Politics wins over policy

The creation of an annual budget is a tough job involving a struggle between policy and politics. Last year Mr Hockey went for policy – announcing a debt and deficit disaster that only the most swinging cuts to the most vulnerable could fix. Pensioners, students, the jobless would all need to take a hit to balance the nation’s books. What a difference a year makes.

Now Mr. Hockey is trumpeting the joys of a ‘glass half full’ economy – even though net debt is soaring. This year his approach is entirely political – priming the pump for small business, families with children and spending on infrastructure. He has also eased back on the cuts to those least well-off, scrapping the changes to pension indexation and removing the 6-month wait for Newstart allowances. So no deficit emergency any more, now an exhortation to the two million small business owners to ‘get out there and have a go’ and spend to receive an immediate $20,000 tax write off.

So what does this mean for retirees or those planning their retirement?

The changes to the asset free threshold in 2017 are intended to increase pension fairness. This will result in 170,000 pensioners receiving an increased pension income as they move from a part to a full pension or from a lower payment on a part pension to a higher one. Wealthier retirees will face a doubling of the pension taper rate, from $1.50 to $3.00 for every $1000 of assets over the asset free threshold.

At one level this makes sense, with higher payments to those least well off. But is the current pension cut-off threshold for homeowners, of $775,500 for singles and $1,151,500 for couples really such a lot of money? Say a couple is aged 63 and 65 – they will probably live for another 25-30 years. So what kind of income can $1.15 million fund over this period of time, particularly given the current record low interest rates? Not a lot!

The Treasurer was keen to point out that, at $44 billion, the Age Pension is the highest portion of government spending – about 10 per cent. But this is an entirely misleading approach to funding retirement in Australia.

Joe Hockey has a fixation on spending which misses the point about sound fiscal management.

When you can’t afford the costs of raising a family, a tried and true remedy is to get a better paying job or ask for a wage rise, or even take on an extra job. You tackle the revenue side of the equation.

And this is something the Treasurer simply refuses to countenance.

An easy win would be to increase GST. But this has been put into the too-hard basket as a ‘states-only’ problem. It is not – it is a national priority.

More importantly, however is what we are NOT considering in terms of revenue foregone – the overly generous taxation concessions on superannuation which, within four years, will cost the country MORE than the Age Pension. Yes, these concessions that favour the rich are not even a discussion for the current Treasurer.

The Department of Treasury itself has said:

“the wealthiest ten per cent of the population are expected to receive 31.8 per cent of the tax concessions on superannuation contributions in 2012-13. The same Treasury modelling shows that the poorest ten per cent will receive no benefit from those tax concessions and the bottom half of the population will receive 18.7 per cent of the concessions on contributions. (The Australia Institute, Super for Some).

So currently taxpayers are subsidising retirement for the wealthiest members of our society, while about 60 per cent of those on the full Age Pension live below the poverty line.

As well as a change to the tax concessions on super, the need for a Royal Commission into the financial services industry is critical. All of our major banks have now fostered a culture that has encouraged financial misdemeanors causing the loss of millions of dollars of retirement income for many thousands of Australians. The regulator was missing in action, and these companies now insist upon the right of investigating their own white-collar crime and compensating victims at their own discretion, and with draconian conditions attached. This is scandalous and only a Royal Commission will force the industry to comply with the need to put customers’ interests first or face fines or deregistration of planners who fail to comply. This alone will mean the first step back towards some form of trust in our retirement planning industry.

Budget 2015 is a wasted opportunity when it comes to retirement incomes. We have some fiddling at the edges, but the long term structural reforms so badly needed have been shirked. The rich retirees are growing ever richer – the poor are getting poorer and the government is in denial of the need for an urgent and radical review of how we properly fund retirement for ALL Australians.

Written by Leon Della Bosca

Publisher of YourLifeChoices – Australia's most-trusted and longest-running retirement website. A trusted voice on Australia's retirement landscape, including retirement income and planning, government entitlements, lifestyle and news and information relevant to Australians over 50. Leon has worked in publishing for more than 25 years and is also a travel writer and editor, graphic designer and photographer.

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