Scrutiny of the family home and its exemption from the assets test for the Age Pension has again intensified.
A leading taxation expert has suggested including the family home in the assets test as one of several measures to pay for the COVID-19 stimulus packages.
Professor Robert Breunig, who leads the Australian National University’s tax and transfer policy institute, says that if the tax system is not reformed, the burden of the coronavirus repayment will fall on young people.
He has suggested several measures, including an increase in the goods and services tax (GST) – ruled out earlier this week by Treasurer Josh Frydenberg – and higher land tax to stop the debt burden of the $214 billion COVID-19 response unfairly penalising young people.
Prof. Breunig says Australia’s tax system is “antiquated and not well set up to encourage growth in the economy”.
He told Guardian Australia the tax system had “generated inequality between young people” – who pay income tax and GST – and older people who have experienced “a huge run-up in their wealth” from buying houses and benefit from “tax-free income from their superannuation”.
He says fiscal stimulus and lower interest rates to combat economic crises “pump money into the economy” in a way that drives up asset prices such as shares and real estate, exacerbating wealth inequality.
He supports an increase in the GST because it “has the extra benefit of taxing people’s accumulated wealth as they spend it”.
“We should also switch from stamp duty to land tax to better capture the value of increased asset prices and make it easier for people to buy and sell houses,” he says.
“Another option is to include owner-occupied housing in the assets test for the Age Pension and introduce a government-run reverse-mortgage program to help people spend their assets while alive.”
The notion of including the family home in the assets test for the Age Pension has been raised by other academics and retirement income specialists, particularly in the lead up to the government’s Retirement Income Review, which was expected in June.
Deloitte Access Economics’ Chris Richardson says there is a case for including the family home in the asset test for the Age Pension and that it is “the right thing to do”.
Economist Sean Corbett concurs, but with a condition. He told YourLifeChoices that the value of the family home – above a certain threshold – should be assessed, but only after better products became available to enable people to access the equity in their home.
Personal finance specialist Noel Whittaker says: “The pension is welfare, and welfare expenditure is increasing by eight per cent per annum – way above national income. To any reasonable person, it would seem unfair that a couple can live in a $4 million house, have the boat and the cars owned by the kids, have $200,000 in super and still get the full pension.”
Matt Grudnoff, senior economist with The Australia Institute, says that including the family home in the assets test is not a yes or no answer. He believes there should be a cap on the value of the home before it affects the pension assets test but that the location of the home raised significant problems in establishing a cap.
A YourLifeChoices Flash Poll, Should the family home be part of the assets test?, drew a strong response, with an overwhelming 85 per cent of the 2481 respondents adamant that the family home should not be part of the Age Pension assets test. Ninety-six per cent of respondents said they either owned their home outright or with a mortgage.
However, when asked whether the home should be part of the assets test in future, 45 per cent were unsure, 26 per cent said yes and 29 per cent no.
To the question “If yes, when do you think this might occur?”, 37 per cent said “not in my lifetime”, 18 per cent said between five and 10 years, 16 per cent within five years, and 11 per cent within three years.
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.
Meanwhile, Mr Frydenberg told ABC’s Insiders the stimulus debt “will be paid back in the years ahead” by growing the economy.
Deloitte Access economics supports the concept of shrinking the debt though economic growth, saying austerity “rarely makes sense”.
“We’ll be borrowing about an extra 10 per cent of national income,” it says. “If we choose not to pay back a single cent of that, the growth in our economy over time will halve to about five per cent of national income in 18 years, and then halve again to 2.5 per cent in a further 18 years.”
Deloitte estimates that – given the record low borrowing cost – the annual interest bill on new borrowings will be $1.6 billion, which could be paid by raising the Medicare levy from two per cent to 2.14 per cent.
In light of the country’s debt, have you changed your mind on whether the family home should be included in the Age Pension assets test?
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