Report calls for home to be included in pension means tests

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The concept of including the family home in the means tests for the Age Pension has raised its head again, with a report from the Australian National University (ANU) on Monday calling for the measure to be introduced among a raft of tax changes aimed at making the tax system in Australia more equitable.

The report, titled The taxation of savings in Australia, also urges the scrapping of dividend imputation credits, replacing them with a flat tax rate on dividends.

The idea of including the family home in the assets test for the Age Pension is not new, but it is extremely unpopular.

YourLifeChoices polled members on the topic last year and an overwhelming 85 per cent of the 2481 respondents said the family home should not be part of the assets test.

Most responses were highly critical of the concept of including the family home in the assets test for an Age Pension – and many were critical of the assets test generally.

Professor Robert Breunig, chair of the Tax and Transfer Policy Institute (TTPI) at ANU and co-author of the report, said the Australia needed to address growing inequity across the generations.

“We are calling for the replacement of dividend imputation with a flat tax rate on dividends, removing stamp duties, which significantly distort decisions about when to move house, and including owner-occupied housing in means tests for pensions,” Prof. Breunig said.

“This might seem radical, but in reality the reforms are reasonable and would bring us closer to the optimal tax system Australians deserve and this nation needs.”

The report calls for a new system that taxes savings at a low, flat rate and which is separate to taxes on labour income.

“As review after review has shown, Australia’s current approach to taxing savings is a mess at best and a serious driver of intergenerational inequality at worst,” Prof. Breunig said.

“Some savings tax arrangements are progressive, taxing higher incomes more heavily, and some are regressive. Some favour the old but are punitive for the young.

“Our current tax arrangements are inefficient, inequitable and distort the flow of savings across our society and economy. The system is complex and encourages Australians to engage in costly tax planning schemes.

“Our new report not only outlines the ideal tax system – a dual income tax system – but steps out how we can get there. The beauty of a dual income tax system is that we can move there in stages.”

According to the authors, the taxation of savings should be based on four key principles:

  1. savings should be taxed at a lower rate than labour income
  2. most types of savings should be taxed at the same rate
  3. savings income should be taxed independent of the tax rate on income from other sources
  4. taxation of savings should focus on income generated from savings and not the total stock of assets.

The report also outlines four key reforms that can be made to Australia’s tax system in the short term, including removing stamp duties and including the family home in the means tests for the Age Pension.

“The taxation of savings is politically contentious with strong lobby groups defending particular savings arrangements, whether that is the untouchable nature of owner-occupied housing, dividend imputation or superannuation concessions,” Prof. Breunig said.

“Yet, it makes no sense to consider the tax implications of these individual savings options without also taking into account how they shape the competitive landscape, how they influence the choices of individuals and how they contribute to the efficient mobilisation of savings across the economy as a whole.”

Do you think the family home should be included in the means tests for the Age Pension? Are you frustrated that this is constantly raised as a solution to tax problems?

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Written by Ben


Total Comments: 171
  1. 0

    Stop flogging a dead horse!! – I’ve just turned 66 and retired on a part pension!! Don’t move the goal posts – Go after Corporations who avoid their tax obligations!!!

    • 0

      PJ, the current LNP Government moved the goalposts for retirees in the 2014 budget, to the tune of 93,000 part pensioners lost their pension entitlement and 372,000 other part pensioners lost up to 25% of their entitlement.

      Did you raise a fuss then or are you one of those who don’t look into the future and realize that those 2014 budget changes would affect everyone who retired from the first of January 2017, (when the 2014 changes came into effect), forevermore.

      I was one of many who lobbied the Government not to go ahead with the changes. I also discussed the changes with our local Federal Member, who defended the changes. In discussions with him earlier this year, he conceded that the changes were not necessary!

      Get used to politicans doing what is good for them not what is good for Australia or Australians.

    • 0

      Of course I plan and look into the future Captain. Of course I realised the implications of the 2014 budget changes. My simple point is to continually drag up the inclusion of the Family Home in the Assets test is pointless – It has explicitly been ruled out by the LNP and would be political suicide!!!

    • 0

      I agree to include the home is political suicide. It is mentioned that to buy the family home, it was bought out of wages that were taxed, savings that were taxed, stamp duty was assigned another form of tax but the one thing never mentioned is the loans used and the interest rates on the loans which is a form of tax. No it should not be included as it has been bought and paid for many times over and to deny pension aged Australian’s their full entitlement of pension because they now own a $100,000 house valued today at $1,000,000 is not fair and it’s not Australian.

  2. 0

    Itotally agree PJ. They should get the huge businesses to pay their fair share and not have all of the exemptions and tax deductions.

  3. 0

    Most pensioners purchased their homes from wages/salary which were taxed now to suggest including their primary residence in the means test is just another tax on money already taxed. Others who inherited their homes would have probably paid probate on that inheritance , another form of tax.
    The companies avoiding taxes are the bane of tax system and until this is resolved there will be inequities in who carries the tax burden.

    • 0

      I paid $17,500 for my first home; about $150,000 for my current home. I have spent about $150000 on extensions/renovations. Tax was paid on the salary that enabled me to buy these houses. The first house was sold for about $400,000 so there was a large capital gain which went into superannuation. The value of the current house is somewhere around $1,000,000 again there has been a large capital gain. I am sure that there are many like me.

      When I sell the capital gain is not taxed because it is my place of residence. I fail to see why it should not be included in some way in a means test to be eligible for a pension.

      Totally agree that companies not paying their fair share of tax should be made to do so and the schemes thought up by accountants to enable profits to be taken offshore so allowing companies avoid taxation on profits incurred in Australia. Companies should be deemed to earn a certain level of profits on their investments in Australia and taxed on that. If their operations are consistently unprofitable they would not be here.

    • 0

      Alan is right if you are living in a capital city, for us in the bush it is not that important as my unit value has not gone up by more than $100’000 and that is generous. Presently people cannot sell these places where we live so value on paper means nothing. Should they include the home in the asset test we shall try to sell the place and rent and get rent assistance while being able to keep the money from the sale and possibly get the full pension. Used to go camping and now we are going to 4-5* places for 4 weeks a year. Punish the savers and they soon get rid of problems.

  4. 0

    So sick of hearing this issue being brought up so any times! No way should our homes be included in the asset test. I live on the pension only and have a nice home but I would be destitute if my pension was reduced because of my home.

  5. 0

    Remembering what happened to the ALP at thas last election, it would be a very bold move indeed for any political party to take this on. Mind you, if ever enacted, think of the offsets for negative gearing that would be involved..

  6. 0

    “Do you think the family home should be included in the means tests for the Age Pension? Are you frustrated that this is constantly raised as a solution to tax problems?”

    Short answer: No and Yes.

    Here we have an academic living in the bubble of university life with an opinion on how others should be treated by a government. I note that no mention has been made of the difference in pension rates for homeowners who get a lesser amount than non-homeowners. Probably doesn’t suit the spurious argument.

    I’m sure that the 85% of those who oppose bringing the family home under the umbrella of an assets test would agree with me that this subject should never be raised again in this forum unless a government is prepared to go to an election with this subject as a policy.

    To bring my main argument against including the family home in the assets test once more, the value of the family home is dependent on a postcode, not the construction. Our home is comfortable and is modestly valued but if it was moved three suburbs east of here it would increase in value fourfold. It would be almost impossible to enact legislation that would allow for an equitable system to cover city, country, state and territory values.

    • 0

      I totally agree Horace Cope and I too have said so before. Everyone should drop this stupidity. It would be impossible to do as the value is in the land, not in the house itself. Either way the property is not bringing in an income to live on so cannot be counted for the aged pension.

    • 0

      As an example of home value variations: We moved from a very nice four bed plus study brick two storey home in north NSW to a two bed apartment in Perth, where our son and only grandchildren live, to see out our retirement years. The apartment cost $150,000 more (plus land tax) than we sold our home for (not counting agent fees). We pay Body Corp fees of $1080/month. We did our sums and decided this was the best option for us to be able to live independently for as long as possible. BTW options included a two bed unit in a retirement village just a little further from our son but our precious dog was not allowed and the cost was only $10,000 less. So how is it ever going to be fair and equitable to include the value of one’s home in a pension calculation? Having lived in Darwin, central Australia and other remote areas as well, I can tell you some have very high home prices.

    • 0

      Ella – having lived in different places you see the problems. People in universities and Grattan Institute have no clue. Possibly do not have an asset test on their public service pensions either. Do NOT listen to their bleatings any more.

  7. 0

    The usual arguments being trotted out here to protect their own personal incomes. There has been no suggestion as to the levels of taxation or how it would be applied. It would seem ridiculous for a person living in a $5 million house being able to claim a full pension. Perhaps if an inheritance tax was introduced that might quell some of the push to include the family home in a means test.

    • 0

      People living in $5 million houses would have the money to ensure their arrangements were in order to receive any benefit. Not all home owners live in Million dollar mansions. Many of us have worked hard and made other sacrifices to become home owners.
      I do support the reintroduction of inheritance tax we are one of the few established economies who have no inheritance tax.

    • 0

      And not all who live in a $5m dollar home have cash assets to live on which is exactly why they can apply for an age pension.

      Perhaps that is what really needs looking at instead of a one size fits all inclusion of the home in the asset test.

    • 0

      a progressive land tax would soon prompt the $5m pensioner to quit the house and find find different digs.

    • 0

      Farside – good advice from someone with not much. I just look at the big picture of a lot of people I know who bought a place in a capital city in 1970 and now live in a place worth one million bucks. Why punish them, they paid their rates and outgoings for 50 years so have earned their place. Should have done it myself but I have always been a bit shiftless and did
      not settle down when our dollar was $US1.35. So really, a house for a million is only worth half that in universal money.

    • 0

      Mariner, $5m > $1m pensioners. A progressive land tax would recognise the difference.

  8. 0

    I started an apprentiship getting $ 15 a week and worked shift work for 30 years to provide for my family, I only had super for 20 years , but now they want to have a bite at our homes.GOOD LUCK .These overpaid bureaucrats live with there heads in the clouds and can’t see how workers have worked all there lives… Go have a latte Professor

  9. 0

    More university academic garbage. As if we’re not fed up with universities making money out of foreign (Chinese) students – when their true role is to properly educate young Australians as opposed to the current indoctrination methods. Yes research too – but what’s written here is obviously a form of madness known only to extreme, barrow-pushing socialists. It advocates a tax on the family home – a perfect disincentive to strive for comfort and financial security in old age, in addition it’s a recipe for old-age poverty. Your Life Choices – try to find some writers more representative of the wider community. Your readership would likely improve – with concomitant increase in advertising revenue. Oh, did I say advertising revenue? Private enterprise revenue? Some outfits would prefer to keep pushing the unworkable and unwanted, rather than seriously look sideways for mainstream opinion. Such a pity.

    • 0

      Well said Brissiegirl. These universities these days are a hot bed of socialist indoctrination. The problem is that if they say something often enough it’ll become fact. These articles are just a way that they (the powers that be) Use to soften us up so that it won’t be such a shock when they enact them into law.
      Ive been paying almost 40% tax on income then, after tax they add all the other taxes. Registration, GST, land tax, stamp duty. The list is endless. State taxes and council taxes. I bet that if we were to look closely at what we actually get from our paycheck we’d be lucky to end up with 40cents on the dollar.

    • 0

      Brissiegirl, what are the characteristics and attributes of the wider community and the issues that should be discussed? YLC know perfectly well this topic will trigger the same old cohort among its readers however it is useful to know what our policy makers are reading.

    • 0

      Farside, for something edifying, I’d like to see some accounts by Post WWII immigrants of life in Australia when they arrived with nothing but the clothes on their back. How individuals back then willingly adapted, how they learned the language, how they slogged it out in back-breaking jobs, how they asked for nothing and were given nothing. Perhaps contrast those interviews with a non-English speaking family from the towers, e.g. a 25 yr. old father of five children – complaining about being quarantined for 5 days – just for comparison. Open some eyes, open some ears.
      Yes it’s useful to know what our policy makers are reading, I agree with that. However this kite-flying racket has been done to death. Two years ago both Morrison and Frydenberg dismissed it, saying it’s not their policy and never will be. All of them know their constituents would never stand for it but still YLC turns to writings by these socialist, over-paid academics, skilled in the art of indocrination either of students or of public policy. As someone else here insightfully said, the more it’s written the more people are likely to apathetically resign themselves to it.

    • 0

      Maybe 2 years ago it was dismissed but with the Corona Virus causing economic disaster, possibly a Depression ahead, who knows where or what the govt will try to claw back money from to try to balance the budget.

    • 0

      history repeats itself Brissiegirl … remember core and non-core promises – “No, there’s no way that a GST will ever be part of our policy.” Journalist: “Never ever?” John Howard: “Never ever. It’s dead. It was killed by the voters in the last election”.

    • 0

      Remember, Farside, the GST was clearly put to the Australian public, and the public said yes. Regarding all politicians, I too maintain a healthy level of cynicism.

    • 0

      it’s inevitable the family home will be included in assets test – the only variables are when and the proportion or threshold. The arguments against it are being driven by self-interest however these will fade with time as the social demographics change.

    • 0

      The green-eyed monster’s out in force. Unhappily for some, green-eyes don’t dictate policy.

  10. 0

    IIn my life time and my husband’s (me now 79) bought a block of land in Sutherland Shire paid it off from money we earned and taxed in employment. Sold it and moved into St. George area where we bought our second home from money earned and taxed in employment. My husband became ill with MS so we sold in Sydney and moved to country NSW 20 years ago, and this home was paid for outright but I worked part time for a while. The house was very large and when my husband passed away I downsized. We had a lot of expenses from both us unemployed from age 55 and working in private enterprise with no superannuation. To purchase a second-hand mobility vehicle, scooters, then wheelchairs, then lifting equipment, medical expenses, massages for my husband left me with my downsized home and the single age pension. I have managed with great difficulty on that single age pension for the past 9 years. I am so sick of these think tanks,universities and others spruiking including the family home in the assets test. For heaven’s sake YourLifeChoices “stop it”. All this hearsay does nothing for the mental health of the ageing population, especially those on “limited” finances and single or married age pensions only.

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