Pension deal an offer hard to refuse
By Emily Millane
2 April 2015
Well by the looks of things the government and the Senate are finally talking. One suspects this may have something to do with the fact we are in this year’s budget season and vast swathes of last year’s budget are still to be passed by the upper house.
Minister for Social Services Scott Morrison has signalled that the government is prepared to consider other measures to rein in age pension spending. It was clear that the necessary support did not exist for indexing the pension to inflation rather than male average weekly earnings. This was an important plank of the savings the government forecast in its Intergenerational Report, so the government had to look elsewhere.
Whether or not you agree with the proposition that pension spending is unsustainable, it is hard to argue with a savings measure which is also fair. So hard to argue with, in fact, that Scott Morrison is using such a proposal to navigate pension savings through the Senate.
The proposal, put forward by the Australian Council of Social Services (ACOSS), is to tighten the pension assets test by lowering the asset-free threshold for people who own their home, and to increase the taper rates so that eligibility for a part pension cuts out sooner. This also means that eligibility for the Seniors Health Card and associated benefits cuts out sooner too.
This is a prudent recommendation because it will only affect wealthy pension recipients – those who own a home (of any value), with additional assets of $100,000 or more for singles and $150,000 or more for couples. For Morrison, it is also appealing because it avoids the debate about whether to count the family home in the means test.
The direction we head with regard to the pension necessarily affects superannuation: the two pillars of our retirement income system are bound up with each other. Politicians generally do a poor job of explaining the interactions between the two.
Per Capita’s modelling has shown that through savings generated by the ACOSS proposal, as well as tightening the concessional contribution limits for superannuation, it is possible to put in place a progressive tax on super contributions and come out with $950 million in savings.
In substance, this would mean lowering the amounts people can contribute annually to superannuation that are taxed concessionally, from $35,000 to $25,000. Tax on superannuation contributions would remain concessional – that is, lower than a person’s marginal income tax rate – for all income brackets but those at the top on incomes of $180,001 and above.
Various economists, industry groups and think tanks have developed their own thinking about ways that the pension and superannuation systems should be reformed. Sometimes campaigning together, sometimes as a disconnected group, these organisations have been calling for change for some time.
As a result of these groups, we have now reached a point of inevitability about reform of superannuation tax concessions and eligibility for the pension. The government, because of the political exigencies it is dealing with, has been forced to catch-up.
This story also acts as a litmus test about the health of our democracy.
Firstly, it shows that Australia’s civil society is alive and well. Ideas about the tax and transfer system are being developed and tested in the community. The media, especially social media, is often used to campaign on issues and promote debate.
Secondly, the government is scrambling to catch-up. Scott Morrison would probably have never foreseen that he would be openly touting the welfare proposal of a social services organisation.
At the same time the government is also dealing with its ineptitude in managing the processes of legislating. It says a lot about the government’s hubris that it is only just waking up to the reality of governing with the Senate.
Civil society is leading Australia at the moment. As the Parliament breaks for Easter it might reflect on how it can do better to meet the community half way.