How Can We Afford All These Old People?


The Federal Government is worried about you.

It fears that you — and other Australians — may last longer than your retirement savings. Ken Henry calls this "longevity risk". The Treasury chief, who also heads the review of Australia’s future tax system initiated by the Prime Minister, identifies "longevity risk" as one of the biggest issues to deal with this year.

The Government has asked Henry and his committee to examine how Australia’s hideously complex tax and welfare systems might be overhauled. Simplifying the nation’s byzantine taxation system to make it internationally competitive will be a difficult task. The tax system has become more complex as people seek (and often find) loopholes to exploit. As retirement incomes put a greater strain on the budget, the running battle fought by the Australian Tax Office to plug these loopholes will become more urgent.

Some 500 organisations have made formal submissions to the Henry committee, several of which warn that present retirement income systems leave too many older Australians living in poverty in their old age. The committee has just released a consultation paper which gives preliminary indications of its thinking about new ways to help people avoid poverty in retirement.

"A common solution is requiring individuals to take all or part of their superannuation as a guaranteed income for life," Henry writes in the paper. There is a world of difference, however, between a "guaranteed income for life" and making sure you will have enough money to pay your bills in retirement. The 9 per cent superannuation guarantee levy alone won’t provide it, and further, many people won’t have been paying the levy for long when they do retire. As the committee notes, the superannuation guarantee system will not "mature" until 2037. Only then will Australian retirees have been paying the levy over a full 35 year working life. Many people also forget that Australia’s age pension is meant only to help older people in retirement, not to give them a decent income.

The consultation paper also hints at the changes to Australia’s tax system the committee might recommend. We can expect more consumption taxes, for example, and greater reliance on "user pays" principles. Treasury economists have historically been strong supporters of both and they have certainly not abandoned their faith. They note, for example, that "there has been a marked change in the balance of taxes from labour to capital since 2000-01." (Peter Costello, what were you thinking?)

The economists also admit that it is not yet clear how the "balance" between capital, labour and consumption taxes will be affected by factors like "the ageing of the population". What they do say is this: "it is clear that there will be a continuation of existing pressure on capital and labour taxes, suggesting an increased reliance on consumption taxes." They add, "alternative arrangements, such as user charges, have the potential to play an important role in improving efficiency through the pricing of public resources and to provide an alternative source of revenue to more conventional taxes."

So exactly what kind of "alternative arrangements" are we looking at here?

Bigger slugs on beer, wine, and cigarettes, perhaps? Yes, but additional charges on these already highly taxed items won’t bring in the extra money required — even if they are boosted by higher taxes on luxury cars. Bumping up the goods and services tax from its present 10 per cent certainly would, especially if its grasp were broadened to include fresh as well as processed foods. And so would a step back to death duties.

Such bold changes are, however, unlikely. The Rudd Government’s timid approach to carbon trading has already signalled that our Prime Minister, like his predecessor, is interested in his own survival above all. Increasing the GST rate above its present 10 per cent would be political suicide, particularly in a pre-election year. Bringing back death duties would also be very politically risky. Slapping higher charges on airlines for their use of the nation’s airports might not be so dangerous for the Government.

Under the likely reforms, there will, inevitably, be both winners and losers.

The winners? The self-reliant — especially those who save privately for their retirement, mostly through superannuation — and the entrepreneurial. Swan wasn’t joking when he said he wants Australia’s tax system to be internationally competitive.

And the losers? Those who expect the Government to look after them with increased welfare payments. Some of the general pinch may be felt by the rich if the Government scraps the current rort under which only half of all capital gains are taxed. And we can all expect to be paying more to use Federal Government facilities such as airports.

But will Australia’s biggest single tax shelter — the principal private home — be tackled? Not likely. While little else is regarded as sacrosanct in Australia’s secular society, this sacred cow is still untouchable.

Launched in 2004, New Matilda is one of Australia's oldest online independent publications. It's focus is on investigative journalism and analysis, with occasional smart arsery thrown in for reasons of sanity. New Matilda is owned and edited by Walkley Award and Human Rights Award winning journalist Chris Graham.