Drop unfair plan to lower pension indexation, reform super and pension assets test instead: ACOSS outlines fair proposals to reform pensions and superannuation

2 April 2015

Dr Cassandra Goldie, ACOSS CEO

The Australian Council of Social Service today issued a call to the Federal Parliament to reject the plan to lower the

Indexation of pensions that would severely impact all pensioners, and instead focus on eligibility for the part-pension and

reforming the unfair retirement incomes system, including superannuation tax concessions.

The decision to reduce the Indexation of pensions in the last Budget came as a great surprise to most of us, especially to

pensioners. It would effectively lead to people on pensions, including older people, sole parents, and people with disabilities,

falling behind community living standards," ACOSS CEO Dr Cassandra Goldie said.

"We know these groups are already struggling to get by on a daily basis and if this measure goes ahead, they would lose as

much as $80 per week over the next 10 years based on modelling by the National Commission of Audit. Dr Goldie said.

"This would be a massive cut to the income of some of the most vulnerable people in our community, who simply could not

afford to absorb it. The last thing we should be doing is reducing indexation of payments for pensioners down to the

inadequate indexation which is still in place for people struggling to survive on Allowances, including young people on Youth

Allowance (just $30 a day) and unemployed people on Newstart, just $37 a day. Two thirds of people on Newstart and

Youth Allowance have been on these payments for over a year.

"Indexation to wages should be maintained for older people but also for sole parents and people with disability who already

experience high levels of income poverty. Indexation for all basic income support payments -both Pensions and Allowances

- should be linked to wages if they are to be enough for people to live with some dignity. Dr Goldie said. "We urge the

government, opposition parties and crossbenchers to work together on alternative solutions to ensure the sustainability of

retirement incomes system into the future. This must include reform to better target the Age Pension to those who need it

and to superannuation tax concessions as part of the tax review.

"ACOSS has put forward sound and fair recommendations to this end, including reducing the current threshold that allows

couples with as much as $1.1 million dollars in assets on top of the family home to qualify for a Part Pension. We also

support the Government's move to abolish the Seniors Supplement, which is available to people who are not eligible for the

Aged Pension because they are in a much better financial position than most. Dr Goldie said. "The Supplement extends to

older people who are disqualified from the Age Pension due to the assets test - which means for example, it would go to

couples with assets in excess of $1 million apart from the family home. By excluding superannuation income from the

income test for existing recipients, it also extends to people with significant superannuation incomes.

"A couple could have a million dollars in a superannuation fund paying them an income of $100,000 a year in addition to

their assets and still receive the supplement. Dr Goldie said. "We strongly support the need for an adequate safety net

system to ensure that people are supported when they fall into hard times. However, this supplement of $858 each year for

singles and $1,295 for couples, simply cannot be justified,"

ACOSS Recommendations Tighten the Age Pension assets test

Reduce the assets test free area for home owners to $100,000 for singles and $150,000 for couples, and increase

the taper rate for both home owners and non-home owners from $1.50 per $1,000 of additional assets to $2 per $1,000,

so that the cut out point for the part pension for couples is reduced from $1.1 million in assets besides the family home

to $794,250 in assets besides the family home - Savings: $1,350 million ($1,450 million in 2016-17).

Abolish the Seniors Supplement

Abolish the Seniors Supplement (available to people who do not qualify for the Age Pension due to their income and

assets) from 1 July 2015 leaving the Pension Supplement in place for Age Pensioners - Savings: $240 million ($250

million in 2016-1).

Reform Superannuation system

Increase the preservation age so that it corresponds to the Age Pension access age by 2027 - with early access

arrangements for people with disabilities and caring roles that effectively require them to retire earlier. May include

allowing access from age 55 for Aboriginal and Torres Strait Islander people and people whose disabilities or caring

roles would ordinarily qualify them for certain social security payments (such as the Disability Support Pension or Carer

Payment) or by allowing withdrawals earlier than 55 for any purpose up to modest annual and lifetime limits - Revenue

neutral.

Replace existing tax concessions for superannuation contributions with a simpler taxation structure, in which employer

contributions are taxed at the employee's marginal tax rate and a capped superannuation rebate is paid into employee's

superannuation accounts - Revenue neutral.

Extend the 15% tax rate on superannuation fund earnings to accounts in the pension phase', in three annual steps of

5% each year - Saving $300 million in 2016-17.

Stem the avoidance of personal income tax by individuals over 55 years of age who churn' their earnings through

superannuation accounts: From 1 July 2016, reduce the annual cap for concessional contributions by $1 for every dollar

withdrawn from a superannuation account in the same year by a fund member - Saving $500 million in 2016-17.

Competition policy must support community needs and outcomes: ACOSS

Responding to the release of the Government's Competition Policy Review today, the Australian Council of Social Service

said competition policy doesn't exist in isolation but needs to suit the social, economic and environmental environments to

which it applies.

"We welcome the Report's recognition of the importance of collaboration in human services for the community and its focus

on consumer choice, which as we know is a key element of community control." Dr Cassandra Goldie said. "However, we

are concerned about the recommendation of deepening and extending competition policy in human services as a priority

reform'. We're not ideologically opposed to competition in social services, but we are saying let's get it right. You can't just

roll it out the same way in communities with diverse populations and needs.

"To date, the community sector's experiences of privatisation in health, childcare and employment services point to price

inflation, higher costs to government, less collaboration and questionable outcomes for the community. Dr Goldie said. "The

lessons from a lot of the best outcomes in communities is that you can't always scale approaches nationally. Communities

identify and meet their own needs in various ways and funding options, including from governments, need to reflect this.

In a reflection that competition policy is front and centre for community organisations struggling to attract the resources they

need to meet community needs, the network of Councils of Social Service across Australia provided a submission to the

Review.

We are in the midst of three pretty spectacular disasters that have come about from competitive processes assuming it is

the same context as a tender for a bridge or a construction process." Dr Goldie said. "We support the principle that

individuals, particularly those who are disadvantaged, should be empowered to make choices about which services best

meet their needs. But reforms need to build on evidence of the Australian experience to date.

"We should not assume that greater market competition will produce better options for people. Recent competitive tender

processes have in fact resulted in less diversity and undermined existing collaborative relationships. They have also seen

the loss of smaller, specialist and local providers who are uniquely placed to understand the needs of their community and

client groups. Dr Goldie said. "Competition can also result in a race to the bottom on price, with the result being either that

organisations are forced to deliver a poor quality service or to deliver services at a loss. Larger organisations may be able to

cross-subsidise poorly funded programs but this option is not available for smaller providers.

"On the evidence of how it's currently being operated, competitive tendering is not working in the community sector. We've

seen that across different portfolios and under successive governments. Competitive tendering is not supporting

communities and is diverting vital social service resources to funding processes that they would have been better off

ignoring. Dr Goldie said. "For example in the latest round with Department of Social Services, many organisations invested

time and resources applying for funding that was subsequently discontinued as a Budget savings measure; while others only

found out they had lost funding when the tender documentation indicated they were ineligible," Dr Goldie concluded.

Tax reform is the key to solving Australias public budget problems: ACOSS

In response to the Treasurer's launch of the Government's Tax Reform White Paper at our tax reform breakfast in

Melbourne this morning, ACOSS argued that tax reform is the key to resolving our long term public Budget problems. The

tax system should be redesigned and strengthened so that people contribute to the cost of services according to their ability

to pay.

"We welcome the dialogue on tax reform opened up by the release of this discussion paper. It's an opportunity for the

community and business to take the initiative: these hard issues can't be left to Governments alone," ACOSS CEO

Cassandra Goldie said. "People understand we have a public Budget problem: they want solutions that don't impose the

greatest burden on the least well off. To solve our public Budget challenge in a way that's fair and economically sensible, we

must reform the tax system. Dr Goldie said. "Instead of searching for Budget savings in community services, charging more

for doctor's visits, denying young people income support for six months, or reducing the future value of pensions,

Governments should clean out the hollow logs' in our tax system.

"It is too easy for people with high incomes to avoid paying their fair share of tax through devices such as negative gearing

and private trusts, for some international companies to artificially shift their profits elsewhere, and for retired people with

substantial assets to churn their income through their super accounts to reduce tax. Dr Goldie said. "If too many people

play the tax avoidance game' then either tax rates will have to rise or essential services will wither on the vine.

"The starting point for tax reform should be to strengthen the fairest taxes, especially taxes on income, and to make them

more efficient. Too many investment decisions are made for tax reasons and that's one of the reasons we have over-

investment in housing that drives costs up for everyone. Dr Goldie said. "Tax reform must not be reduced to a narrow

argument over increasing taxes on consumption such as the GST. This would concentrate the risks of reform on those least

able to bear them: people on low incomes. A tax on bank deposits is a consumption tax since it will be passed on to

consumers, just as the former State Government bank deposit taxes were. We should not start the process by ruling things

out.

"Tax reform would not be complete without a restructure of State taxes. The States lack a solid revenue base to fund future

health, education and community services. There is a broad consensus that the least efficient taxes include Stamp Duties

and insurance taxes, and the State Governments should make better use of Land Tax and Payroll Tax. Dr Goldie said.

"There will be a degree of cynicism about Governments starting a conversation about tax reform' rather than simply making

decisions. We don't share that view. One of the main reasons the public rejected the 2014 Budget is that the Government

didn't take people into their confidence by clearly explaining the problem, or listen to alternative views on how to fix them..

We need a different approach to an issue as tough and as important as tax reform,"

Key points from the White Paper: "Australia has a relatively low tax burden compared to other wealthy countries"

ACOSS comment: Data in the White Paper shows that we are the seventh-lowest taxing country in the OECD.

On the mix between taxes and income, consumption and property: "Direct forms of taxation - individuals and corporate income taxes, compulsory social security contributions, plus payroll taxes - raise 63 percent of all

taxation in Australia compared to an OECD average of 61 percent"

That is, our reliance on taxes that ultimately fall on income is close to average.

On the impact of different taxes on growth:

The White Paper confirms our view that consumption taxes like the GST are not much more growth friendly' than taxes on income. The taxes that have the worst impact on the economy are Stamp Duties levied by the

States.

On the progressivity of personal income tax: "Progressive individuals income tax rates and thresholds underpin the overall progressivity of the tax system"

Distortions in the tax treatment of different investments probably have an impact on investment decisions: "particularly in Australia's real estate market, where investment is primarily domestic. If this is the case, any

additional savings in housing will amount to additional investment in housing and given housing supply

constraints, lead to increased housing prices"

Inequity in the tax treatment of superannuation:

"the flat rate of tax on superannuation contributions means that most high income people receive a larger tax concession,

relative to their marginal tax rate, than low income people. The same is true during the accumulation phase and even more

so during the retirement phase, when there is no tax on earnings"

Private trusts and companies:

"As a business grows, it would be increasingly rational for it to adopt the legal structure that would minimise its tax liability.

This may involve incorporating, or utilising a trust, but more likely it wold involve a combination of structures. ...The tax

treatment of different structures means that economically similar activities can be taxed in different ways depending on the

legal structure employed by the business...A perception arises that those with additional resources are able to play' the

system"

A failed experiment with a lower company tax rate for small business start-ups" in the UK:

"it introduced disincentives for companies below the threshold to grow. ...The Mirrlees Review concluded that this policy was

ineffective and costly"

The impact of GST exemptions:

"As a proportion of their income, lower-income households spend more on GST exempt goods and services than higher-

income households. This is largely due to higher-income households saving a greater proportion of their income"

More on the impact of GST exemptions:

"While households may spend a similar proportion of their total spending on GST-exempt goods and services in

aggregate...lower income households may be more likely to spend comparatively more of their total spending on GST-

exempt food, medical products and health services, or residential rent"

Stamp Duties:

"Stamp Duties are some of the most inefficient taxes levied in Australia."

Land Tax:

"Land Tax as currently implemented in Australia is far from [the ideal model] because of exclusions and because different

types of land attract different rates of tax"