Everything You May Have Wanted to Know About the Changes to the Part-Pension
The Australian Greens rose, federally, on a promise to “do politics differently”. Under the leadership of veteran forests campaigner and equality champion Dr Bob Brown, the Greens were positioned as the progressive alternative to a Labor Party seen to be dominated by its Right faction. “We don’t want to keep the bastards honest,” quipped Brown, “we want to replace them.”
It’s why last week’s deal between new Greens leader Senator Richard Di Natale and the Liberal government to cut part pensions for retired Australians is a shock.
The Greens support will allow the Liberals to cut the part-pension currently received by retired Australians whose individual assets, excluding the family home, are over a threshold of $500k for singles and $823k for couples.
It’s Liberal policy – Tony Abbott’s pre-election promise of “no cuts to pensions” notwithstanding – but it’s been agreed to by the Greens in return for a mere $15 a week increase to the full pension (a rise that CPI pressures made likely to happen anyway) and a government promise to examine tax concessions within the superannuation system in the next tax review – a promise that commits no one, least of all the government, to actual reform.
The Greens are trying to herald the deal as a great progressive victory, in that this tiny increase of money will go to the poorest senior Australians, who are entirely income-dependent on what they receive from the government.
Yet in its wake, Scott Morrison has pledged “we won’t be increasing taxes on superannuation” – so the Greens’ white paper can talk the talk on tax reform all it likes, because the richest Australians will still be gouging away at the taxation base with full government support.
When people talk about the “30% super tax concession”, this is what they mean: Australians earning upwards of $180k are taxed at 45% if they pay income tax, but if that money is instead dumped into super, it’s taxed only at a paltry 15%. Above $300k a year, tax on super goes up to 30% – but for government revenue, that’s still a costly discount on the 45% income tax rate. Research by the Australia Institute has revealed that enough people are taking advantage of this “concession” to be costing the Australian taxation base $10bn a year. That’s a whole quarter of last year’s deficit.
Yes, the most vulnerable people within the economy are in need of greater support – no one is arguing that. But leaving the richest and most costly retiree schemes entirely alone in the new pension is not a progressive victory. That the Greens have also agreed to Liberal policy by cutting part-pensions to some current recipients and tightening eligibility requirements for future ones is why it’s a progressive disaster.
What are Aged Pensions?
Aged pensions exist in order to provide income security to citizens who can no longer work and therefore earn an income through their own labour. Pensions are understood within a cultural context worldwide – yes, even in the welfare-adverse United States – as an entitlement, based on an appreciation of old age as both a social achievement and life-challenge deserving of collective support.
For this reason, countries including Britain and Sweden grant all retired workers a basic aged pension of some form, but in Australia, pensions are means-tested against a person’s assets before a pension is granted and to determine its size.
The economic reforms of the Hawke-Keating era introduced the superannuation policy scheme in 1988 to direct contributions straight from pay-packets into interest-paying funds workers could access to supplement their retirement, but superannuation was never meant to replace the aged pension.
What is Superannuation?
Keating’s idea of superannuation was for retirees to have access to a sum of money saved up over their working lives; interest from these savings would be added to the part-pension payments that enabled income security, with the total amount gradually “drawn down” over the course of the retiree’s life.
The idea combined the obligation of the state to protect its elderly with a health-boosting financial empowerment of individuals to determine their own living arrangements. Having a sum of super saved up also allows retirees to use their own funds to meet larger, emergency or unexpected costs, particularly in regards to health or home maintenance, so it simultaneously relieves the state of a costly obligation to meet a retiree’s immediate physical needs and care.
People seem to forget that if someone who is retired needs, for example, to replace their car so they can access services, these expenses can’t be covered with a bank loan because retirees can’t work to pay one back. The taxes were low on superannuation to encourage workers to contribute more to this saving for retirement; the architects never expected that the already-rich would exploit it for tax minimisation.
But rather than fixing the super tax rate at the top end, the Liberals and Greens have combined to disqualify part-pensioners from their present entitlements. Yes, $500k in addition to the family home sounds like a lot of money to a young person who doesn’t have any – but these are funds that plus-sixty-five-year-olds without job income have to last them the rest of their lives, during the period of their greatest health expenses and care needs.
Also, the new assets test doesn’t just apply to financial assets like super. The test includes the valuation of home possessions such as furniture, jewellery, cars, retirement projects like boats, caravans or collections and heirlooms. Bear in mind, the interest drawn from superannuation is pegged to interest rates; today that’s 2%, or $10k out of $500k (presuming someone lives in a house with absolutely no furniture), and as money is drawn down from the $500k to live upon, the interest return obviously drops, while the money is worth less because of inflation raising the cost-of-living.
Safeguarding against diminishing returns and fluctuations is precisely why the part-pension exists
This is why analysis by the Australian National University’s Tax and Transfer Institute, the Committee for Sustainable Retirement Incomes, Industry Super Australia and research by actuarial firm Rice Warner show that the short and long term effects of the Greens/Liberal age pension changes will harm Australians on low and moderate incomes.
Already, for Australians currently aged 55-59 and nearing retirement, and even with the super system in place, pensions will be the largest source of retirement income for around 60% of couples and single men, and around 70% of single women. Because this legislation affects pension arrangements for the future, if you factor in inflation, the deal’s reduction of the threshholds for pension support will adversely effect single women currently aged 25-29 on annual incomes as low as $24,000. The deal destabilises the future retirement income stability of Australians who are decades from retirement.
Pressure to Sell the Family Home: Outlined in the 2014 Commission of Audit
Removing that stability is obviously a neat way of pressuring senior Australians to downsize and sell their homes, which is actually what the Coalition wants – despite the known desire of ageing Australians, and recommendations of best-care practices, to stay in their own homes and established communities as long as possible.
The Liberals’ desire for this policy outcome was outlined in its Commission of Audit papers just before the unpopular budget of 2014, who scheduled a transition to assets testing the family home for 2027-28. Rejected by public outcry, the deal with the Greens is a backdoor means of creating economic conditions to pressure sales. Those presently locked out of the housing market will not be beneficiaries of retirement sales – rather, with the trend to force retirees to spend their assets to pay for their ageing, what’s one of the crucial economic mechanisms for realising home ownership will be removed from the economy: the mechanism of inheritance.
Inheritance provides ordinary people a means of intergenerational financial stability, particularly if it’s provided in the form of property or the means to purchase it. For the Liberals, the party of employers, the basic logic is that workers who already own their own homes are less likely to be terrified into accepting exploitative work conditions because they have to meet rental or mortgage pressure.
This is why the Australian Council of Trade Unions have come out so strongly against the Greens/Liberal deal – the Liberals support pension cuts for the same reason they are not addressing the super-tax loophole; the rich remain untouched.
Ramifications
Those defending the Liberal-Greens deal have made much of the Australian Council of Social Services supporting the changes because of the $15 extra for full pensioners. But ACOSS represents the organisations that provide services to poor people, not poor people themselves. ACOSS is the welfare lobby of service providers. While Scott Morrison looks to making “savings” from his portfolio, it’s in that industry’s interest to encourage they come from pensioners, rather than government tenders that sustain their businesses.
Scott Morrison’s own political genius with the deal has been in convincing the Greens to be the ones spruiking the idea that increases for the pensioners can only be achieved by sacrificing part-pensioners, as if all spending on pensions comes out of a single place account rather than the general pool of all Australian taxation revenue.
“Savings” do not have to be made from one group of welfare recipients to fund another. But, again, in the 2014 Commission of Audit, the Liberals made it very clear that they do not believe in pensions and state-provided mechanisms of income stability as a universal right, but only as a “safety net” for the very poor. The Greens are facilitating the realisation of that idea and destroying a key pillar of social equity by helping the Liberals further restrict pension entitlements.
If Richard Di Natale doesn’t understand these implications of the decision, he’s too naive to be making any on behalf of a party with the balance of power. If he does understand, his is a betrayal of the principle on which the Greens were founded. Unless Greens members, voters and the broader community hold Di Natale to account, the Greens are no longer fit to claim a mission to replace “the bastards”. They’ve become just become as indistinguishable from the bastards as everyone else.
IN RESPONSE TO COMMUNITY FEEDBACK THE GREENS HAVE RELEASED THIS STATEMENT TO ADDRESS CONCERNS: 10 THINGS ABOUT THE PENSION.