Budget reform: We have a choice – strengthen the social compact or grow apart

The Australian Council of Social Service says the Intergenerational Report released today highlights the stark choices we face to fund the services we all want into the future.

ACOSS CEO Dr Cassandra Goldie said:
“The Intergenerational Report throws a spotlight on the fastest growing areas of public spending including health, aged care and pensions. By looking at the ageing of the population, it shows the choices we face to fund the services we all want and need into the future.

“It’s time to lay to rest the rejected elements of the 2014 Budget strategy that reduced income support for the poorest and shifted the costs of essential services to those who need them. It is unrealistic for the Government to factor these measures in to the IGR. To index social security payments to the CPI only leaves a quarter of the population falling behind everyone else. To index health funding to the CPI is also unrealistic and unsustainable.

“We need an honest and well informed discussion about the benefits and services we want and how we’ll pay for them. Most people accept the underlying message from this report – that our nation does face a challenge to meet the community’s expectations with falling revenues and an ageing population.

“Australia has a choice in dealing with the impact of population ageing: Do we restore the Budget by shrinking pensions and essential services or ask those who can, to retire later, and pay their fair share through taxation?

“The compact between Governments and taxpayers, and between the generations, is breaking down. Less than 1 in 4 people of pension age pays any income tax. The superannuation system and other special tax breaks have made paying tax optional for many wealthy older people.

“The IGR, like the Budget, ignores the revenue side of the Budget. Where is the modelling of the future cost of tax breaks for superannuation, which now cost as much as the age pension ($40 Billion a year)?

ACOSS proposes a four part plan to restore the Budget to sustainability. Firstly, the tax system should be strengthened to ensure that people who can afford to contribute, do so. This includes tightening the tax treatment of superannuation to prevent people from churning their income – virtually free of tax – through their super accounts.

“Secondly, is the need to target pensions and services to those who need them. We should all have access to health care because these are essential services needed by the whole community. However, we cannot sustain the costs of pension payments and concessions for people with over a million dollars in assets aside from their homes. We also need to ensure that funding for health services is cost-effective and does not contribute to cost inflation. This calls into question the value of health insurance rebates, which are not reducing the cost of health care in the public system.

“The third part of the solution is to end the waste of human resources that is discrimination against older workers, and bring people marginalised from the work force back in. Due to advances in health and wellbeing, more people can continue to work in their 60s and 70s, even if only part time. We need to move beyond the old system of retirement where people stop paid work forever at 55 while also ensuring a robust safety net for those unable to continue to work due to poor health or disability.

“We need to enable people currently marginalised from the work force, including those unemployed long term, and youth who are unable to get a toe hold in the labour market, to gain the skills and experience needed to find ongoing employment. Improving opportunities for participation and providing adequate income support where it is needed will reduce poverty and the economic costs associated with poverty.

“One of the first steps to increasing participation amongst older people is to raise the preservation age for super, currently set at 55 years. People should only be able to access their retirement savings at the time they can access to Age Pension. It’s unfair to those on low incomes who are no longer able to work to deny them the pension while people on much higher incomes can churn their income through super accounts to avoid tax from age 55.

“Fourthly, the Government should identify the biggest gaps in social security and services, where needs for basic services are still unmet. The IGR should examine unmet needs (including the rise of poverty) rather than simply projecting forward all of the existing programs.

“We welcome the bipartisan commitment to the NDIS, but it’s unacceptable for people with no other source of income to have to live on the $37 a day Newstart Allowance and for people on low incomes to miss out on basic dental care. Spending on wasteful and badly targeted programs should make way for these higher priorities.

“Through the structural reforms proposed, Governments can afford to continue to provide essential payments and services to those who need them in the future and renew the social compact between Government and people that’s served us well for many years,” Dr Goldie said.

Media Contact: Fernando de Freitas 0419 626 155