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Friday, 1 June 1984
Page: 2349

Senator GRIMES (Minister for Social Security) —by leave-I table the report of the Panel of Review of Proposed Income and Assets Test.

I would like to inform the Senate of the Government's policy on the asset testing of pensions in the light of its consideration of the report. The Government is firmly committed to the principle that pensions be directed to those reliant upon such expenditure and not dissipated upon those who, by any reasonable standard, do not require such assistance. In current circumstances, where many Australians with little or no income or assets are in need of additional assistance, and where there are severe limits on the resources available to meet those needs, there is no escaping the necessity to apply means tests to social security type pensions.

A means test has always been applied to pensions in Australia. In a world of unlimited resources, a Government might prefer to avoid such tests. But we do not live in such a world, and do not expect to do so for the foreseeable future. These realities were faced squarely by Australians in Parliament House a little over one year ago, at the National Economic Summit Conference. Then, in the depths of Australia's greatest economic crisis for half a century, Australians recognised that the restoration of the greatness of our country would require each of us to moderate our pursuit of narrow individual self interest.

The Summit communique acknowledged the overwhelming desire of the nation to ensure that those in genuine need were adequately supported, whether they were the rich, the aged, the disabled, the unemployed or the impoverished. The spirit of the Summit has served Australia well over the past year, in ways that are reflected more widely in greater social cohesion and more effective economic performance. We must continue in that spirit, because a great deal remains to be done. Within this spirit, there must be effective means testing of welfare payments to ensure that we are able to provide effectively for Australians in genuine need. The challenge for the Government is to structure such tests to ensure that they produce genuinely equitable results.

Until eight years ago the Australian means test was based on both incomes and assets. Since 1976, there has been widespread concern about wealthy people receiving a pension because their wealth has been in assets which have been structured to avoid earning current income. This basic inequity has worried many Australians, including many on both sides of this Parliament, and will do so for as long as our means test fails to bring assets as well as income to account. Inevitably the absence of an assets test has invited the emergence of income test avoidance schemes. Standard avoidance packages are now readily available and widely used and are proliferating.

In last year's Budget we moved to reintroduce assessment of assets as well as income in the means test, along the lines of the arrangements which had been in force prior to 1976. We made it clear then that there would be widespread consultation with the community before the final form of the test was settled. These consultations led to a number of modifications being incorporated into the draft Bill which was introduced into the Parliament late last year. This draft legislation sought to reduce important inequities in the means test, to address the increasingly important problem of test avoidance, and to strengthen our capacity to provide adequately for Australians in need through the long period ahead when the ratio of aged to working Australians was going to be rising.

But it became clear early this year that there was continuing uncertainty about whether the Government had found the fairest and most equitable way to implement an assets test. We became concerned that many ordinary pensioners had been caused unnecessary worry by those who, for shortsighted political purposes, encouraged groundless fears about our intentions. But, as a Government which acknowledges that it is not the repository of all wisdom, we also recognised that there was justifiable concern that we might not have found the best way to test assets.

Accordingly, on 23 February, the Government reaffirmed its commitment to the principle of an assets test and moved to establish a broadly-based panel of relevant community representatives to advise on how this principle could best be reflected in legislation.

Senator Peter Baume —And then put aside the Panel's findings.

Senator GRIMES —We were fortunate to secure the services of high calibre representatives of a wide range of interested community groups. I assume that means Senator Baume supports their findings. The Panel has worked hard and well and consulted widely since early March. It has produced a report of high quality in a short space of time. The report contributes significantly to our understanding of the issues. On behalf of the Government, I would like to thank Professor Gruen and the members of the Panel for their thorough, analytical work .

The weight of the report is increased by the Panel having adopted a unanimous approach on most matters. The report has made a large number of specific recommendations, all of which have been carefully considered by the Government. The report as a whole has influenced the Government to change its approach to the assets test. But as the Government, we must be the final arbiter of the national interest, and on one central matter we have chosen a different course from that preferred by the Panel.

The Panel responsibly acknowledges the fiscal realities within which any Australian Government must operate. It recognises that it is simply not feasible in the foreseeable future to move towards a system of universal pensions, while maintaining and increasing the provision for Australians in need. Thus, recognising that a needs-based system must be retained at least for some time, the Panel concludes that a test must take account of both income and assets if it is to be both a fair measure of need and equitable to all. This is a strong conclusion from a group that includes a range of pensioner and service organisations. It is a conclusion that is in line with responsible economic opinion in Australia. It is a view which we are accustomed to hear from businessmen, bureaucrats, economists and the financial Press.

For example, a recent statement from the Business Council of Australia had this to say:

Over recent years business leaders have urged that welfare payments be means tested and we have said that the Government deserves support for attempting to tackle this politically difficult problem now . . .

It is important that issues of longer term income security and retirement are addressed, and in the context of the taxation system, as a major priority for public policy development in the coming years. However, without commenting on the specific recommendations of the Gruen Committee, it is important that the Government gets community support for tackling the hard and thankless task of expenditure restraint through means testing welfare.

It would be disappointing if any sector of the community, through vested interest or for short-term political advantage, were to make the task of reform more difficult.

But the Panel's statement on means testing has special significance as a statement from a group that, collectively, can claim close association with and understanding of the particular groups who would be affected by an assets test.

This alone makes the report an important development in Australian discussion of social security matters. I hope that the members of this Parliament can at least find common ground here on the need for assets as well as income to be considered in any test of need.

Our Government is firmly of this view. I think that honest members of the Opposition acknowledge that they share this view.

In October 1981, the then Minister for Social Security, Senator Chaney, was reported as admitting that there was a belief in the Liberal Party that an assets-based test was the only way to stop the artificial lowering of incomes in order to get the pension. The same Liberal Minister for Social Security said in May of that year:

I think we cannot escape the fact that there are some genuinely needy pensioners in this country who do not receive enough help, while some other people by the advantageous arrangement of their assets, are able to draw on the system to a greater extent than their real degree of need would seem to justify.

The Government and the Panel can agree wholeheartedly with this statement. The Deputy Leader of the Opposition also seems to favour an assets test, although he expressed doubts about the particular shape of the income and assets test proposed in the last Budget. On 27 November 1983, Mr Howard said:

I'm personally in favour of a needs approach to the payment of welfare . . . I think the method of the asset test now proposed and originally in operation is not the best way of doing it, because, for example, why is it that you can have an unlimited amount of antiques or jewellery but you can only have a very small amount in the bank or in a building society deposit.

The Deputy Leader of the Opposition is clearly suggesting that he would support reintroduction of an assets test if anomalies of the type he outlined were removed. It is time for us all to recognise that the real issue is not whether we should have an assets test, but what is the fairest and best form of assets test. On this, the Government recognises that honest and reasonable people can hold different views.

Following its consideration of the Panel's report, the Government has adopted a policy which differs from that which is incorporated in the draft legislation that is currently before the Parliament. The Panel concludes that while the then proposed income and assets test generally directs assistance to those most in need, it creates several anomalies and disadvantages in doing so. The extensive exemptions create inequities, as Mr Howard said. The test favours those who are able to invest their assets at a rate greater than 10 per cent. In these and other ways, the Panel is of the view that it is inferior to two other possible forms of assets test which it describes as the 'tall poppies test' and the ' modified tall poppies test'.

The Government acknowledges the force of the Panel's argument and has decided to put aside the previously proposed test. While the Panel is clearly of the view that the previously proposed legislation is the least satisfactory of the three possibilities that it considered, it is less clear cut in its judgment between the other two. The Panel's tall poppies test provides for the gradual phasing out of the pension when the total value of assets, without any exemption , exceeds a high figure for a single pensioner, and a separate, higher sum for a couple. The Panel's modified tall poppies test exempts the house of residence up to a value of $150,000, and provides for the gradual phasing out of the pension when the total value of other assets exceeds thresholds that are lower than those applied in the tall poppies test. In the final conclusions and recommendations, the report prefers the tall poppies test. However, in comparing the options in detail, it sees relative strengths and weaknesses in each of the two options.

The report says that there would be no general community view on whether the tall poppies test was fairer than the modified tall poppies test. It is clear from the argument in the body of the report that the tall poppies test without any exemption is preferred mainly because the exemption of the home is inequitable between people who reside in their own homes, and other pensioners. If it were possible to correct the imbalance between these two groups in other ways, the report's strongest arguments for avoiding the exemption of the home would be met.

The Panel notes two reasons why some Australians would think it fairer to exempt the house: The strong Australian belief that there is a special attachment to home ownership; and the difference between levels of other assets that could be held by people occupying similar housing in different locations and with different values, if the home were not exempt. Moreover, the Panel notes several advantages of the modified tall poppies test over its preferred option. These include reduced opportunities for artificial avoidance schemes to operate, given that many other assets are easier to manipulate for these purposes than a residence, and somewhat easier administration. Like the Panel, the Government believes that fairness is of fundamental importance to the operation of a means test, and that fairness, like beauty, is, to some extent, in the eye of the beholder. The Government believes that in Australia, it is fairer to allow exemption of the home, so long as the inequity that this introduces in relation to people who do not own their own homes is addressed in other ways. We will implement the Panel's modified tall poppies test, with some variations.

The key features of the new assets test are as follows: The principal residence is completely excluded from the test. We believe that needless anxiety would be created amongst pensioners who would never actually be affected by the test if the exemption were allowed only up to a specified limit. For pensioners on farms , the exemption relates to the home and curtilage. Pensioner couples resident in their own homes receive the full pension unless the market value of their other assets exceeds $100,000. If this threshold is exceeded, the pension is reduced by $20 per week for each $10,000 of other assets above $100,000. Eligibility for the pension is not eliminated, at the current rate of pension, until other assets exceed about $175,000. A home-owning pensioner couple with other assets of about $137,000 receives a half-pension. Single pensioners who are resident in their own homes, receive the full pension unless the market value of their other assets exceeds $70,000. If this threshold is exceeded, the pension is similarly reduced. Eligibility for the pension is not eliminated until other assets exceed about $115,000. A home-owning single pensioner with other assets of about $92, 000 receives a half-pension.

The exemption levels are $50,000 higher for all pensioners who are not resident in their own homes, such as renters, people living with relatives, and people living permanently in nursing homes. Thus a single pensioner who is not resident in his or her own home can hold $165,000 in other assets before losing all entitlement to the pension, while a pensioner couple in the same circumstances can hold $225,000. The assets test applies only if the resulting pension entitlement is lower than that produced by the current income test alone. The two tests apply separately, so that one or the other, but not both, operates. In practice, this means that the assets test affects only those with substantial assets and little income. These are a small proportion of pensioners with large assets.

The system of administration depends heavily on self-declaration, especially in relation to normal personal effects. This makes the administration less costly and less intrusive than would otherwise be the case. To minimise intrusion into the personal affairs of pensioners, a net market value of $10,000 is set on normal household contents and personal effects, with a provision for people to claim a lower amount if they consider $10,000 to be in excess of the actual value of the relevant assets. There is also a requirement that people declare the value of household contents and personal effects if that value exceeds $10, 000. The thresholds of $70,000 for a single pensioner and $100,000 for a pensioner couple, as well as the addition of $50,000 for people who do not own their own homes, are to be indexed yearly in accordance with movements in the consumer price index.

Several other details of the arrangements follow directly the Panel's recommendations. From today, any gifts or other forms of divestment without adequate financial consideration in excess of $2,000 a year for a single pensioner, and $4,000 a year for a pensioner couple, are to be considered as assets of the pensioner for purposes of the test. Special aids for disabled people are exempted from the assets test. Legislation will be drafted for introduction on Budget night with a view to its early passage. The assets test applies to all social security and repatriation service pensions that are currently subject to the income test. Thus it does not apply to blind pensions, to unemployment and sickness benefits, or to war widow pensions and repatriation disability pensions. There are special provisions to ease problems that arise in conditions of hardship. These will be along the lines of provisions in the previous Bill, although one additional facility is available to alleviate hardship should the pensioner wish to use it.

People may have assets large enough to diminish eligibility for the pension, but hold these in a form which is difficult to convert into cash to cover the ordinary expenses of living. Alternatively, they may prefer not to sell particular assets for these purposes. In these circumstances, people who hold three-quarters of their assets in these illiquid forms have the right, on their own choosing, to be paid an income equivalent to the pension as a loan to be recovered from their estate. Interest would accumulate on the loans at a market related rate. I stress that no one is obliged to use this facility. It is available to eligible Australians affected by the assets test who choose to use it. The lien on the estate is similar to facilities made available by many local authorities in Australia, which allow pensioners to postpone payment of rates.

Since last August's Budget Speech, we have seen a continuing attempt by honourable senators and members opposite us, with Mr Peacock to the fore, to distort, to exaggerate and to misrepresent matters related to the assets test, for their own short-sighted political purposes. The Opposition has deliberately played on the anxieties of elderly Australians. It has attempted to create fear amongst pensioners in genuine need who would never have been affected by an assets test. In the whole sorry history of discussion of these matters over the past nine months, there is no more sorry episode than the misrepresentation of the Panel's recommendation on the provision of loans to people affected by the assets test, at their own election, in the case of hardship. The Opposition has sought to misrepresent a humane suggestion as a penalty. In response, I can only ask a simple question: Is an eligible person who chooses to use this facility better or worse off than if access to the facility had never been available? The Opposition's distortion will be recognised for the dishonest, self-seeking, opportunistic fearmongering that it is.

The Government believes that the new assets test is fair and generous by the values of most Australians. It removes the inequity that has existed in the pension system since 1976, that assets rich people are able to maintain pension eligibility when less wealthy people who, on any reasonable criteria, are in greater need, lose entitlement under the income test. But eligibility for the pension is not in any way affected by the value of the family home. The new assets test makes special provision for people who do not own their own homes. It greatly diminishes opportunities for using artificial schemes to avoid the income test. It does not affect most pensioners at all. It is as unintrusive as possible into the personal affairs of pensioners who are affected by it. When it is in full effect in 1985-86, it is expected to save about $45m after allowing for the costs of administration. Net savings rise steadily in subsequent years with the number of pensioners, and increasing wealth of potential pensioners. The pensioner population can be expected to continue to grow much more rapidly than the remainder of the population.

The savings in later years will be greater to the extent that Australians in future take more assets to retirement, through the growth of entitlement to superannuation lump sums, and through the coming to retirement of a generation whose lifetime accumulation of assets, unlike that of their parents, has not been affected by the Depression and the Second World War. The savings in later years will be greater to the extent that artificial schemes to avoid the income test would have proliferated in the absence of an assets test.

Establishment costs are higher than ongoing administrative costs. This, together with the commencement of the operation costs, means that there will be a net cost of about $30m in the coming financial year. The report argues that any savings from the assets test should be applied to improve conditions of pensioners in greatest need. The report emphasises the special plight of pensioners who do not own their own homes.

The Government is committed in the coming Budget to some general increase in the pension rate above the amounts that follow from the automatic adjustments for increases in the consumer price index. The Government will make additional assistance available to pensioner renters through an increase in the rate of supplementary assistance. Final decisions on these matters will be taken in the Budget context.

Our fiscal circumstances will not allow us to do all that we would like to improve the lot of Australians in need, but we will do what we can within the limits of fiscal responsibility. Today's announcement should also be seen in the context of ongoing discussion of wider questions of retirement incomes. The reintroduction of an assets test is one of several measures that we have taken to increase our capacity to assist Australians in need within severe fiscal constraints. We are continuing to examine the implications of various alternative forms of national superannuation schemes, as well as alternative approaches to the extension of occupational superannuation.

It would be possible, and in current circumstances even attractive from a narrow political point of view, to follow the course that Mr Peacock sometimes seems to be suggesting, and to put off all hard decisions until there is widespread community support for some utopian final solution to Australia's retirment incomes problems.

But a Government that cares about the long term future of Australia must act with greater courage. There is no avoiding the reality that the long term evolution of the Australian retirement incomes system must, as a matter of social, demographic and economic necessity, be based on the allocation of public assistance on the basis of need. The assets test, together with our initiatives on the taxation of lump sum superannuation and on income testing the over-70 pension, represent a necessary focus on needs. Mr Peacock once understood these things. On 9 September 1981, when a Government back bencher, he told the Parliament:

'The Government needs to reassess its approach to spending, concentrating on the areas of genuine need, cutting out expenditure to those who do not need assistance'.

In the same speech, he acknowledged that the 'needed decisions will demand a good deal of courage from government leaders'. He was right. I suggest, as well, that the needed decisions demand some courage and commitment to principle from Opposition leaders.

This has been a difficult issue for the Government and the Australian people. It raises such fundamental questions of equity that it is bound to be difficult, as well as controversial. I regret the confusion, and anxiety, that many pensioners have experienced through the uncertainty of recent months.

I have previously acknowledged our part in the responsibility for part of that uncertainty, in the shortcomings contained in last August's income and assets test. I readily make that acknowledgment again. But the Australian people are better for our having started again and got it right, than they would have been if we had remained rigid and wrong. I greatly regret the exaggeration, distortion, and misrepresentation that has characterised the Opposition's contribution to the debate on this complex issue. Today I have defined a simple and fair system of assets testing. We will move promptly to implement this approach.

The majority of pensioners-those who genuinely need the pension-will be better off as a result of the series of decisions on pensions that we will announce this year. This Government will never undervalue the contribution of older Australians-the Australians who during their working lives contributed to building Australia into the great country it is today, and who laid the foundations for the greater country it will be tomorrow. Australians in need can rest assured that their interests are enhanced and in no way threatened by the decisions the Government has taken following its consideration of the report of the Panel of Review of Proposed Income and Assets Test. I move:

That the Senate take note of the statement.