Review of the Administration and Management of State Government Concessions Response to the Issues Paper

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1 Review of the Administration and Management of State Government Concessions Response to the Issues Paper Introduction The current state government concessions form a patchwork that has been developed incrementally over the years. It lacks coherence, overarching philosophy, and clarity of purpose. Its outcomes are not measurable and/or not measured. In the context of an ageing population demand for concessions and services for older people may be expected to increase, and it is vital that government expenditure is well targeted. Council on the Ageing (WA) believes that this review of concessions is timely. Both State and Territory Governments and the Commonwealth provide a range of concessions to households on low and/or fixed incomes to offset the impact of a range of taxes and charges on the cost of living. While not large relative to other programs funded by State Governments (such as health), concessions are clearly exposed to population ageing - the recurrent cost of providing concessions to seniors may rise as the population ages. Indeed, the WA Government has suggested that:...indicative projections suggest, contrary to statements in the Commonwealth Government s Intergenerational Report in 2002, that State finances will come under significant pressure over the long term. Submission by the WA Government to the Productivity Commission Study of the economic implications of an ageing Australia data/assets/pdf_file/0003/14349/sub039.pdf However, the ageing population, and older people, should not be regarded as an increasing burden on society: Older people continue to make a strong contribution to society throughout their lives. Population ageing reduces government costs in some areas, with concessions to younger people falling as the younger cohort diminishes. The Productivity Commission, Access Economics and the Intergenerational Report have all stressed that the cost of population transition in Australia is manageable if appropriate policy responses are implemented. Population ageing is only one of the cost drivers of government services for example, health costs are escalating as a result of technological changes and other factors. The Western Australian Government provides a range of concessions which are referred to in the Issues paper and documented in the 2007 Guide to State Government Concessions. Assessing the value of the mix of Commonwealth and State Government concessions and benefits available to seniors is a mind boggling task, given the complexity of the system. Recent work in the UK has discovered that age pensioners are not claiming many of the benefits to which they are entitled as they are unaware of what is available or unable to navigate the complex application processes. The complexity of the concessions in Western Australia, with varied eligibility criteria and methods of application is a disincentive to their uptake, and it may well be that the most disadvantaged members of the community are least likely to take full advantage of what is available. Under-usage, and who under-uses concessions should be considered in this review (or in a further study) before final decisions are made on reforming the administration and management of concessions programs. 1

2 Estimating the impact of population ageing on concessions expenditure requires assumptions to be made about the average value of concessions. While eligibility is primarily determined as a result of Commonwealth decisions regarding access to relevant concession cards and pensions/allowances, the value of State concessions is determined by the State Government. Some concessions are structured such that the value of the concession will rise in line with the value of the underlying tax or charge, while others are fixed dollar values which are not automatically indexed but are instead subject to periodic adjustment. However, costing concessions is a complex issue which requires full examination during this review and attention must be given to issues including: Forsaken revenue is not a realistic measure of cost unless demand for the goods or services provided at a concessional rate is totally price inelastic i.e. would the take-up of, for example, a journey on public transport by the concession card holder be taken if the price were higher? Additional revenue to public utilities must be taken into account in assessing the real cost of concessions. Many businesses charge off peak rates to attract customers when their facilities would be under-utilised. Some concessions to seniors enable them to utilise services during off peak times this is a win-win situation and the benefits and well as the costs to the supplier must be recognised. What is the marginal cost of a unit of consumption of a public good or service? What does it cost TransPerth to take an additional passenger from A to B? If an otherwise empty bus has one fare paying passenger, even if that passenger is paying a reduced fare, there is increased revenue to TransPerth which should be recognised as a benefit to the utility. Concessions enable seniors to participate in society to a greater extent. The value of their contribution must be incorporated in a cost/benefit analysis of the concessional system, and must include the extent to which concessions make it possible for them to undertake employment, voluntary work and family support and self-care activities which may reduce the burden of cost on government.. State Government concessions contribute substantially to the income of many seniors, and this is likely to continue to be the case. There are competing views as to the adequacy of retirement incomes at present and in future. The Federal Treasury states: The adequacy of overall retirement incomes is commonly assessed using a replacement rate concept - that is, the ratio of an individual's income or spending power after retirement to that before retirement. The Government has not set an explicit replacement rate target for Australia's retirement income system. Research by the Association of Superannuation Funds of Australia (ASFA) has indicated that the average net replacement rate from public income maintenance schemes in nine OECD countries is 53 per cent. Analysis undertaken by Treasury's Retirement and Income Modelling (RIM) Unit indicates that current policy will deliver substantially higher replacement rates for senior Australians, as a group, over the longer term. The Superannuation Guarantee (SG) system in conjunction with the Age Pension is projected to provide a spending replacement rate for an individual on median earnings of 72 per cent after 30 years of contributions and 77 per cent after 40 years. These replacement rates are conservative in that no allowance is made for superannuation contributions above the SG or for additional private savings outside of superannuation. Replacement rates for women with interrupted careers are also calculated. 2

3 Aggregate projections for the entire Australian population also show average potential replacement rates for all workers rising to 71 per cent by These projections are based on the full diversity in labour force participation of the population. And: The value of the Age Pension in real terms has been boosted in recent years through a number of initiatives, including legislating to link the full rate of pension to 25 per cent of MTAWE. This policy has meant that the value of the Age Pension has grown in real terms by 1.19 per cent per year since 1996 (on average) and is expected to grow by 1 to 1½ per cent a year on average into the future. In addition, as part of the introduction of the new tax system in July 2000, the real value of the pension was increased and the pension income test withdrawal rate reduced (from 50 cents in the dollar to 40 cents in the dollar). The second of these measures, in particular, has made the Age Pension more accessible to partly self-funded retirees, and added to the incentive for individuals to save for their retirement by boosting the returns from such saving at the time of retirement. Eligibility for the Age Pension also brings with it a number of ancillary benefits. People in receipt of either the Age Pension or Service Pension are entitled to a Pensioner Concession Card (PCC). Those of Age Pension age who do not qualify for either a Service Pension or Age Pension because of assets or income levels may qualify for a Commonwealth Seniors Health Card (CSHC). On the contrary, NATSEM researchers Kelly and Harding (Agenda, Volume 11, Number 2, 2004, pages Funding the Retirement of the Baby Boomers) state: Currently over 70 per cent of people aged 65 and over live on incomes of less than $300 per week. The high proportions in the $ and $ ranges suggest that the principal source of income for these people is government cash benefits (Figure 1). In January 2004, the Age Pension provides $ per week for a single person and $ for each member of a couple that is, about $12,000 for a single person and $20,000 for a couple each year. And The poorest one-quarter collectively holds only five per cent of the total wealth of year olds. The wealth of the richest quartile averages more than $500,000 and collectively owns almost 60 per cent of the total wealth of this age group. These figures suggest that perhaps threequarters of Australians in this age group have not yet saved sufficient resources to finance a comfortable retirement. And...a recent study found that a single person would spend around $16,930 per annum on a modest but adequate lifestyle in retirement a more comfortable lifestyle would cost $32,800 (Saunders, Patulny and Lee, 2004). These figures assume the retiree owns their own home. For a couple the figures are $23,550 and $43,350 respectively. Similarly, as stated earlier, most financial planners suggest $30-35,000 is required for a comfortable lifestyle in retirement for the average person. The results in Figure 1 imply that about 90 per cent of current retirees are surviving on an income of less than modest but adequate. For the next generation of retirees (those aged with only slightly 3

4 increased levels of superannuation savings by retirement and who have enjoyed a very high standard of living in their working years) this standard of living in retirement may not be acceptable. The extent of the value of state government concessions to seniors, in the context of the low incomes cited by Kelly and Harding, is illustrated by the following table which relates to self funded retirees. Given the greater relative poverty of most age pensioners, this table demonstrates the reliance that low income seniors have on state government concessions to maintain even a subsistence lifestyle: Value of concessions to self- funded retirees Rates Water and Sewerage Energy Motor Vehicle Total possible benefit ACT $250 $300 $167 $248 $965 NSW $250 $175 $112 $264 $801 NT $200 $200 $365 $104 $869 QLD $180 Not Applicable $120 $155 $455 SA $190 $185 $120 $79 $574 TAS $318 Not Applicable $177 $91 $586 VIC $135 $135 $110 $140 $520 WA $325 $106 $94 $70 $595 A single senior, wholly reliant on the Age Pension, receives approximately $13000 pa. For them, the WA concessions listed above represent over 4.5% of annual income. Adding other state government concessions, such as reduced public transport fares, boosts this percentage substantially concessions are vitally important to seniors and, despite optimistic projections of the impact of the maturing superannuation system, they are likely to remain so in the future, particularly for those who have had broken work histories, women, people with disabilities and other people who have not been in a position to make substantial, enduring and long term contributions to superannuation. Response to specific issues raised in the issues paper What should be the coherent objective behind the concessions framework? 1. The concessions framework should contribute to the achievement of social inclusion by providing supplementary income support to individuals to enable them to achieve at least a modest but adequate lifestyle. 2. Enabling social participation should be the secondary objective of the concessions framework. 4

5 What are social concessions? Why should government provide them? Who should they target? 1. Social concessions are those which are intended to meet the secondary objective of enabling individuals to fully participate in society. 2. Social participation, inclusion and cohesion are essential attributes of achieving a just and equitable society which government should facilitate. 3. Individuals who are unable to fully participate in society should be targeted. Where do, or should, green rebates fit? Green rebates are methods of achieving environmental policy objectives and do not fit within the concessions framework. They should be given an alternative name (Green Incentives) to make this distinction. Energy and water concessions should be rethought to meet the dual objective of providing affordable energy and water to low income seniors at the same time as reducing greenhouse gas emissions and conserving water. Subsidising consumption maintains or increases energy and water usage. Alternatives include provision of carbon credits to low income households, subsidies and incentives for energy and water efficient homes and devices (such as home insulation) and providing community education on reducing energy and water usage. Are concessions in WA currently more about need or reward? What should they be about? 1. The current framework is complex, confusing and inequitable, mixing poorly defined policy objectives and conflating need and reward. 2. Concessions should be based on need, not reward. Universal concessions are preferred to means tested concessions, but in the absence of a progressive taxation system and the concomitant inability of government to recoup expenditure on concessions made to people who do not need them for financial reasons, targeted, means tested concessions are needed to ensure that expenditure reaches those who need assistance most. Is an inclusion or exclusion definition preferable? OECD and European countries have successfully adopted an inclusion framework. We should learn from their experience, and adopt this approach. Is a social sustainability definition preferable to a definition of desirable recipients or approved forms of concessions? No systems can be sustainable (at least in the medium term) without being just or equitable. Should broad principles such as those implemented in Queensland and Victoria also be introduced to provide further guidance to concessions administering bodies? Yes. 5

6 Should there be an integrated whole-of-government social concessions system, or should individual agencies continue to develop and administer their concessions policies independently? We favour a joined-up government approach to achieve consistency and ease of access for individuals. This may not necessitate centralisation, but overall policy objectives must be established. What are the current drivers of the development and administration of concessions within individual agencies? Ad hoc decision making, often in response to political pressure. Does a lack of coordination negatively affect the concession framework in WA? Yes, and it makes concessions unfriendly to users and excluding people who the system is intended to assist. What do other States do? Generally, not much better than WA! Are the current cards the appropriate measure for concessions in WA? Would the creation of WA Concessions Card, targeted specifically to WA s needs, be preferable? A WA Card would be preferable as long as the administrative costs are reasonable and processes can be implemented that do not further complicate the system. WA circumstances sometimes differ from the national picture and a WA based system is more likely to accommodate WA needs. Should the State support any Commonwealth plans for Federal control of concessions administration and provision? WA must retain control over its own expenditures, but federal-state co-operation and coordination is desirable and general consistency of approach between Commonwealth and the States and Territories is preferable to each going its own way. What could be the impact of the proposed HSS Access Card? Unknown, but we have raised many issues of concern regarding the proposed Access Card with the Federal Minister. Are there other options? 6

7 No comment What are the risks associated with changing the existing system? Further confusion amongst recipients of concessions. Should social concessions be centrally administered, potentially as part of Joined-Up Government initiatives and programmes? We favour a joined-up government approach to achieve consistency and ease of access for individuals. This may not necessitate centralisation, but overall policy objectives must be established. Joined-up government aims to develop coordinated responses to deliver the best results to customers. Would the concessions system (a major area of Government/customer interface) benefit from being a part of joined-up government initiatives? What is the role of central agencies (Department of Premier and Cabinet, Office of State Revenue, Department of Treasury and Finance)? Overall co-ordination of the concessions policy framework should be the responsibility of the Department for Communities. DPC, OSR and DTF should continue to provide policy advice and support to the Premier and monitor achievement of outcomes. What mechanisms could be attached to a central administration ensure whole of government input and representation? No comment Is the concessions framework administered as effectively as it could be? Are there elements of the current system that limit its effectiveness, or prevent it from meeting its objectives? The current administration and management is ad hoc, poorly co-ordinated and confusing for seniors and other people eligible for concessions. Fragmentation reduces efficiency, and money is diverted to administration and management that could be better spent on assisting people who need concessions. How accessible is the system for its customers? It is not user-friendly and relies on the input of community organisations to make it accessible to many people. The system is tiresome, complex and requires individuals to make duplicate form filling, often with similar information. Is there adequate, coherent information available? Effective information provision is difficult, and there are clearly groups and individuals who do not gain the information they need when they need it. Information must be provided in multiple formats (hard copy, web-based, disability friendly, etc) and available in Plain 7

8 English and community languages. Seniors prefer to receive information orally, and peer education should be considered as a delivery tool. How effective are the current concessions cards as eligibility measures and access mechanisms? Is there sufficient integration between agencies to reduce administrative and bureaucratic obstacles? Does the lack of policy and administrative integration make the concessions system too complicated for its desired recipients? We have commented above on the complexity of the system at present and its lack of userfriendliness. A one stop concessions shop would be the ideal delivery mechanism. Is the framework producing identifiable, positive outcomes? Any system can be expected to deliver some identifiable, positive outcomes, the question is whether they are optimal and well-targeted. The current concession framework achieves neither. Can these be measured? Not adequately at present. Does it achieve any objectives that have been set for it? Does it target and/or reach the right people? Does the framework help the people that it does target? If not, why not? Are there any simple solutions to these problems? There is insufficient information to know at the moment. Is the current framework sustainable? Yes concessions make up a miniscule proportion of the State budget and the amounts expended per capita appear to be in the mid-range of what other States and Territories offer. How will the ageing of the population affect the WA concessions framework? Are there other demographic shifts that are likely to impact upon the framework? We have referred to the impact of the ageing population above. Many people will remain on low incomes despite the maturing superannuation system and there will be a need to provide support to assist seniors to maintain a modest but adequate lifestyle, particularly those people who will be primarily reliant on the Age Pension. This may increase the expenditure required on concessions, but there will be reductions in other areas of expenditure to balance some of these increases. Concessions form a very small proportion of the WA Government expenditure, and any increase should be manageable within the context of rising GDP and GSP. Other demographic changes to be considered include the growing numbers of refugee and humanitarian immigrants, many of whom have poor literacy skills and who will find it difficult to access work even during periods of high employment. These people have not had the opportunity prior to coming to Australia to accumulate any retirement savings, and their superannuation contributions during their working lives may be lower than average. As a 8

9 consequence, they are likely to be more dependent upon income support programs and concessions both during their working lives and in retirement. Although a relatively small group, this may add significantly to state government expenditure of concessions. Are there specific issues in relation to individual concessions that are of concern or have been lobbied about previously? Some concessions are of very low value e.g. the spectacles concession which is only $50 every 2 years, an insufficient amount to make any meaningful difference when spectacles cost many hundreds of dollars and are required by most seniors. The Seniors Card has a mix of participation, reward, discount and income support objectives. It would be useful to review it against clearly stated outcomes to ensure that it is well targeted now and in the future. What additional questions/issues in relation to concessions may be beyond the scope of this review but require future/further exploration? Alternatives to concessions should be explored. Perhaps concessions should be abolished altogether and replaced with an adequate and indexed income supplement to lower income people so that they can choose what to spend it on and when. The term concession should be replaced as it tends to stigmatise and patronise recipients. Adequate means to participate fully in society is a right, not a privilege. The Rates Concession as it applies to group dwellings (retirement villages) owned by the Churches is an issue that warrants greater attention and comprehensive review to find a way forward which is manageable and equitable for residents and local government authorities. The impact of concessions on local government authorities requires investigation to avoid those LGAs where there is a high proportion of concessional owner occupiers becoming impoverished. Under-usage, and who under-uses concessions should be considered in this review (or in a further study) before final decisions are made on reforming the administration and management of concessions programs. The current air conditioning subsidy should be considered in light of climate change. The area of the state covered by the relative strain index guideline is likely to increase, raising the cost of this concession substantially over the coming years. Increases in temperatures will cause hardship for an increasing number of seniors, and events in France, where many seniors died or became ill during a heatwave, in recent years have demonstrated how this may adversely affect health outcomes (and the cost to the state arising from hospitalisation and ill health). 9