billion to $270 billion in a decade, more than can be accounted for by inflation and population growth.

A huge dollar figure makes for a scary headline but not for sensible analysis. The prosaic facts underlying this projection are
(a) Welfare payments are dominated by the old age pension
(b) The value age pension increases in real terms over time, since it is linked to earnings
(c) Even allowing for an increased age of eligibility, and more reliance superannuation, the proportion of the population eligible for the old age pension is unlikely to fall

Put these facts together, and it’s virtually certain that the welfare bill will grow broadly in line with national income (usually measured by GDP), and therefore will outstrip growth in population and inflation. Indeed, a quick check suggests a compound rate of growth of about 6 per cent*, almost exactly in line with nominal GDP (assuming 3.5 per cent real growth and 2.5 per cent inflation).

The government’s proposed reforms appear to involve attacks on recipients of welfare in the popular media sense of the term (Jobstart, disability benefits and so on). But the only ways in which the growth rate of the welfare bill can be held much below that of GDP are
(i) Freeze the real value of age pensions, as has been done to Jobstart since the 1990s; or
(ii) Reduce access to the age pension, either by further raising the access age or by tigntening means and assets tests.

* Porter’s briefing apparently suggested 7 per cent, which I can’t replicate. Feel free to check.

  1. January 10th, 2016 at 14:21 | #1

    Its a pretty simple choice. As the population ages, either collect more tax, or reduce the age pension. The current thinking is all about reducing government expenditure on the pension.

    I should be eligible for the age pension in 9 years. I expect that by then I will no longer have the option of taking my super as a lump sum. Most likely my super will be paid as an annuity, and my age pension will be reduced by a significant fraction of that annuity. The annuity method has the advantage of slowing the rush of super out of the stock market as the tail end of the boomers retire.

    Of course this will not apply to those who have enough super to make them ineligible for the pension. Then, because they are a lifters, not a leaners, they will still be able to get their super as a lump sum.

  2. Mpower
    January 10th, 2016 at 14:39 | #2

    Nothing like checking a quibble on a hot day – is it 6% or is it 7% ?. Yes, you can get from $154b to $270b in a decade if you assume a decade starts in year 1 and you round up 6.6% to 7%. Next we will be hearing that nearly half of sickies are taken on Monday and Friday.

  3. Donald Oats
    January 10th, 2016 at 15:26 | #3

    What is the total cost per annum of all the federal politicians we have? What is the rate of growth in that figure? Shouldn’t we be doing something to rein that figure in?

  4. January 10th, 2016 at 15:28 | #4

    Wealth of a community increases from investment. It seems entirely reasonable that all should share in the increase from investment; including old people. The issue is how to distribute the increase in social and physical capital. It should not be to owners of multi-nationals, to the lenders of overseas currencies, or to the top few percent who control more than their fair share of community assets.

    Some form of guaranteed income paid to everyone from community assets would be a step in the right direction.

  5. Ikonoclast
    January 10th, 2016 at 16:59 | #5

    Cutting even more welfare from young people is going to get rather tough… especially for the young people. The current system is absurd and unfair. People are legally adults at 18. Unemployment benefit or Student Allowance as appropriate (not any so-called Youth Allowance) should apply from age 18. It should be set at the same rate as the single age pension. Clearly, a means test should apply in relation to their own income but not to their parents income. All welfare payments, UB or Pension etc., should be set to single rate and we should do away with the absurdity and compliance difficulties of testing for couple-hood.

    These policies would be clear, simple and more costly. Recoup the entire costs from increased progressive taxes on the richest 10%. It would be progressive and effective. The richest 10% should be told to suck it up. The poorest 80% would have every interest in this happening and if they had any sense they would agitate and then votefor it. Some of the 81 to 90 percent group might have doubts.

  6. bjb
    January 10th, 2016 at 17:15 | #6

    John Brookes :
    I expect that by then I will no longer have the option of taking my super as a lump sum. Most likely my super will be paid as an annuity

    That’s counter to the whole neo-liberal philosophy of individuals being responsible for their own welfare. In the last 20 or so years nearly all super funds have moved away from providing annuities, which moves the future risk from them to the individual.

  7. January 10th, 2016 at 17:27 | #7

    Weren’t we promised that our sparkly superannuation reforms, and that proportion of our pay rises that goes to super funds rather than directly to us, was meant to reduce the number of people dependent on the old aged pension and move all elderly people slowly to a better world of living on huge nest eggs? Surely by now that would lead to a slowing in the growth of the welfare bill?

    I would be interested to see what a projection for the total spending on pensions (old aged pension plus tax breaks for super) looks like now compared to, say, what it looked like 10 years before the superannuation reforms happened. How much more, exactly, are we spending on pension and retirement preparedness now than we were a couple of decades ago, and what more are we getting from that?

  8. conrad
    January 10th, 2016 at 18:13 | #8

    “Reduce access to the age pension, either by further raising the access age or by tigntening means and assets tests”

    This seems like a good idea because if you could get some people off the pension who have large amounts of assets (e.g., people with houses in expensive suburbs), the money saved could be used to increase the amount you pay those with nothing (and unemployment benefits to a decent level) and the system would be more progressive.

  9. Debbieanne
    January 10th, 2016 at 18:43 | #9

    is it trusts that allow people to structure their capital in such a way as to get a pension when they are quite well off (millionaires)? if so, something should be done about this. it is reprehensible that too many of the recipients of income from our safety net are attacked, while those who can support themselves rort the system. (unlike our exemplary politicians :)) An example of the horrid attacks is the idea of enforceable contraception for women on benefits (feel dirty just typing that).

  10. Ikonoclast
    January 10th, 2016 at 19:38 | #10


    Perhaps a simple law; “If your personal or family or business financial affairs are structured in any way using or connected to trusts and you are in any way the beneficiary of any trust then you are not eligible for a pension. The only exceptions permitted are as follows:” Then a bare minimum of trust setups necessary for those unable to manage their own affairs might be permitted by law. The trust income and deemed assets to produce that income ought to be still means tested.

    Frankly, what are trusts for except to hide assets or income and avoid tax and debt claims? Trusts, by and large, are the artifices and devices of the dodgy and untrustworthy. There are a few bona fide uses of trusts, mainly to manage assets for minors. Trust law is too broad in that allows far too much leeway for dishonest scoundrels.

  11. rog
    January 10th, 2016 at 19:50 | #11

    It seems clear that the new LNP coalition will continue the well established policy bashing of the less rich.

    Parents will be using whatever means to sock a bit away to help the kids.

    Thanks for nothing Malcolm.

  12. John Turner
    January 10th, 2016 at 20:02 | #12

    If JQ is correct that the rate of growth in pensions is almost exactly in line with the nominal growth in GDP then I do not see that there is a problem, provided of course that Government revenues as a % of GDP remain the same or are higher than present.

    Personally I am fed up with the misrepresentation of various governments when it comes to public social spending. The last OECD figures that I saw reported showed that Australia was close to the bottom in the social spending league. France spends 31% of GDP on public social spending, Demark 30%. Germany 25.5%. Japan 23.1%, USA 18.7% and Australia 18.3%.

    Of the 18.3% a mere 3.6% of GDP is spent on pensions and another 4.8% on other cash supports. 10.6% is spent on social services of which 6.1% is on health.

    Compare this to Germany where 14.4% of GDP is spent on ch benefits of which 10.6% is accounted for by pensions. They spend 8% on health services and a further 2.4% on other services.

    it is easier for government, especially LNP ones, to present the budgetary problems now and in the future as a problem of expenditure, particularly the amounts spent on those nasty pensioners and dole bludgers, rather than as a problem of revenue resulting from a tax structure that favours the corporations and the super rich.

  13. Ikonoclast
    January 10th, 2016 at 20:08 | #13


    “Parents will be using whatever means to sock a bit away to help the kids.”

    Yep, parents will have to keep their kids until the kids are 22 and beyond. They will have to help these now young adults who often can’t get good full-time jobs and who can’t afford to leave home and rent or buy an apartment or a house because that part of the economy is in a bloated, expensive bubble.

    Memo: All parents with kids under 22.

    Expect to be keeping, housing and subsidising your kids until they are at least 30. Good luck with enjoying life after kids or retirement. You’ll need all the luck (and money) you can get. Most of you won’t get this luck or money. Get used to it. It’s the neolib way. It’s here to stay. Unless you organise and make the rich pay.

  14. Ikonoclast
    January 10th, 2016 at 20:10 | #14

    @John Turner

    Agreed. Well put.

  15. Paul H
    January 10th, 2016 at 21:19 | #15

    @John Turner Witness our illustrious new Treasurer: “We have a ‘spending’ problem”. Same old monotone songbook; all about misrepresentation and obfuscation.
    If only these figures, and our woeful ranking amongst OECD cohort, could be communicated to the less-informed voter… but I despair at that happening. So, no MSM journalist in a position to air this stuff? Or have it aired on FTA current affairs… 7:30 Report, say? Are they all nobbled, effectively?
    Seems so.

  16. Ernestine Gross
    January 10th, 2016 at 21:55 | #16

    The contemporary term for pensions of various types is not welfare payments but income replacements, I observed.

    ‘the market’ does not care whether a bill is paid from income from employment, income replacement, interest, capital gains, borrowings or theft. ‘the market’ provides the data which enters GDP.

    The argument about ‘ageing population’ is not a watertight one. If, irrespective of the growth rate of population, the average age of the population increases such that the proportion of pensioners increases, then the proportion of school children may decline, reducing the expenditure on schools, familiy payments and other associated ‘welfare payments’ proportionately. If the proportion of school children remains constant, then the problem is merely a financing one. That is, we have an example of deficit financing ‘over the cycles’. Furthermore if there is no ‘ageing population’ but the opposite, say a ‘rejuvinating population’, then this doesn’t ‘ensure’ a balanced budget, all else equal, because if the proportionately larger number of younger people can’t find employment at a living wage, then nothing other than the accounting category label has changed.

    I am fully aware of not stating anything other than the obvious.

  17. Ikonoclast
    January 10th, 2016 at 22:37 | #17

    @Ernestine Gross

    Agree to what you say there. Another obvious thing to my mind is this. A person on $25,000 government pension (if it were that high) or on $25,000 self-funded super, if he/she spent it all each year, would cost the country the same to keep in real resources. When it comes to real resources in the current year, it matters not where the money (a notional accounting quantity) comes from.

    Of course, what could make a difference now would be how that money was accrued, accounted and applied (invested) in time past. But there are also ways in which that might not make a difference either. For example, the government might have raised personal taxes for some people in the past and paid that into a consolidated pension fund for future government pensions. Alternatively, it might have left taxes alone for some people but legislatively forced those people to pay that money into market super schemes. Either way, consumption is deferred, presumably for investment in productive national assets (public or private). In this case, all else being equal, it would matter not at all whether a person A was drawing a public pension and person B private super.

    I think the aggregate real economy / real resource outcome of these different approaches is vastly over-stated by many private market promoters. The pressure towards private super to some considerable extent just enables capture of the financial processes for private skimming and fee taking (rent seeking) purposes by a monied minority. The government should offer a National Super Scheme for all citizens with guaranteed returns. The guaranteed returns should be a little lower compared to market returns at any time but never negative. People could purchase public super or private super as they wished and could even elect portions of each. However, changeover points from private to public or the reverse would be restricted to one opportunity for a new apportionment each 5 years.

  18. Joe Blow
    January 10th, 2016 at 23:02 | #18

    Ikon and Debbianne,

    I have a trust for my children and according to my reading of the tax laws, they already are included as assists for pension purposes. The tax system is actually pretty thorough is this way – there aren’t many loopholes unless you are really devious.
    Also, getting rid of trusts would only hurt the moderately well off, not the rich, since much the same thing accomplished with a simple trust can be done with a more expensive company structure

  19. zoot
    January 11th, 2016 at 00:37 | #19

    @Ernestine Gross

    I am fully aware of not stating anything other than the obvious.

    Be that as it may, thank you from the bottom of this economic illiterate’s heart. You’ve clarified a few points for me.

  20. Ikonoclast
    January 11th, 2016 at 07:06 | #20

    @Joe Blow

    It must be how my mind works. I find the notion of Trusts distrustful. I always suspect complex Trust schemes to be nefarious. I can see very few honest or valid reason for trusts to exist other than to protect minors and others incapable of running their own affairs. Anything that involves lawyers and solicitors, I tend to run a hundred miles from except for a few unavoidable matters like getting conveyancing done… or trying to exercise power of attorney (POA). Exercising POA is a complete nightmare. Pray the gods never inflict it on you.

  21. Moz of Yarramulla
    January 11th, 2016 at 08:47 | #21

    Ikonoclast :
    I can see very few honest or valid reason for trusts to exist other than to protect minors and others incapable of running their own affairs.

    The family trust I’m a beneficiary of was set up protect indivisible assets. Otherwise the originator has to reply on goodwill, co-operation and a lot of common sense from the ever-increasing pool of inheritors. Any one of whom can break the whole thing up. Putting it in a trust means that the operators of the trust get to say “no, you’re an idiot” (up until some critical threshold of idiots arise). It’s perhaps most common on the tiny number of “family farms” where really only one family can make a living off the farm but it’s grossly unfair to leave the main family asset to only one child, but impractical to pay bankers to resolve the issue. So instead the farm trust owns the farm for all children, and the resident farmer pays them out as they can afford to. Similarly, I “own” a tiny fraction of the totality of a block of land, but it’s not a divisible fraction and it’s definitely not freehold in the usual sense because I can’t do anything with my share without the consent of the other trustees.

    Trusts are the closest match to traditional land title that I’m aware of, and in NZ at least there is a special category of “Maori Land Trust” legislated to deal with land that is multiply protected (via Treaty settlements or claims). Note that in NZ “Maori land” works the opposite to “Aboriginal land” – it has more protections than normal title rather than fewer.

  22. David Richards
    January 11th, 2016 at 10:30 | #22

    @Kevin Cox

    Totally agree – a UBI sufficient for reasonable standard of living is essential. Unconditionality would save on admin and compliance costs.

  23. Ikonoclast
    January 11th, 2016 at 12:00 | #23

    @Moz of Yarramulla

    So certain sorts of trusts can protect capitalist and rentier inheritances? It’s not a problem I’ve had. I mean getting inheritances and/or rentier income. 😉

    So as a worker with no inheritances, I guess my class loyalties and sympathies are not engaged by such issues. It no doubt makes me rather hard line and lacking in understanding on these matters.

    Maori lands are probably another matter. However, why is “white man law” needed? That might be a valid question.

  24. Donald Oats
    January 11th, 2016 at 13:08 | #24

    Addressing point ii):

    As of January 1st 2016, public servants who are defined benefit superannuation members are subject to a much more stringent income test for (access to) the Centrelink aged pension. The voluntary contribution component of the super (which employees contribute from their after income tax salary, i.e. after the full ATO tax has been accounted for) was effectively exempt from consideration, via a 50% rule; that rule has been changed to only 10% being exempt from consideration. Now, for someone who has been in the PS for a full working life, their super is probably more than sufficient (as an income stream) to exclude them from access to the aged pension that Centrelink offers; for those who were on low to moderate incomes, and/or were made redundant or left the PS (at least once) for reasons other than retirement, the income stream eventually available from their super is considerably less, and is therefore affected by this change in rules.

    The LNP didn’t even bother to grandfather this change. I am not prescient, I can only plan with what I know. On top of that, the LNP, and the government before them, lifted the retirement age—which affects when I can access a part-pension from Centrelink, should I qualify for it in the first place. There are bound to be thousands of people affected in this way.

    None of this mucking around is fair or equitable, as it penalises those people who have planned ahead, and in the case of those people who are already retired and have made an irrevocable commitment to an income stream from their super (i.e. a super-based pension), they are hit in a retrospective manner. Furthermore, it hits those whose super assets are too low to provide them with independent living in retirement; those who were on really good salaries, e.g. the high level managers, are fairly few in number, but are safe from any effect of these changes, as they have a perfectly good and significant income stream regardless.

    In other words, the government is the main threat to public servants hoping for a reasonable retirement on a partly self-funded pension, as they keep meddling with the rules, so as to hit those who are in the lower tiers of retirement income/assets.

    It is punitive and pointless.

    The defence force personnel are, of course, exempt from this change in the rules (as I understand it). So, punitive and pointless and plays favourites.

    There is very little prospect of these changes making a big difference to the overall budget position, but are perfectly in line with the idiotology of the current government.

  25. Ivor
    January 11th, 2016 at 13:35 | #25

    So presumably if growth in welfare is 6%pa which matches GDP, there is no loss in equity between those on welfare w.r.t. the rest of society?

    There is no reason why the welfare bill should be held back to just cover population and inflation.

    If the proportion of welfare recipients increases then there may need to be an adjustment but this should not be a burden or disadvantage for the recipients. They have gone through life with perfectly reasonable expectations – it is now up to capitalism to make good on its promises – or else give way to some form of socialism.

  26. Catherine
    January 11th, 2016 at 15:32 | #26

    So again the Libs are attacking all that has been put into place to protect the older and vunerable % of the population, what is wrong with an increase in the tax level to accommodate the increase
    as the baby boomers leave the living world which many will do the rate of expenditure will decrease
    let the elderly live with dignity.

  27. John Turner
    January 11th, 2016 at 17:57 | #27

    Aside from a few special cases such as those raised by Moz, my experience of trusts is that they are simply a Tax dodge. For example, it is fairly normal for professional organisations (Lawyers, Dentists, Doctors for example) to have a service trust that employs everyone other than the partners and does all the administration. They may also gave property trusts that own the properties they work from and charge rent to the service trust.

    The service trusts may be owned by family trusts and the property trusts typically owned by self managed superannuation funds. What does this achieve? 1) it symphons off income from partners to discretionary trusts that can employ family members to whom they pay the tax free threshold thus avoiding their high marginal rate of tax on that income. 2) Typically they can push the rents to the highest level ( still has to be commercially justifiable) thus again reducing their taxable income. By having the self managed super funds owning the property through the property trust they avoid CGT. Another little perk is that if instead of being “Partners” they are associates, they can borrow to pay their tax (interest on the borrowings are tax deductible) while then using tax money they have accumulated to pay off the mortgage on their residential property thus saving interest which is not tax deductible and paying off their residential asset quicker.

    The tax system needs a massive overhaul, getting rid of a lot of theses deductions and manipulations that are open to high paid professionals but not to others.

    Similarly, we need to drastically overhaul corporate tax, not to reduce it but to ensure it is paid. Remove most of the corporate tax deductions, high on the list should be intracompany management fees, interest on loans from overseas based parent or associated entities. Also, Introduce some overall threshold test that can if necessary allow the ATO to impose a tax based on revenue ILO profits where it has reasonable cause to believe that profits are being siphoned off to overseas tax havens.

  28. John Turner
    January 11th, 2016 at 18:12 | #28

    @Donald Oats
    You might be considered lucky to be in a benefits defined scheme, they are rare these days. While I sympathise with the your concern about the havoc the government has wreaked upon some superranuants I have never understood the logic of the Australian super/ penison systems. Surely a more logical system would tax the incomes received rather than the inputs. I would remove the contributions tax altogether (subject to a reasonable benefits limit), enforce superranuants to take the bulk of their super savings as a pension and apply the same tax structure to that pension income as is paid by working people. I know of professionals who have retired with incomes of between $100000 and $200,000 a year and pay no tax. Seems totally unreasonable to me.

    I also do not agree with means tested pensions, provided that a person has paid the appropriate tax during their working life they should be entitled to draw a state pension. If like the example above they have a sizeable income from a private pension it should all be counted in the income figure for tax purposes and the relevant marginal rate paid. By mean testing pensions instead of them being universal, we tend to regard them as welfare rather than what they are which is an entitlement towards which we gave being paying our entire working life.

  29. Collin Street
    January 11th, 2016 at 19:58 | #29

    > It is punitive and pointless.

    It’s not pointless, it’s just vile. State-run welfare systems make it difficult to build clientalist dependency. Becoming and remaining rich requires a certain dedication and thus a certain drive, and one of the things that generates the drive-to-be-wealthy is the thought that you can use the power that wealth gives you to be, you know, a fucking arsehole.

    If the state is off there giving away “unconditional” money — that is, not conditional on surrendering your autonomy and self-respect to someone richer than you — then what’s the point of getting lots of money if you can’t use it to generate social pull?

    Same with the extension of “child” rates to adult uni students; for a lot of coalition voters, that they’re now responsible for funding the lives of their adult children is kind of the point here, gives them control, enforces the “respect” that they can’t earn on their own merits [because tbh these are usually pretty stunted people we’re talking about.]

    Abusers are a real thing. They vote for policies that empower them and legitimate their preferences, and that means by-and-large signing up for the conservative side of politics.

  30. Collin Street
    January 11th, 2016 at 20:27 | #30

    It’s not pointless, it’s just vile. State-run welfare systems make it difficult to build clientalist dependency. Becoming and remaining rich requires a certain dedication and thus a certain drive, and one of the things that generates the drive-to-be-wealthy is the thought that you can use the power that wealth gives you to be, you know, a prize arsehole.

    If the state is off there giving away “unconditional” money — that is, not conditional on surrendering your autonomy and self-respect to someone richer than you — then what’s the point of getting lots of money if you can’t use it to generate social pull?

    Same with the extension of “child” rates to adult uni students; for a lot of coalition voters, that they’re now responsible for funding the lives of their adult children is kind of the point here, gives them control, enforces the “respect” that they can’t earn on their own merits [because tbh these are usually pretty stunted people we’re talking about.]

    Abusers are a real thing. They vote for policies that empower them and legitimate their preferences, and that means by-and-large signing up for the conservative side of politics.

  31. Collin Street
    January 11th, 2016 at 20:28 | #31

    Above in response to
    Donald Oats :

  32. Ikonoclast
    January 12th, 2016 at 08:30 | #32

    Agree with Donald Oats and John Turner on their respective posts above. I am writing simple “agree withs” to stop myself from writing too many long screeds.

  33. Moz of Yarramulla
    January 12th, 2016 at 09:02 | #33


    “I don’t have it so you can’t either” is a particularly vile form of jealousy.

    I would like you to point out an example of a long-lasting community facility that’s neither government-run nor owned by a trust. Without that your “no trust” ideas mean no community theatre, no community arts trusts, no semi-public land or facilities. A lot of things like camping grounds, bush huts, community halls are owned and run by trusts. Yes, they’d pay more tax (and more rates) if they had to be corporations, but a lot of them would do so as they passed out of public use because they don’t have cash, only assets.

    Think about the National Trust for a second, and imagine them paying a couple of million dollars a year in rates on all those lovely historic buildings they own. The locals councils would be much better off with that income. Where would that money come from? Why, selling the buildings, of course, where else would the National Trust get money? They barely have enough to maintain the buildings, let alone pay any of their volunteers.

  34. Black cat
    January 12th, 2016 at 09:15 | #34

    Isn’t it right on equity grounds to include the family home in the asset test for pensions? I can see no reason why people who own a house in an expensive Sydney suburb are eligible for public pension, when a reverse mortgage would allow them to enjoy a comfortable retirement with no access to public money.

  35. Collin Street
    January 12th, 2016 at 11:22 | #35

    > I can see no reason

    I can; in fact I can think of two. There’s probably others; I mean, I’m not saying that the reasons are necessarily going to be compelling or even influential in coming to conclusions — I shouldn’t need to point out that “reasons for doing X exist” doesn’t imply “doing X is on balance a good idea” — but they do exist, things like “how can we guarantee functional markets in what are essentially once-off transactions [or is the state going to be the counterparty]?” and “how do the costs of rehousing old people pan out in the event of some sort of transaction failure?”.

    If you ever find yourself saying “I can see no reason” you might be better off taking it as a sign of failure and ignorance on your part rather than as something to be proud of: there are reasons for everything.

  36. Ikonoclast
    January 12th, 2016 at 19:27 | #36

    @Collin Street

    It is clear what Black cat meant in the context of the discussion. In context, “no reason” means “no good reason” with respect to capacity to pay for retirement privately rather than rely on public welfare.

    You make the sweeping claim “there are reasons for everything” (the Principle of Sufficient Reason). There is no complete proof for this assertion in all of philosophy or theology.

  37. BilB
    January 12th, 2016 at 19:51 | #37

    I think that the government must show belief in its own policies. I recall that this is to be the dynamic innovative economy of the future, hence an increase in social welfare over ten years will not cause a problem as the revenue flows from an innovative entrepreneurial economy coupled with an increasing population will be huge. Take a look at Ireland, and I see on the French News that France is already well down that path. As they say “entrepreneur” is after all a French term.

    I say to Turnbull,…”get on with it,…prove that what you promise can actually come true”,…”Prove that you are not another total LNP flop as Abbott was”. Remember Abbott? the guy who was going to turn the budget around in a single term, the guy who, along with his “power” cabinet was going to make Australia a vibrant economy just by getting rid of the price on carbon?

  38. Ernestine Gross
    January 12th, 2016 at 21:55 | #38

    @Black cat

    Tell me, Black cat, are there some high income people in the finance sector who think it is a good idea for them to secure their future in the industry by promoting reverse mortgages?

    It seems to be there is a more efficient way to introduce a bit more ‘equity’ into the system. Cut out the finance sector and introduce a death duty on all assets (real estate, hobby farms, financial securities, gold, pieces of art work, left over superannuation funds, ……), other than productive farms and non-financial enterprises who produce something other than numbers, using a progressive death duty scale. Wouldn’t this be a little more equitable than what we have now, both regarding within generation and intergenerational equity?

    Incidentally, the full pension wouldn’t be enough to cover the cleaning, general maintenance, dog walking and dog bathing, swimming pool cleaning and gardening costs of ‘expensive’ properties in Sydney. I suppose in many cases these running costs are covered by the rental incomes from tax subsidised (negative gearing and reduced capital gains tax) properties other than the residence as well as tax subsidised voluntary contributions to superannuation funds. Do you consider tax expenditure (subsidies as listed) as equitable?

    The people who are able to live on a full pension in Sydney, without support from family or government housing, are those who enjoy relatively good health, have a low maintenance small house, which they have paid off with after tax income (or inherited, in full or partially) over a decade or more, including periods before the income tax cuts (top first) were introduced, and maintained it in a reasonably good condition due to their own work until they are so old and frail that moving to aged care is the only option.

    Why would you like to transfer wealth from these people, during their life time, to the ‘financial market’? And, why wouldn’t you like to transfer wealth from these people, after they died, to the public purse such that the next generation of pensioners can benefit?

    What is your notion of ‘equity’?

    The only social system I can imagine for which your apparent notion of equity would make sense is one I would label financial market slavery. Nothing is allowed to happen in such a society unless the chosen few in the financial market get a cut and, in particular, the sole purpose of a taxation system is to pay for the unintended consequences of the system (often referred to as ‘bail outs’). Is this what you want?

  39. Collin Street
    January 13th, 2016 at 06:00 | #39

    It is clear what Black cat meant in the context of the discussion. In context, “no reason” means “no good reason” with respect to capacity to pay for retirement privately rather than rely on public welfare.

    “I shouldn’t need to point out that “reasons for doing X exist” doesn’t imply “doing X is on balance a good idea””

    The reasons I listed are good reasons. They may not be compelling reasons, but:
    a: they need to be examined and dealt with, not just ignored, and
    b: people who can’t see them without their being pointed out should probably assume that they’re missing lots of other stuff when they look at things and be a lot less firm in the strength of their convictions.

  40. Ikonoclast
    January 13th, 2016 at 06:08 | #40

    @Ernestine Gross

    Not supporting Black cat but Black cat was referring to “expensive homes”. This does point to a real issue. There are distortions in our economy which make logical and equitable welfare policy difficult to enact.

    From my reading of the Human Services site, a person’s principle home, including adjacent land up to 2 hectares, is exempt from the pensions asset test. The assets test threshold for full pension for a homeowner couple is $291,500 and for a non-homeowner couple is $440,500. Meanwhile, Sydney’s median house price has recently cracked the $1,000,000 barrier while the median Sydney wage would be about $60,000. One can immediately see all sorts of problems flowing from these distorted values. The median house price is badly distorted compared to everything else.

    On the one hand, a retired pensioner couple has a “reasonable expectation” that their median Sydney family home will not be counted in assessing their pension. On the other hand, they live in a million dollar home that in a sense is imputed to be worth only $440,500 – $291,500 or $149,000 according to pension asset rules. This seems unfair to non-home owners who rent.

    Where should the line be drawn? I would suggest that the median house price in the most expensive city should be the benchmark. In other words, only the median house price component of the principle home ($1 million currently) should be an exempt asset for pension purposes. Value in excess of that should be an assessable asset.

    This would mean in practice that when the principle home, if it were the sole asset, went above an assessed market value of $1,291,500, the excess would begin to be assessed for pension rate purposes. That would seem reasonable. What should occur in that case is that the pensioner couple should be able to apply to continue to receive full pension. The government should pay the full pension but the pensioners would incur a debt to the government as per their excess pension in relation to the assets test standard result. This debt would be recoverable from the estate on the death of the last survivor of the couple. That would keep the reverse mortgage finance vultures out of the mix.

  41. John Turner
    January 13th, 2016 at 13:06 | #41

    This is typical of the difficulty that means testing presents. As a result of a business failure which was the result of a series of floods and the recession in the 1989-1990 period I lost all assets. It has taken a long time to get back from that situation; now I am approaching a late retirement I have considered selling my house to my son and using the capital to generate income in retirement. However this effectively disadvantages me as it will reduce my Pension entitlement. This is manifestly unfair. Also, I shall shortly draw a small pension from a UK company pension fund which is taxable in Australia while pensions from Australian super funds are not taxed. Again this seems to me to be unfair treatment.
    The whole superannuation/ pension regime needs to be overhauled (see my previous comments) I also agree that an inheritance tax is required and a more effective capital rains tax.

  42. John Turner
    January 13th, 2016 at 13:10 | #42

    Re above read “Gains” not “rains “

  43. Black cat
    January 13th, 2016 at 13:37 | #43

    Excluding houses from the pension test also provides an artificial incentive not to downsize. In a capitalistic economy, big houses in expensive areas would be occupied by wealthy people who are willing to pay for them. In a (utopian) socialist economy they would be occupied by those who need them most. In Australia they may well be occupied by pensioners, who don’t really need them, and would be better off moving to a less expensive area, except they may then lose their eligibility for pension.

  44. Julie Thomas
    January 13th, 2016 at 14:18 | #44

    “they may well be occupied by pensioners, who don’t really need them, and would be better off moving to a less expensive area”

    How do you know what a “pensioner” needs and what would be “better” for them?

  45. Collin Street
    January 13th, 2016 at 16:33 | #45

    I also agree that an inheritance tax is required and a more effective capital rains tax.

    The sensible idea would be to abolish the concessional treatment of capital gains, tax capital-gains incomes under the normal income-tax framework, and — to allow for the way that some income types such-as-but-not-limited-to capital-gains accrue over multiple years but vest only once — permit people to allocate some incomes [and outgoings, even] to previous years, with the tax paid as if the money had been earned in past years the taxpayer picks.

    Simpler-but-actually-more-complex changes might be to limit the amount of a person’s income that could be taxed as capital gains to… thirty percent over a rotating five-year window, or something like that.

    I mean, it’s not insoluable, except through learned or feigned helplessness. The concessional tax treatment of capital gains is justified because of a real problem — the interaction between annual tax assessments and income streams irregular over a longer period — but it doesn’t cover more than a fraction of the incidence of that problem [for creative types it’s not that unusual to get multiple-year incomes in basically a single lump sum], and many people who are eligible to have their income taxed largely as capital gains don’t have the irregularity of income that justifies the concession: for those people it’s a rort, not a justified policy decision.

  46. John Turner
    January 13th, 2016 at 18:32 | #46

    Sweden has an interesting approach to pensions that does not involve any means testing. it is a bit complex to describe it so I recommend looking at the Swedish Pensions Agency web site.; however, it consists of 3 components a basic pension which is funded by a deduction of 18.5% from salary, 2.5% of this can be directed into specific funds by the individual. On top of this there are employer funded occupational pensions and any personal pension. For low income individuals there is a guaranteed pension level moreover, individuals can also earn income units from other sources such as the time spent caring for children, time when you are sick, time when you are involved in higher studies.

    There is no means testing but there is an income ceiling in terms of accruing the basic pension. It moves pensions away from a residual welfare model to a contribution/entitlement model where the social worth of some activities ( eg child rearing) are recognised in that they contribute to you pension entitlement.

    Interesting approach worth consideration. The immense amount of funds that go into relatively few pension funds mean that they have a lot of clout in the board rooms.

  47. Ikonoclast
    January 14th, 2016 at 08:48 | #47

    @John Turner

    The Swedish model sounds like it has some merit. But we can look at things in another way.

    Arguing about how we fund pensions actually misses the real point. The real point is how many real resources we apply to supporting elderly non-workers. The real resources are applied in the real and continuous present. The nominal (money) payment for the real resources is “real” only in a formal accounting sense. Money simply is not real in the sense that real resources are real. At best, money value rather imperfectly equates a great many real goods and services transactions over time.

    Money available for supporting pensioners is drawn from accounting data of what happened in the past (real transfers of good and services in the past) and how they were valued in money. There are multiple ways of coming up with money accounting streams to support pensioners. There is no objective answer to the question “Which is the right form of money accounting stream to support pensioners.”

    Since there is no right answer to this formal question above, we should ask a real, though still very complex, question. What are the real resources we need to, and can afford to, devote to pensioners if we are to be a humane and just society? These real resources will be constituted of real housing resources, real food resources, real medical resources, real services etc. We calculate the money value per pensioner for this. Then we pay this out of general revenue, raising taxes if necessary to do this. If people want to buy more retirement units (annuities) above the public pension base in another public or private scheme we should allow them to do that. We also should add further public health safety nets (like free hospitals) to catch those who experience worse than average health or other unfortunate outcomes from the vicissitudes of life.

  48. Ernestine Gross
    January 14th, 2016 at 23:25 | #48


    Perhaps I should have made it clearer, I have no objection to reverse mortages offered by financial institutions. I object to compulsory reverse mortages for the purpose of pension payments, including your suggestion.

    The asset test is not the only test for pension eligibility. There is also an income test.[1] The maximum income (wages, if any, foreign pensions, if any, and deemed income from financial assets including superannuation accounts) is $7488 p.a. for a couple before loosing $0.5 per dollar of pension.

    As you correctly stated, the maximum value of assets for the full pension is $291,500 for a couple. The pension payments decline for values above $291,500 and the payment is zero at $1,163,000. At the deeming rates, which are close to the current cash or term deposit rates, the income from this upper limit is about $34,890 p.a (which is close to the full pension payment). So, by having an asset and an income test for pension eligibility with the residence excluded from the asset test, we have a system that is internally reasonably consistent and ‘fair’. Moreover, if you were to look up council rates and get estimates for maintaining ‘big houses’ (Black cat’s initial term) in ‘expensive areas’ (in Sydney) you may agree with me that a cash income of between $60,000 to $100,000 p.a. is required to run a ‘big house’ in an ‘expensive area’. These cash incomes exclude pension payments but not tax-expenditure subsidised superannuation income streams.

    We are back to Prof Q’s argument, as well as the findings of the Murray report on the stability of the financial system. Lets call this the primary policy change objective. (I leave it up to you to work out the equity implications of your ideas, based on ‘median house price’ and ‘median income’, and government managed reverse mortgages.)

    It is the case that the enormous real estate price hikes (deliberate choice of words) in Sydney, more so in some areas than in others, may entail a ‘windfall gain’. For example, delapitated former workers cottages are now ‘million dollar houses’ in inner Sydney areas. Three bedroom cottages in the middle ring (eg Eastwood) have been transacted for more than $1.5million. But what would be the purpose of getting oldies to reverse mortgage their houses to retain the pension, as you suggest? Obviously, the government would have to put a limit on the cash flow from a reverse mortgage to prevent future ‘welfare spending’ for nursing homes, which can no longer be met from rental income from an unincumbered home or from the proceeds of the sale of a home. There is also the problem of how are these implicit loans valued over time, ie at what reverse mortgage interest rate. There would be an increase in risk, both for the current home owner-pensioner (will I have enough wealth left until after my death?) and for the government. How is this increased risk and uncertainty being valued? My best guess is that the limits on government managed reverse mortages would have to be such that the standard of living of the people concerned would not change significantly (these people were not ‘rich’ before they retired and they are not rich in retirement). Hence any ‘windfall gain’ under current arrangements would accrue to those who inherit what is left over. This is the reason why I believe a progressive inheritance or death duty would be the way to go if intergenerational equity is a policy objective. Lets call this the second policy objective.

    (Ikon, your method of imputing a rental value is meaningless. Alternatively put, it falls into the same category of problems as that identified in the Murray report)

    [1] Fortunately, the policy makers are aware that the prices of owner occupied houses and units have, at least at times, a life of their own, independent on the income history of the owners. Until the house is sold its price is not known.

  49. Ivor
    January 15th, 2016 at 00:10 | #49

    I would be amazed if after working 30-to-40 years and paying taxes, that people are expected to mortgage their own homes just to get a pension.

    Why have we come to this?

    Everyone has the right to a single home to live in for as long as they want.

  50. Collin Street
    January 15th, 2016 at 06:11 | #50

    > government managed reverse mortages

    If they’re government-managed we’d actually get strictly-better results — cheaper to run, more certainty for the elderly — if we reintroduced death duties. As Ikon points out, the core of the problem is the flow of real resources, not how it’s accounted for.

    [the problem with defined-contribution superannuation is that it has to be invested in large part in assets of almost-certain return… which are exactly the sort of investments that are better-made by the state, all else being equal. But this is true for all incomes: as I’ve mentioned a few times, a competitive market basically can’t have any profitable players, so all actual income is actually dependent on government/social allocation decisions rather than just the skills of the income-holder. Which, yeah. “Private industry”.]

  51. Moz of Yarramulla
    January 15th, 2016 at 08:24 | #51

    Ivor :
    Everyone has the right to a single home to live in for as long as they want.

    That’s a completely different discussion, though. It’s also radical, in that I don’t think it’s ever been implemented by anyone, anywhere. Even basic hunter-gatherer societies demand that people work to have somewhere to live, if they can. And all the modern social housing I’m aware of restricts both who can move in, and kicks people out if they misbehave. You can’t just rock up and say “gimme house”, then start collecting bodies in barrels.

    As far as pensioners go I’m a bit torn. I’m aware that my family have been forced to sell properties that we would rather have kept, and another side have a family trust specifically to avoid the laws that would force the sale of that property. It’s all very well saying “gift it to the kids” but that will be assessed as a market value transaction and taxed accordingly (which is a good thing), but not everyone can afford to pay the tax on something that has appreciated to the point where everyone involved couldn’t jointly buy it. So we end up with tax dodge trusts set up so that the family farm can stay in the family.

    Not sure what the solution is, and I suspect that the best option is actually forced sales. But that requires more than just taxing and forced sale of houses belonging to people unable or unwilling to transfer their house to a trust.

  52. Ivor
    January 15th, 2016 at 08:38 | #52

    @Moz of Yarramulla

    So the real answer is a different form of political economy.

  53. Ikonoclast
    January 15th, 2016 at 08:59 | #53

    @Ernestine Gross

    Thank you for your comprehensive reply. You have convinced me that “a progressive inheritance or death duty” would be the way to go. That could help ameliorate a lot of other developing inequality problems in the extant economic system. I mean in particular the current patrimonial concentration of capital as identified by Piketty. The issue I guess is how do we Australians as a polity ever get those taxes instituted (or re-instituted) in practice?

    Overall, I still adhere to the position that our systems of ownership and allocation are wrong in the first place. Preventing most maldistribution in the first place would be preferable to redistributing afterwards. You might see a different handling of markets and institutions as the answer (complete the markets, ensure minimum wealth conditions etc.) I might see a different ownership structure (worker owned and managed cooperatives) as the answer. The comprehensive answer might even be a hybridisation of those sort of ideas. But that is another long discussion of course.

  54. Mercurial
    January 17th, 2016 at 08:38 | #54

    Thanks John. Just a note re unemployment benefits: the allowance hasn’t been called ‘Jobstart’ for many years. It’s now known as ‘Newstart’.

  55. Ikonoclast
    January 17th, 2016 at 09:30 | #55


    I had never thought about this before and I should have. The change in terminology is openly revealing. It is clearly no longer realistically expected that the process will lead to a job start as the economy is too weak to create enough jobs, So it just gets a wish-washy, weasel word of new start which could mean anything.

    It is common and correct to be reminded, even officially, that we should not use denigrating terms when referring to different groups of people. So why is the motto “Work for the Dole” still in official sanctioned use? With its clear association with the term “dole-bludger” and the general negative connotations of the word “dole”, it is clear that as a disadvantaged minority, the unemployed are being denigrated.

  56. John Turner
    January 18th, 2016 at 17:41 | #56


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