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We’re old enough (but wise enough?) to make tough decisions on pension

The aged pension is increasingly unsustainable. And raising the age is only one reform Joe Hockey should be looking at if he’s serious about “intergenerational theft”, says economist Leith van Onselen.

So, Treasurer Joe Hockey has finally put the aged pension on the block for reform, placing it alongside Newstart and the disability pension. Hockey’s comments late last week that the retirement age of 65 (scheduled to increase to 67 by 2023) is unsustainable in light of increasing life expectancy, and that failure to reform would be akin to intergenerational theft”, is appropriate on a number of levels.

Like many other advanced nations, Australia is facing a demographic tsunami that threatens to cripple government finances. The large-scale retirement of the baby boomer generation means that the ratio of working-age Australians supporting dependents (mostly the aged) will shrink over coming decades, slashing the tax base at the same time as age-related outlays expand …

According to the Grattan Institute, without corrective action, the federal budget deficit could hit $60 billion per year by 2023, or up to 4% of GDP, due mostly to rising health and welfare costs. Grattan also argues that the only part of the tax and welfare system that is not well targeted is that for old people — a view supported by researchers from Curtin University, who recently found that welfare policies across the period 1984 to 2010 overwhelmingly favoured the elderly at the expense of the young.

Judging by the Treasurer’s comments, the government will likely follow the Productivity Commission’s recommendation and seek to raise the eligibility age of the age pension to 70 — a move that is estimated to save around $150 billion over the period 2025-26 to 2059-60 and increase participation rates among older workers by around 3% to 10%.

While such a reform is welcome, on its own it is not enough, and deeper reforms of the retirement system are needed in order to improve intergenerational equity and the long-term sustainability of the budget.

Superannuation is a particularly large problem. While the system was originally designed so that a younger generation could pay for its own retirement, it has instead become a mechanism whereby older people pay less tax given their income than everybody else, with the lion’s share of benefits also overwhelmingly going to richer people.

Under the current system, all employees that contribute compulsorily into super pay a flat 15% contributions tax, which effectively means that the amount of concessions received increases as one moves up the income scale …

For example, someone who earns in excess of $180,000 per year receives a 30% tax concession for each dollar she contributes into super (i.e. 45% marginal tax rate less the 15% flat tax). At the other end of the scale, someone who earns less than $18,200 per year in effect gets penalised 15% for each dollar he contributes into super.

According to Treasury figures, concessions on superannuation contributions were estimated at $16.5 billion in 2012-13, with concessions on superannuation earnings valued at $15.5 billion. Moreover, Treasury estimates that the top 5% of contributors would receive 20.3% of contribution concessions, with higher income earners also receiving the lion’s share of the earnings tax concessions.

Given that the main rationale behind superannuation is to both adequately provide for retirement and take pressure off the aged pension, the 15% flat tax system is inherently flawed and designed to fail. By providing massive taxation concessions to those on the highest incomes, the budget loses billions of dollars of forgone revenue. At the same time, the super system is unlikely to relieve pressure on the aged pension, since those that are most likely to need it — lower- and middle-income earners — receive minimal (if any) concessions, which both hinders their ability to build up a retirement nest egg and discourages them from making additional contributions.

A simple reform that would greatly improve the equity and sustainability of the retirement system would be to abolish the flat 15% tax on superannuation contributions and replace it with a flat concession (e.g. 15%) that is the same for all income earners. A reform of this nature would not only improve equity, since all taxpayers would receive the same taxation concession, but also boost lower-income earners’ super savings, thereby reducing reliance on the aged pension and relieving pressures on the budget.

Other inherent flaws in Australia’s retirement system include the exclusion of the family home from the assets test for the aged pension, combined with the ability to withdraw one’s super as a lump sum (instead of an annuity). Both loopholes create an incentive for households to borrow to purchase an expensive home in the lead-up to retirement, retire at 60, withdraw their super tax-free as a lump sum, use the money to pay off their mortgage or to fund consumption, and then go on the aged pension from 65 years of age. In such instances, the taxpayer is left wearing the cost of superannuation concessions throughout the individual’s working life, and then again once that same individual goes on the aged pension.

In fact, the latest Retirement and Retirement Intentions survey by the Australian Bureau of Statistics found that ”of those who had made contributions, 55% had received all or part of their superannuation funds as a lump sum payment”. It also found that ”many of those who received a lump sum payment used it to pay off or improve their existing home or purchase a new home … or to buy or pay off a motor vehicle”.

Obvious reforms that would improve the integrity, fairness and sustainability of the retirement system, therefore, also include:

  • Increasing the access age to superannuation (from 60 years currently) so that it more closely matches the pension access age;
  • Reducing the ability to draw super as a lump sum; and
  • Including one’s owner-occupied home (or part thereof) in the assets test for the aged pension, so that taxpayer assistance flows more to those in genuine need.

Hockey’s acknowledgement that the aged pension system is both unsustainable and inequitable is a welcome start. However, if the government’s “ending the age of entitlement” is to be equitable and consistent, it will need to place the retirement system front and centre, incorporating the growing army of wealthier, older Australians drawing unreasonable tax concessions and benefits.

To not target this group would indeed be ”intergenerational theft”, and would place the budget in an increasingly precarious position as Australia’s population ages. It would also mean that the working-age population is left wearing the brunt of budget expenditure cuts at the same time as it incurs the cost of supporting its relatively well-off parents.

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  • 1
    Roger Clifton
    Posted Monday, 24 February 2014 at 1:48 pm | Permalink

    If industry wanted wrinkly workers, it would persuade us not to retire.

    However rather than pay humans wages plus hefty income taxes, industry is replacing us with high-energy machinery whose carbon fuel pays absolutely no tax at all.

    The economy ain’t shrinking, it can still support its hosts. Then shift the tax base, dumbo.

  • 2
    klewso
    Posted Monday, 24 February 2014 at 1:59 pm | Permalink

    That’s all well and good for Shockey - but what happens to us plebs between being made aged-redundant and when the pension kicks in?

  • 3
    JMNO
    Posted Monday, 24 February 2014 at 1:59 pm | Permalink

    As a retiree on super, I would support any measures to ensure that we retirees pay our fair share of tax.

    A couple of comments/questions on other measures advocated:
    1. If the age at which a person can access super or a pension is raised, where are these older people going to find work? Most employers aren’t interested in having employees aged over 55 unless they are very senior members of the organisation. If you are over 55 and apply for work (the sort of work that will support you until you are 67 or 70), you will be pre-selected out as being too old.
    Unless employers start to value older employees, all you are doing is increasing the number of people on a disability pension.

    2. Lump sums: Of course people pay off their house or buy a car. It means that a very large expense is dealt with without eating into what is left to live on. Once you are on a fixed income meeting the cost of large capital items becomes much more difficult.

    3. Including the family home in the assets test. My parents didn’t have much money after raising 5 children on a moderate income. They were eligible for the aged pension. The family home which they had bought many years previously had appreciated in value but that didn’t mean anything whilst they had lived there - after all they had to have somewhere to live and they didn’t want to move. After my father’s death and when my mother moved into aged care, the house was sold and a reasonable proportion of sale price was used to pay a bond for her hostel accommodation.

    4. The attraction of living on the aged pension: Once again my parents owned their house and car. Yet to survive on the aged pension meant they had to live very frugally. And for a single person living on a single pension when the costs of upkeeping a house are the same as for two people, it is even more frugal. Why would anyone who had the money want to dispose of it into an asset (an expensive house) that doesn’t produce an income purely to live on an extremely low income?

    Perhaps I am missing something here and perhaps the author would like to explain.

  • 4
    Paddy Forsayeth
    Posted Monday, 24 February 2014 at 3:00 pm | Permalink

    I hear a lot about ‘pay a fair share of tax’ but it seems that doesn’t apply to the very rich. That the super rice can stash $32 odd trillion in faraway banks is abhorrent. Hockey banging on about pensions and taxes shows that he and most world treasurers are spineless when it comes to demanding that ALL income earners pay the same rate of tax. The unrest in many parts of the world is due, in many cases, to the general population getting fed up with these greedy wealth thieves who severely distort the global finances. This is pie in the sky, but I would suggest to the IMF that all banks globally institute a deposit and withdrawal tax of say 0.1%. This would go a long way to retrieving our cash from the small number of stupendously rich in this world.

  • 5
    Kevin Cox
    Posted Monday, 24 February 2014 at 3:19 pm | Permalink

    So in 1961 we had 1.1 workers per dependent and this may be 1.3 in 2050. Hardly a tsunami but a gentle wave upward depending on the reference point. As the value added is increasingly provided by invested capital rather than worker labour it would seem there is little to worry about - provided we share the value added by capital with all in our society.

  • 6
    bushby jane
    Posted Monday, 24 February 2014 at 5:35 pm | Permalink

    Still going for the less well off, Hockey has already reversed Gillard’s wealthy superannuants paying more tax. My husband has been a carpenter for 50 years, he will soon be 65, his body is buggered and ready to retire. Alright if you are a politician, but guess what-they don’t have any designated age to retire.

  • 7
    Shaniq'ua Shardonn'ay
    Posted Monday, 24 February 2014 at 5:42 pm | Permalink

    @JMNO
    1. Like many younger people, you will just have to take any job, regardless of the salary, work for the dole or pay to retrain yourself. You may not get on the disability pension unless you can really prove you are severly disabled.
    2.Lump Sums - I can see a good justification for paying off the house but buying a car? A big fat depreciating asset? Yep it is probably a good idea to limit that.
    3. Including the Family home in the assets test. Yes it is a probably a good idea. Partly for the reasons stated in 4) As hard as we may find it encouraging the elderly to downsize and to do it sooner rather than later is a good idea. The current system encourages pensioners and older centrelink recipients to sit in Million dollar homes that are crumbling around them because they are frightened of the government getting any of their money.

  • 8
    Brian Williams
    Posted Monday, 24 February 2014 at 6:04 pm | Permalink

    Some good points in this article, about an issue that will become more problematic the longer it’s ignored. It’s just a pity that the new Government has neutered Labor’s first (albeit somewhat flawed) attempt to try and attack it. JMNO has already made most of the points that I would have made (points 1 and 4 in particular), so I’ll just add the following to his/her analysis.

    1) The authors suggestion of a switch to a 15% tax concession on pre-tax contributions merits further discussion. It would be more cumbersome to manage than the current 15% flat tax, because a persons final tax rate (and therefore their contribution tax rate) would not be known until the following financial year, and many people could find themselves hit with an unexpected tax bill, if the extra tax owed was not taken from their super account, but it does pass the fairness test.

    2) I really wish that shock-jocks, slack journos and politicians of all persuasions would stop referring to outcomes they dislike as being ‘loopholes’. A loophole is an unintended consequence of a particular policy - there is nothing unintended about the ability of people to take their super as a lump sum upon retirement. It has been a known and fully publicised possibility from day one.

    3) JMNO has already touched on this but it bears amplification. The authors suggestion that new retirees are somehow waiting with bated breath to spend all their super in a lump sum in the first few years of retirement, and then live as near-paupers in a big house on the old-age pension for the next 15-20 years is intellectually ludicrous.

    4) The big elephant in the room, and one not touched on by the author, is when/if a government will try and reinstate the taxation of super account earnings on those who have retired - this is the time bomb that Costello bequeathed to his successors.

  • 9
    Roy Inglis
    Posted Monday, 24 February 2014 at 6:15 pm | Permalink

    Good article and maybe the Abbott - Hockey government will act on these inequities. Then again, maybe they will do what the Howard - Costello and before them the Frazer - Howard governments did. Huff and puff about economic management and how good they are and how bad Labor is while leave their herd of well fattened rapacious sacred cows, including the wealthy aged, all but untouched or even more fattened and multiplying (eg: baby bonus). The May budget will either be the making of the current government or hoist it on a hypocritical petard of it’s own making.

  • 10
    Sean Doyle
    Posted Monday, 24 February 2014 at 6:17 pm | Permalink

    A massive problem is that these proposals are seemingly made on the premise that everyone’s a white collar office worker. Just extending the pension elegibility age isn’t some magical elixir of youth and given how things are for quite a number of 50+ unemployed Australians, any pension savings made are likely to be lost straight away though more dole/DSP payments.

    Not really sure about including the family home in the assets test. For one thing, retired people still need somewhere to live and given how the rental market “works” in Australia, there could be major problems down the track. Even if it did free up supply, I still think there are better ways of doing that (taking a meat axe to negative gearing, for instance). The use of lump sums to pay off major debts before a fall in income comes about smacks of common sense to me, although maybe a percentage limit on the lump sum (40%? 50%?) could be implemented so the super doesn’t get all blown at once.

    I do agree with the author on the contribution tax concessions though. At the moment they are just a flat out tax rort for people who already have plenty of money and need fixing up immediately. It would probably go a fair way to fixing the pension funding issue all by itself, actually, which might make the scaremongering in service of attacking social welfare a bit needless, really.

  • 11
    Jimmyhaz
    Posted Monday, 24 February 2014 at 6:58 pm | Permalink

    The age pension is becomingly increasingly unsustainable’.

    And the award for the quickest objectively incorrect statement in an article goes to, this one!

    Moving on from that, I do agree entirely that the current set-up for super is grossly unfair, and I would like to see it changed to one that is fare less favourable to the already super-wealthy. I don’t really see it happening with this government in charge, however.

    Wasn’t one of the first things this government did reverse the concessions for low-income earners to superannuation, and reinstate them for the upper-bracket? It seems the ‘age of entitlement’ is only over for those who cannot afford to buy a voice.

  • 12
    AR
    Posted Monday, 24 February 2014 at 7:13 pm | Permalink

    When workers (of any age) become excess to requirements, dole/pension/welfare is still far cheaper than oppression.
    The rich don’t want to be eaten or burned out, they’ll pay, whinging all the while.

  • 13
    michael r james
    Posted Monday, 24 February 2014 at 8:10 pm | Permalink

    The “family home” is actually an “empty nest” by the time people retire at 65 or 67 years. If people still don’t own their home mortgage-free by the time they retire then 1. they have mismanaged their finances for decades without a thought for their future 2. they have extended their finances to own multiple homes counting on under-taxed capital gain; 3. they have possibly upscaled irresponsibly late in life planning to use super money to pay it off and then live off the age pension (rather than their own super savings).
    The use of super funds to pay off a house is an abuse of the scheme; such funds have been heavily subsidized via the tax system and should never be used in yet another ploy/scam by Australians in their property obsessions. People need to get the message that they must only buy/mortgage what they can really afford during their working life.

    For the same reasons the primary residence must be included in an asset test for any age pension. Although we have the obscene situation where millionaires with an extravagant house are effectively subsidized by the state in their retirement — for absolutely no good or justifiable reason. But actually lots of Australians of even modest means and income over their lives have ended up owning property worth a million so we shouldn’t even think this just applies to the very rich.
    Their obligation to their children is long since discharged: to have provided them with a safe upbringing, good education and healthcare. NOT inheritance of a house, which, given how long parents live, can only be the equivalent of a free gift by the time of their death. (And, do the maths: av. lifespan is ≈85ys so children will be 50-65 and should have their own housing almost paid off unless they too have been irresponsibly relying upon a totally un-earned and undeserved inheritance.)

    It also follows from the previous point that the sentimental reasons for staying in the “family home” don’t apply any more. The children will hardly ever move back into this home when they come to inherit it, and will usually just sell it off. For the retirees themselves, they need to be encouraged to downsize into a more manageable situation — which usually means an apartment or perhaps modern townhouse. (More and more boomers are realizing what a hassle it is to keep a big house, or even a small one, compared to a conveniently located apartment.) As the boomers age there will be an increase in the phenomenon you can find in suburbia: big old houses that are worse for wear and getting worse every year as the maintenance (and escalating cost of skilled labour) of both the house and grounds gets beyond them. I would even agree to favourable tax arrangements for people freeing up useful houses to downsize (ie. so the surplus $ generated can go towards future maintenance of their new downsized home).

  • 14
    michael r james
    Posted Monday, 24 February 2014 at 9:23 pm | Permalink

    Groan. Moderated a at 8:10 pm . I’ll break it up into three posts.

    Part 1.

    The “family home” is actually an “empty nest” by the time people retire at 65 or 67 years. If people still don’t own their home mortgage-free by the time they retire then 1. they have mismanaged their finances for decades without a thought for their future 2. they have extended their finances to own multiple homes counting on under-taxed capital gain; 3. they have possibly upscaled irresponsibly late in life planning to use super money to pay it off and then live off the age pension (rather than their own super savings).
    The use of super funds to pay off a house is an abuse of the scheme; such funds have been heavily subsidized via the tax system and should never be used in yet another ploy/scam by Australians in their property obsessions. People need to get the message that they must only buy/mortgage what they can really afford during their working life.

  • 15
    michael r james
    Posted Monday, 24 February 2014 at 9:24 pm | Permalink

    Part 2.

    For the same reasons the primary residence must be included in an asset test for any age pension. Although we have the obscene situation where millionaires with an extravagant house are effectively subsidized by the state in their retirement — for absolutely no good or justifiable reason. But actually lots of Australians of even modest means and income over their lives have ended up owning property worth a million so we shouldn’t even think this just applies to the very rich.
    Their obligation to their children is long since discharged: to have provided them with a safe upbringing, good education and healthcare. NOT inheritance of a house, which, given how long parents live, can only be the equivalent of a free gift by the time of their death. (And, do the maths: av. lifespan is ≈85ys so children will be 50-65 and should have their own housing almost paid off unless they too have been irresponsibly relying upon a totally un-earned and undeserved inheritance.)

  • 16
    michael r james
    Posted Monday, 24 February 2014 at 9:36 pm | Permalink

    Part 2b. (attempt #6)

    (House must be included in asset test.)
    Their obligation to their children is long since discharged: to have provided them with a safe upbringing, good education and healthcare. NOT inheritance of a house, which, given how long parents live, can only be the equivalent of a free gift by the time of their death. (And, do the maths: av. lifespan is ≈85ys so children will be 50-65 and should have their own housing almost paid off unless they too have been irresponsibly relying upon a totally un-earned and undeserved inheritance.)

  • 17
    michael r james
    Posted Monday, 24 February 2014 at 9:39 pm | Permalink

    Can’t get the rest past the moderator no matter what I do.

    This is one of the reasons I hardly ever come back to Crikey!
    All Crikey users must surely have tried The Guardian which has a superb commenting system. Crikey itself today has a piece on The Guardian Australia’s steady march to success. Just this one issue (along with other important ones) should tell the Oz media how to run online sites — this includes The Oz and Fairfax, but also Crikey!

  • 18
    I.Klajn
    Posted Monday, 24 February 2014 at 10:07 pm | Permalink

    And this is Professor Ian Lowe in Brisbane, author of Bigger or Better - Australia’s Population Debate.

    Ian Lowe: The decisions being taken now about our population are literally determining what Australia will look like in 2050. So we should be making informed choices about our future.

    I was provoked to write a book about the population debate when Kevin Rudd calmly told Kerry O’Brien that he believed in ‘a big Australia’. Rudd was Prime Minister at the time, and his off-hand comment created a storm. One insider said ‘the focus groups went ballistic’. The fundamental reason is that most of us live in or around our major cities. We accurately perceive that our quality of life has steadily declined as urban populations have grown. Successive state of the environment reports show that all the important environmental indicators are getting worse as a direct result of the increasing demands of our growing population. In fact population growth is a serious environmental threat on the fringes of our cities as well as driving increasing greenhouse gas production.

    The water has been muddied by widespread misconceptions. I often hear such statements as ‘we aren’t replacing ourselves’, ‘our population would decline if we didn’t bring in migrants’, ‘our ageing society is a problem’, ‘we need migrants to fund the pensions of older Australians’, or ‘population growth is good for the economy’. So I set out to identify some facts that could inform the debate.

    First of all we don’t have a problem replacing ourselves. Each year about 100,000 Australians die and about 250,000 babies are born, so the population would grow by about 150,000 a year or about 400 a day if there were no migration. Yet there is still a widespread perception that we aren’t replacing ourselves. The confusion arises from the decline in the birth rate since reliable contraception became available. Where Australian women often had four of five children 50 years ago, the average number of children per adult woman is now about 1.9 but the number of adult women is still increasing rapidly as a result of the past birth rate and migration, so there is still a large so-called natural increase, births minus deaths.

    You might recall that the Howard government spread the misconception that we aren’t having enough babies to justify offering women a financial incentive to have children and backed it with a facile encouragement to have one for dad, one for mum and one for Peter Costello. The birth rate has increased since the baby bonus was introduced, but there is a dispute about whether the financial incentives are the main cause. It was still a wasteful solution to a non-problem. The so called natural increase – births minus deaths – has never been less than 100,000 a year in the last 50 years.

    Of course we do also bring in migrants. Each year some people leave Australia and others arrive. The significant figure is the net migration, the difference between numbers arriving and leaving. This has varied from year to year with political decisions between about 20,000 and 200,000. It’s averaged about 100,000, a similar figure to the natural increase. Then the Howard government dramatically increased inward migration to well over 300,000. A significant cause was the scam of education schemes that were really back-door visa programs, with dodgy private providers and some respectable institutions recruiting students with the implied promise of a short-cut to residency or even citizenship.

    The current government has clamped down on those arrangements but the annual net migration is still about 250,000 a year. The balance of our immigration has also changed, historically by far the largest group of migrants were from the UK and Ireland but last year for the first time more migrants were of Chinese background than British. Overall more migrants now come from the Asian region and Africa than from Europe and North America, so migrants are more visible on the streets, on public transport and in our institutions.

    Adding together the birth rate and migration, the Australian population is now growing by about 400,000 a year or another million every two and a half years. While Kevin Rudd approved the calculation that our population could grow to 36 million by 2040, on current trends it could be over 40 million. So we are right to be asking whether that sort of growth is manageable. Where would we get twice as much food or twice as much water?

    In fact the infrastructure in all our major cities is failing to keep pace with the growing population and this is causing a decline in material living standards. A perceptive US economist actually predicted and quantified this problem 25 years ago, while a local academic has refined the calculation for the current situation in south east Queensland. Lester Thurow argued that the average life of built infrastructure like roads, water supply, sewers and transport systems is about 50 years, so the annual bill for replacement would normally be about 2% of the total capital invested. If the population is growing by 2% the infrastructure bill is the normal 2% replacement plus an extra 2% for the new people, or 4% of the total capital. So as Dr Jane O’Sullivan has pointed out, quite a modest rate of growth, about the average in recent years in south east Queensland actually doubles the infrastructure bill. But the revenue base will only have grown by 2%.

    Faced with this problem Thurow predicted, governments would find themselves forced to sell public assets and put together improbable public/private partnerships to try to meet the impossible task of funding the infrastructure needs of the growing population. Of course that’s exactly what we have seen in Australia in recent years.

    One reason for the unpopularity of the Bligh government leading to it being swept from office was its fire sale of public assets to fund infrastructure. A second issue was that even those desperate measures did not solve the problem, so roads got more congested, public transport got more crowded and so on. Ironically, the backlash against the Bligh government brought to power a Coalition administration headed by Campbell Newman. He was formerly Lord Mayor of Brisbane. In that capacity he ran up a huge public debt in an orgy of building roads, tunnels and bridges to try to dilute the public disquiet about growth. It remains true that a major factor leading to the State governments in NSW, Victoria and Queensland all being thrown out was a rising tide of discontent with the state of public transport and roads, a direct result of rapidly growing populations in each State’s capital city.

    Let me turn to the issue of ageing. The claim that we have a financial problem of an ageing population is completely false. The number of us over 65 is increasing, but that doesn’t inevitably mean we are an increasing burden on the medical system; the reason we are living longer is that we are healthier. When I was young it was unusual to see anyone over the age of 30 still playing cricket; today there are enough over 60s cricketers for there to be a national competition and a national over 60s team has been chosen to play against English cricketers of similar age. There is now serious talk of an over 70s team. While I am a bit unusual to be still bowling outswingers at my age, I am not unusual in being alive and still productive at an age when my father and both my grandfathers were already dead; we are all living longer on average. But Australia is not unusual. In fact UN statistics show we are comparatively young for an affluent country. We rank 43rd in the world in a listing by average age; not just younger than European countries but also younger than Canada, Cuba, Hong Kong and Singapore.

    About 19% of Australians are over 60, the average for Europe is 22%, for western Europe it’s 24%, Sweden 25%, Germany and Italy 26%, Japan nearly 30% compared with our 19%. At the other end of the age scale 19% of Australians are under 15, the same percentage as those over 60, that compares with an average of 16.6% for the developed world as a whole and 15% for Europe. In other words, in Western Europe there are many more people over 60 than under 15, in Japan there are more than twice as many, but in Australia there are as many under 15 as over 60. For at least a decade the numbers entering the workforce will be similar to the numbers turning 65. In any case most of the jobs in modern Australia don’t require youth and physical strength but wisdom, so a more mature workforce might actually be an advantage. And even if we did have an ageing society, migrants are typically about the same age on average as those already here and of course they age at exactly the same rate.

    The economic question is more complicated. There is no doubt that population growth makes the total size of the economy greater. If there are 1% more people we eat 1% more food, wear 1% more clothes, live in 1% more houses and so on. That means some economic sectors like retail and housing clearly benefit. And the total size of the economy grows, so politicians can claim to be presiding over increasing wealth and progress. But there is vigorous debate among economists about whether it increases wealth per person, which is the factor determining whether you and I are better off. Comparative studies show that countries with growing populations need to spend on assets that are not economically productive like houses, so they don’t perform as well economically as those with stable populations.

    The general view is that there may be a small net benefit, but it’s quite small and it needs to be offset against the negatives of more crowded roads and public transport, less access to open space and recreation areas and so on. A calculation by the Queensland Treasury for the government’s Growth Management Summit is typical. It found the Queensland economy to have grown by about 3% a year for the last 20 years; on average, the growing population accounted for 0.2% increasing rates of participation in the paid workforce provided 0.6%, three times as much as population growth and the lion’s share, 2.2%, ten times as much as population growth, came from increase in productivity. So the total economic output grew by 3% per year on average, but it would have grown by 2.8% without an increasing population. By my sums the average Queenslander is 50% wealthier today than in 1990, but they would have been 47% wealthier if the population hadn’t grown at all.

    Looking ahead, the average household income is projected by Queensland Treasury to grow from about $50,000 a year now to about $65,000 in 2030 if growth is tightly controlled, or to about $69,000 if the present pro-growth policies remain. At the present growth rate of about 2% a year the population will increase about 50% by 2030.

    So the question we should be asking is would you rather be 30% wealthier retaining the liveability of your area or 38% wealthier with 50% more cars on the road, 50% more people crowding on to public transport and trying to find space in the parks and children’s playgrounds? I suspect many people would opt to maintain their lifestyle rather than have the extra money.

    The debate gets messier when we factor in the changing balance of migration and it isn’t helped by opportunistic politicians demonising the relatively small groups of boat people. More refugees arrive by plane than by boat, while the total number of refugees is tiny compared with the numbers of other immigrants. In fact the total refugee intake is about 5% of migrants.

    But the demographic calculations are clear. If we had zero net migration the population would stabilise in the 2030s. With relatively low levels of net inward migration the population stabilises later at a higher number. At current levels of migration the population keeps increasing until we produce disease outbreaks or fighting among ourselves for limited food supplies. I would like to see a better future than that.

    The choices we are making now determine what Australia will look like in 2050. If we continue to encourage large scale migration and a high birth rate the population will be over 40 million and still growing rapidly. Holding migration down to around 100,000 a year or lower and phasing out incentives for larger families would enable us to stabilise the population below 30 million. There is no more important issue for an informed public debate.

    Robyn Williams: Professor Ian Lowe from Griffith University in Brisbane. He is President of the Australian Conservation Foundation as well as being a swing bowler and useful chorister. His book Bigger or Better on population is published by the University of Queensland Press.

    Next week Geoff Hudson in Melbourne lists a few of his favourite inventions from the future.

    Guests
    Emeritus Professor Ian Lowe
    Griffith University
    Brisbane
    President of the Australian Conservation Foundation
    Publications
    TitleBigger or Better - Australia’s Population DebateAuthorIan LowePublisherUniversity of Queensland Press

  • 19
    Dogs breakfast
    Posted Monday, 24 February 2014 at 10:43 pm | Permalink

    The article deals with complex problems pretty simply, and despite the rule, actually gets it right.

    The flat tax 15% deduction for superannuation may be difficult, but not impossible, and is so clearly the answer that it is hard to comprehend why this government won’t contemplate, other than bigoted ideology.

    I retch every time when I hear hockey talk about the end to the age of entitlement. It is only the end for the less well off, the rich are being encouraged to continue their entitlements into forever.

    Otherwise, as usual, some very erudite comments by the proles in the comments section.

    Just a fact check, I think you will find that people can access their super prior to 60. There is a sliding scale in place which will bring it up to 60, but not for another decade or so. I retire, at my earliest, in 5 years, at the superannuation age of 57.

    I am investigating other aspects of this, but I thought that lump sums were largely difficult to access these days, particularly pre 60.

    By the way, kudos to the contributor who pointed out that the current taxing of super post retirement was the time bomb that Costello the Stupid left for everyone else to deal with. We will be cleaning up Costello’s messes for decades to come.

  • 20
    sabina lokic
    Posted Tuesday, 25 February 2014 at 8:45 am | Permalink

    If only they taxed multinationals properly instead.

  • 21
    MJPC
    Posted Tuesday, 25 February 2014 at 8:49 am | Permalink

    The age of entitlement is only stopping for those on low incomes (and not constituants of the LNP).
    This idea that people work longer is “pie in the sky” bullsh*t. If you go about and look at workplaces the facts are that the majority of the pensioner age workers are working in menial service jobs such as check-outs, hardware chains or fast food outlets.
    Yes, there are some workers not in these industries but are usually self employed so can choose what they wish to do or not (and get paid accordingly).
    There is plenty of money out there, after all the ATO just gave back +$800M to Murdoch, not even an Australian company now.
    Get smilin’ Joe of his backside and hit the tax havens (together with his new G20 mates) and this country will be swimming in cash. I think I’ll go out and buy a lottery ticket, better chance of winning that than this government getting the big end of town paying their fair share!

  • 22
    Michael Jones
    Posted Tuesday, 25 February 2014 at 9:49 am | Permalink

    As usual, this article neglects the fact that blue collar workers are not ageing nearly as well as white collar economists.

  • 23
    Arthur Moore
    Posted Tuesday, 25 February 2014 at 1:43 pm | Permalink

    It seems that the very people who worked for 40 and 50 years, paid their taxes and built the budget up to cope with all the entitlement handouts that various governments have dished out over the past couple of decades. Handouts not only to those that “have not” and in genuine need but also in large doses to the “Haves” in large measure. If you work until you are 65 or later you are now being targeted, the very people who have largely done the right thing in bringing up their family without all the handouts that families cannot do without now, are in the gun to solve a government created problem! Why not just take out a few hundred thousand of us out and just shoot us !!! Problem Solved!! The fact that some in the government prattle on about not reacting to “Moral Blackmail”, when in fact there does not appear to be any moral compass in sight, how sad! They then should have no problem about shooting many of us oldies to solve the problem, i.e. not “turn back the boats” but “turn back the ageing population”

  • 24
    Brian Williams
    Posted Tuesday, 25 February 2014 at 2:08 pm | Permalink

    Thanks for the kudos Dogs breakfast. Regarding your comment about the age at which super can be accessed, you are correct. People born prior to 1 July 1960 can access their super from age 55yo, but not tax free as they can if they wait until they’re 60yo. They also can’t get lump sums until they’re 60yo.

    However, those over 55s can receive what’s called a ‘Transition to Retirement’ pension, tax free from their super account courtesy of a little trick called the pension offset/rebate, while they’re still in fulltime employment. (It has to be between 4% and 10% of their super balance annually). They can then recontribute the same amount back to their super account via salary sacrifice at the current 15% contributions tax, assuming they’re not already maxed out there.

  • 25
    Shaniq'ua Shardonn'ay
    Posted Tuesday, 25 February 2014 at 3:51 pm | Permalink

    Another Idea, if some people feel that including the entire value of the family home in the assets test is unfair to those who by circumstance now live in desirable suburbs we could just include the Capital Improved value of the property (i.e. the house, not the land)

  • 26
    mike vuletic
    Posted Wednesday, 26 February 2014 at 2:40 am | Permalink

    I can’t believe how intergenerationally selfish the writer of this article is. He doesn’t get that the superannuation tax breaks are to INCENTIVISE people, including himself, to work hard and save over long periods of time for enough money to be secure in their old age. This is so that older people don’t have to depend on their children for money. Instead the writer sees older people with nest eggs and seeks to tax their hard earned money so he can avoid any tax increases himself. The fact that he too will one day grow old (and hopefully wiser) seems to have escaped him.

  • 27
    klewso
    Posted Wednesday, 26 February 2014 at 10:15 am | Permalink

    I don’t think this sort of defining of their ideological victimization has gone unnoticed out there in Voterland.

    The fact they’re considering targeting the less-well-off working class to carry the can of Howard wash-back (“fend for yourself on sanga and milk-shake tax cuts” over future infrastructure investment) is bad enough.
    But then most of this government trying to make them pay now, was part of that short sighted, politically expedient, myopic government of Howard’s, that pissed the proceeds of the mining boom and the sell-off of the family silver-ware up the wall of populist political opportunism?
    And took us to war in Iraq to compound that profligacy for good measure.

  • 28
    klewso
    Posted Wednesday, 26 February 2014 at 10:26 am | Permalink

    All these people being turned out of work now - where are they going to find all these jobs that they can put away money from wages for their old age? What are they going to live on in “the interim” - if they can even get another job?
    Less people in work = less money to go round to the rest of the economy.
    That’s all going to get better - according to Abbott, Hockey, Robb, Macfarlane, Murdoch etc? What if it doesn’t?

    (Personal) Welfare” is better than subsidising productive lives?

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