There has been a considerable amount of hyperbole surrounding the alleged cuts to the age pension contained in Budget 2014.
Vilma Ward, a pensioner from Norman Park in Queensland, was on Channel 10 last week castigating the PM for his fiscal belt-tightening, asking him ‘Why do you pick at the pensioners?‘, and exclaiming ‘…if we pull the belt any tighter we’ll choke to death.‘
It is not entirely clear from the budget papers exactly how age pensioners are being picked at. None of the proposed changes happen until 2017 – after the next federal election. To call these reforms cuts would be putting it strongly. They could more accurately be described as measures to slow the growth of the age pension which has been forecast by the Commission of Audit to reach $72.3 billion in 2023-24.
The means test thresholds for the age pension will be frozen for three years from 2017-18. As incomes increase, some pensioners will find that their incomes rise above the income threshold beyond which the maximum rate of pension begins to taper. Others will find that their pension payments fade-out altogether. However, this will only occur where pensioners have significant private incomes.
There will also be changes to the way that income from assets are included in the means test. Assets are ‘deemed’ to earn income, regardless of what income they actually earn, and this is included in the income test. From September 2017, the government proposes to change the thresholds used in the calculation of this deemed income thereby increasing the amount deemed to have been earned. This is projected to save $32.7 million in 2017-18 – little more than rounding error on the $50 billion age pension forward estimate for that year.
The age pension is currently indexed to increases in the Consumer Price Index (CPI) or the Pensioner and Beneficiary Living Cost Index, depending on which increase is greater. If the result is less than 25% of Male Total Average Weekly Earnings (MTAWE), the pension is topped up to that amount. With MTAWE outpacing CPI in recent times the pension has increased in real terms. This reform will put age pension increases in line with growth in prices; one of the recommendations made in the Emergency Budget Repair Kit.
It is certainly true that measures such as the Medicare co-payment that go some way to aligning the cost of healthcare with those who benefit from it will impact the elderly more than the young. However, to suggest that age pensioners have been unfairly singled out in the budget is difficult to reconcile with the content of the document.
Matthew Taylor is a research fellow at The Centre for Independent Studies.
Home > Commentary > Opinion > Gen Y to Vilma: Age pensioners are going to be just fine
Gen Y to Vilma: Age pensioners are going to be just fine
Vilma Ward, a pensioner from Norman Park in Queensland, was on Channel 10 last week castigating the PM for his fiscal belt-tightening, asking him ‘Why do you pick at the pensioners?‘, and exclaiming ‘…if we pull the belt any tighter we’ll choke to death.‘
It is not entirely clear from the budget papers exactly how age pensioners are being picked at. None of the proposed changes happen until 2017 – after the next federal election. To call these reforms cuts would be putting it strongly. They could more accurately be described as measures to slow the growth of the age pension which has been forecast by the Commission of Audit to reach $72.3 billion in 2023-24.
The means test thresholds for the age pension will be frozen for three years from 2017-18. As incomes increase, some pensioners will find that their incomes rise above the income threshold beyond which the maximum rate of pension begins to taper. Others will find that their pension payments fade-out altogether. However, this will only occur where pensioners have significant private incomes.
There will also be changes to the way that income from assets are included in the means test. Assets are ‘deemed’ to earn income, regardless of what income they actually earn, and this is included in the income test. From September 2017, the government proposes to change the thresholds used in the calculation of this deemed income thereby increasing the amount deemed to have been earned. This is projected to save $32.7 million in 2017-18 – little more than rounding error on the $50 billion age pension forward estimate for that year.
The age pension is currently indexed to increases in the Consumer Price Index (CPI) or the Pensioner and Beneficiary Living Cost Index, depending on which increase is greater. If the result is less than 25% of Male Total Average Weekly Earnings (MTAWE), the pension is topped up to that amount. With MTAWE outpacing CPI in recent times the pension has increased in real terms. This reform will put age pension increases in line with growth in prices; one of the recommendations made in the Emergency Budget Repair Kit.
It is certainly true that measures such as the Medicare co-payment that go some way to aligning the cost of healthcare with those who benefit from it will impact the elderly more than the young. However, to suggest that age pensioners have been unfairly singled out in the budget is difficult to reconcile with the content of the document.
Matthew Taylor is a research fellow at The Centre for Independent Studies.
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