Australia’s pension system discourages those who receive a pension from working.
New OECD data reveals a significant difference between labour force participation rates among 65 to 69 year-olds in New Zealand and Australia. The data shows that 47 per cent of men aged 65 to 69 in New Zealand are currently in the job market, compared to 33 per cent in Australia. There is also a significant difference in the labour participation rate in New Zealand among women with 34 per cent currently in the job market, compared to 20 per cent in Australia.
Professor Miranda Stewart of the ANU Tax and Transfer Policy Institute believes that Australia’s current universal pension system doesn’t provide incentives to work for those who receive an Age Pension or part Age Pension.
Currently, a person who earns over $4264 a year will lose their pension benefits at the rate of 50 cents per dollar. Professor Stewart believes that if the Australian Government was to decrease the effective marginal tax rates on older workers who rely on the pension, Australia could significantly improve labour force participation among older workers.
"The structural incentives in the pension system to withdraw from the workforce in Australia are substantial and it is likely that this affects the mindset of would-be retirees," Professor Stewart said.
What do you think? Should the Federal Government be looking at decreasing the tax rate on older workers who receive a pension to encourage labour force participation?
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