Fair tax and welfare for older workers. Older Australians at work summit John Daley Grattan Institute 24 February 2015

Transcription

1 Fair tax and welfare for older workers Older Australians at work summit John Daley Grattan Institute 24 February 215

2 Fair tax and welfare for older workers Government budgets are unsustainable: spending on older households is a substantial cause of the problem Australian government budgets have been unsustainable for 7 years The dominant pressure on Australian government budgets is increased spending per older household, to pay for increased health services, Age Pensions and aged care The increased spending reflects policy choices, not ageing Tax and welfare settings should be reformed to encourage older age workforce participation and improve budget balances Better targeting of age pensions, superannuation, and asset taxation dominate the options for budget repair that are both large and socially responsible Older age workforce participation has been increasing, but remains relatively low Reforms would create incentives for more older workers to work for longer Some older households are doing it tough, but most are much better off Older households are under more pressure than wage earners, but much less pressure than the unemployed Most older households are much wealthier than their forebears Younger households are missing out, even though they are saving much more than before 2

3 The Commonwealth s structural deficits was masked by mining boom and GFC Commonwealth budget balance per cent of nominal GDP Terms of trade Cyclical impacts Cash balance Structural underlying balance Note: Cash balance is equal to receipts minus payments, minus Future Fund income, (under.25 per cent of GDP) Source: Budget Pressures 214 3

4 Both revenue and expenditure are worse than longer-run levels Commonwealth own purpose expenditures and revenues per cent of nominal GDP 24% 22% C wth Revenue (ex GST) Forecast 2% 18% C wth Expenditure (ex tied grants) 16% 14% Financial year ended Source: Budget Pressures 214 4

5 Governments spend more on older households, due to Health and Age Pension Government expenditure per household $ per person, , 4, Other in kind Education 3, Health 2, 1, Cash Age of head of household Note: Other in kind includes child care assistance, other social security and welfare benefits, housing benefits and electricity concessions. Source: The Wealth of Generations 5

6 Increasing spending on older Australians is the dominant pressure on budgets Real change in government recurrent expenditure, 23 to 214 $213 bn 5 Real growth Growth at GDP Age-related Predominantly older recipients 1-1 Age Pension Welfare - carers Other welfare Health Aged care Education Other services Infrastructure Climate change & env t Industry Comm s Legal, justice, emergency Foreign affairs, defence Super Note: Based on analysis of Commonwealth, NSW, Vic, Qld and WA data. Categories that changed by less than $1 billion not shown. Source: Grattan Institute, Budget Pressures 214 Gvt & debt 6

7 The net cost of older households to government has jumped in the last 6 years Average net benefits per household (government payments, less tax) 21$ $35, $3, $25, $2, $15, $1, $5, $ -$5, -$1, -$15, Source: The Wealth of Generations Age of head of household 7

8 Health spending and cash benefits for over 65s have increased significantly Change in government benefits per household, to 29-1 $21 16, 14, 12, 1, 8, Other in kind Education Health 6, 4, 2, Cash Source: The Wealth of Generations Age of head of household 8

9 Government health spending increased the most for the over 7s Government health spending per person, $21 $16, $14, $12, $1, $8, $6, $4, $2, $ Source: The Wealth of Generations s 1s 2s 3s 4s 5s 6s 7s 8+ 9

10 Policy choices, not population ageing, drove health and pension spending increases Real increase in expenditure ($212 billion) Health Source: Grattan Institute, Budget Pressures 214 More, improved, and new services per person GDP growth Health inflation >CPI Population ageing Population growth Rate & eligibility change Indexation >CPI Population growth and ageing Age Pension

11 Because of super tax concessions, older h holds pay less income tax than 2 years ago Change in taxes per household, to 29-1, 21$ 8, 6, Net tax 4, 2, Indirect taxes Income taxes -2, Age of head of household Source: The Wealth of Generations 11

12 Fair tax and welfare for older workers Government budgets are unsustainable: spending on older households is a substantial cause of the problem Australian government budgets have been unsustainable for 7 years The dominant pressure on Australian government budgets is increased spending per older household, to pay for increased health services, Age Pensions and aged care The increased spending reflects policy choices, not ageing Tax and welfare settings should be reformed to encourage older age workforce participation and improve budget balances Better targeting of age pensions, superannuation, and asset taxation dominate the options for budget repair that are both large and socially responsible Older age workforce participation has been increasing, but remains relatively low Reforms would create incentives for older workers to work for longer Some older households are doing it tough, but most are much better off Older households are under more pressure than wage earners, but much less pressure than the unemployed Most older households are much wealthier than their forebears Younger households are missing out, even though they are saving much more than before 12

13 There are few options for budget repair that are both large and socially responsible Budgetary impact of tough budget choices 213$b per year Age Pension assets test Negative gearing Pharmaceutical spend Pension and super access CGT discount Higher ed subsidies Defence spending Cost effective medicine Super contr concessions Super earn concessions Fuel tax indexation Transport infra costs Industry support School class sizes GST broaden Health rebate Mining royalty CGT owner occ Payroll threshold Fuel tax credit Bracket creep Source: Grattan Institute, Balancing Budgets High risk in execution $11b $24b $12b $14b $19b Collateral impact $4+b Positive Neutral Mild negative Negative Very negative 13

14 Better targeting of age pensions, super, and asset taxation dominate the attractive options Budgetary impact of tough budget choices 213 $b per year Age Pension assets test Negative gearing Pharmaceutical spend Pension and super access CGT discount Higher ed subsidies Defence spending Cost effective medicine Super contr concessions Super earn concessions Fuel tax indexation Transport infra costs Industry support School class sizes GST broaden Health rebate Mining royalty CGT owner occ Payroll threshold Fuel tax credit Bracket creep Source: Grattan Institute, Balancing Budgets Pensions & super Assets taxation Other $27b pensions & super $ 7b asset taxation $12b other 14

15 After 197, medicine became much better at keeping people alive in their 7s and 8s Life expectancy at 65 years of age, years 9 85 Women 8 Men Grattan Institute analysis of ABS (28) cat no Table

16 People are now able to work for longer Expected years of life for a 65-year-old by disability status Severe or profound core activity limitation Nonsevere disability Free of disability 65 Males 1998 Males 29 Females 1998 Females 29 Source: AIHW (212), Figure 13 16

17 Participation of older age groups and women has trended up for over 15 years Labour force participation rates (per cent of age cohort) Men Women Grattan Institute, Budget Pressures on Australian governments

18 Until recently, increases in older age participation outweighed the ageing population Contribution to change in participation rate Percentage points per year Total women 55+ men women women men Ageing men Borland, Labour Market snapshot, December 213: 18

19 Older age workforce participation is relatively low in Australia Adjusted workforce participation rates of year olds (%) Productivity Commission, 26, Workforce Participation Rates How Does Australia Compare?, Productivity Commission Staff Working Paper. 19

20 Most older people choose to leave the workforce Per cent of people retired 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % <55 Source: ABS (213) Cat 6238 Table Retired at this age Care for child or other Own sickness/disability Terminated/no work Temporary/seasonal job Left own business Holiday/leisure Coincide with partner s retirement Reached retirement age Other Issues finding work Discretionary exit 2

21 Lifting eligibility for Age Pension and taxfree super would increase retirement ages Cumulative per cent of male labour force retiring by age Percent 1 8 Eligible for pension 6 4 Eligible for taxfree super 2 Public sector 54/ Age Source: Grattan analysis of ABS (211b) cat no

22 Older people are community participants more so if they are also working Proportion of people between who care for children or volunteer Per cent Working Not working Working Not working Cared for children in Volunteered in the the past fortnight past year Grattan Institute analysis of ABS Census and ABS (211) Cat no

23 Most of those who draw down their super before pension age are relatively well off Proportion of age cohort receiving some superannuation payment Percent 4 3 Bottom half of income distribution Top half of income distribution Age Grattan Institute analysis of ABS (211) Cat no

24 The Age Pension could be better targeted Household net wealth for matureaged households, $ million Proportion of mature-aged households receiving government benefits Benefits received by those receiving government benefits, $/wk % 75% 5% 25% % 4 2 Household wealth percentile Current asset test threshold Source: Balancing budgets. Note: mature-aged household is household where oldest occupant is over 65 $1m in wealth 24

25 $7 billion a year in Age Pension is paid to households with more than $75k in assets Age pension expenditures and household wealth , $ billion <$1k $1 k- $2k $2k - $3k - $5k - $75k - $3k $5k $75k $1k Household wealth $1m - $2m >$2m Source: Balancing budgets 25

26 Fair tax and welfare for older workers Government budgets are unsustainable: spending on older households is a substantial cause of the problem Australian government budgets have been unsustainable for 7 years The dominant pressure on Australian government budgets is increased spending per older household, to pay for increased health services, Age Pensions and aged care The increased spending reflects policy choices, not ageing Tax and welfare settings should be reformed to encourage older age workforce participation and improve budget balances Better targeting of age pensions, superannuation, and asset taxation dominate the options for budget repair that are both large and socially responsible Older age workforce participation has been increasing, but remains relatively low Reforms would create incentives for older workers to work for longer Some older households are doing it tough, but most are much better off Older households are under more pressure than wage earners, but much less pressure than the unemployed Most older households are much wealthier than their forebears Younger households are missing out, even though they are saving much more than before 26

27 Some households on the Age Pension are struggling Percent of households under stress 6 5 Main source of household income Job seeker payment Other government payment Wages and salaries >2 household deprivations >2 financial stressors >3% of income going to housing In poverty for 2 years Notes: Job seeker payment includes Newstart and jobseeker Youth Allowance. Other govt payment is dominated by age and disability pensions. Source: Grattan analysis of Phillips and Nepal (212). 27

28 Over half of household wealth is in property Mean wealth by age of head of household $ thousands ($211-12) 1,4 1,2 1, Net worth All other wealth Other financial Super Other property Source: The Wealth of Generations Age of head of household Home Liabilities 28

29 Increased wealth for older workers is due to more investment in property and savings Change in mean wealth per household, 23-4 to $ thousands ($211-12) Net worth Age of head of household All other wealth Other financial Super Other property Home Liabilities 29

30 Growing wealth has not benefited the young Mean wealth by age of head of household $ thousands ($211-12) 1, , Age of head of household 3

31 Falling wealth for younger households was not a result of lower savings Savings as a proportion of disposable income, per cent 16% 14% 12% 1% 8% 6% 4% 2% % 15 to to to to to Age of head of household 31

32 Questions 32