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Monday, 10 September 1984
Page: 717

Senator COATES(5.12) —This Social Security and Repatriation (Budget Measures and Assets Test) Bill 1984 is to implement the assets test and also the changes to social security payments that were announced in the Budget Speech. Before I come to those matters, I would like to answer some of the points made by Senator Messner in his speech. There is a basic contradiction in the line that the Opposition has taken on the assets test. That is demonstrated in some of the words Senator Messner used only a few minutes ago. He said that the Opposition wants people to take action during their working lives to provide for themselves in retirement. That is a fair enough point to make. The Opposition then goes on to say that it wants to ignore that ability of people to provide for themselves once they have reached retirement, and it wants pensions to be paid in addition to the self-provided retirement benefits. That is a basic contradiction that the Opposition never seeks to explain. Honourable senators opposite just repeat over and over again that they want people to provide for themselves, but then not to provide for themselves. This does not add up.

The other problem I have with the Opposition's argument is that is does not give the full story on the assets test. It does not acknowledge the hardship exemptions that are provided for in the test, it does not acknowledge the loan option and it continues to encourage the belief among pensioners that somehow or other most pensioners will be affected when, of course, all senators opposite know that only a small minority will be affected. Only a minority will even be asked to fill in a declaration form. The suggestion has been made by Opposition senators that they will abolish the assets test if they get back into office. We know, of course, that Mr Peacock was in favour of an assets test; we know that Mr Howard is still in favour; and we know that the other pretender to Mr Peacock 's throne, Mr Elliott, clearly favours an assets test. For Opposition senators to proclaim that they would abolish it is to mislead the Australian people. They know that if they ever did get back into government they would not be in a position to return to having an income-only test.

I wish to make some brief remarks about the other provisions in this Bill, those relating to the Budget measures. It would have been wonderful if more reforms could have been made in this Budget in the welfare area, but it cannot be denied that despite the economic limitations restricting this Budget, which everyone acknowledges, major improvements have been made in the areas of greatest need which are this Government's highest priority. There are two areas of greatest need. The first is the pensioners and beneficiaries who are renting, and for those we have provided a 50 per cent increase in the rent allowance. This will provide extra help for those paying high rents in the private market. The second area is those pensioners and beneficiaries with children. Once again, we have increased the additional allowance in respect of children. There has been a 40 per cent increase in that allowance since this Government came into office. That applies to pensioners, beneficiaries and family income supplement recipients.

There is also the further special increase on top of indexation in the single unemployment benefit rate, again continuing our policy to close the gap opened up by the previous Government between the single unemployment beneficiaries and those in receipt of other social security payments. The previous Government refused to index payments in respect of single unemployment beneficiaries. There will also be a special increase in the normally indexed pensions and benefits to overcome the lack of consumer price index increase due to the Medicare arrangements. This also makes some progress towards our commitment to reach 25 per cent of average weekly earnings in the first three years of this Government. We know that no compensation was paid by the previous Government when a similar sort of anomaly occurred in 1978-79. But this Government knew that it was an anomaly and has more than compensated for it.

Senator Messner mentioned payments to 16 and 17-year-olds on unemployment benefit and the increase we are providing for those who have been on unemployment benefit for six months or more. He knows that the Government has instituted a review of all arrangements for young people-education payments, training payments, and unemployment payments. That review was not ready in time for this year's Budget but we hope it will be ready for next year's Budget. In the meantime, there is that interim payment, the increase for those in particular need who have been on unemployment benefit for six months or more. There has been an increase in the level of tertiary education assistance scheme payments for students. Again, it would have been nice to have made it more but there are the limitations of which everyone is aware. In other education areas there is the participation in equity program and the community employment program, as well as various labour market training programs which are all measures assisting in the youth unemployment area. The fundamental review of the whole question of payments to young people in all areas will be addressed next year.

I return to the subject of the assets test. It is unfortunate that the Minister for Veterans' Affairs (Senator Gietzelt) is ill today and unable to speak in this debate. I know that he was most anxious to do so in view of his active role in initiating the income and assets tests on pensions and increasing public awareness of its actual provisions and the impact in the face of a scurrilous campaign of deceit and misinformation from the Opposition which represents the wealthy and privileged in our society. As Senator Gietzelt is absent, I will include in my remarks some aspects as to how the assets test will particularly affect repatriation beneficiaries. As we all know, the service pension is an important element of the Government's package of benefits for veterans. It is the primary benefit available to veterans in their retirement in recognition of the special commitment they made on behalf of their country and the hazardous and arduous nature of war service. The service pension is available five years earlier than the age pension is available to civilians.

At present an income test is applied to pensions, including service pensions. The reason why there has always been some form of need test on the age pension since its inception in 1908 is the desire on the part of governments over the years to direct scarce taxation resources to the people in the community most in need in the most equitable way possible. Great problems arose in 1976 when the then Liberal Treasurer announced the move from the means test to an income only test. He said at the time that such an arrangement would be both simpler and more equitable for pensioners. Unfortunately, this has proved not to be the case because since the introduction of the income test there has been a rapid expansion of specially contrived schemes designed to get around the provisions of the income test. For certain individuals the income test has been rendered virtually optional. There is nothing equitable about this. It usually means that people with the greatest financial resources and skills are receiving pensions at the same level as people with no financial resources at all. So, as an efficient measure of financial need, the income test has been demonstrated to be a failure.

The problems of the income test did not suddenly emerge when the present Government took office. The problems were well known to Ministers of the previous Liberal-Country Party Government and have been the subject of numerous statements by them in Parliament. It is a matter of record that Senator Chaney, when Minister for Social Security, was quite disturbed about the income test abuses that proliferated at the time. In 1981 Senator Chaney said that he got frequent reports of pensioners with tens and hundreds of thousands of dollars being involved in schemes which were not in their best interests and which were aimed at doing no more than increasing pension income, often to the economic detriment of those pensioners. That was said by Senator Chaney only three years ago. He never kept faith with the promises he made in this place to introduce changes. It is perhaps a good measure of the difficulty of making changes in this highly sensitive area that it needs courage to carry such changes through. If anybody needs reminding, I need only draw attention to the examples which Senator Gietzelt, as Minister for Veterans' Affairs, brought to the attention of the Senate last year of actual case histories of service pensioners who has the extensive financial resources at their disposal in an artificial and non-income producing form so that the service pension could be paid. Of course, Senator Chaney was well aware of this sort of abuse when he promised changes in 1981.

The income test has highlighted the nature of the problem confronting the Government. The problem is that in measuring a person's financial need, it is neither realistic nor sensible to ignore the value of that person's property and investments. To do so is to invite the sorts of abuses that we now have. To most clear-sighted people, the solution is elementary. The needs test should take account of the total financial resources that a person has. This is precisely what the means test did for nearly 70 years until the previous Government abandoned it in 1976.

This Government was faced with the serious problem that the income test did not do effectively what it was supposed to do. The net result of this has been widespread abuse of the system and escalating costs. We could not allow this abuse to continue unchecked. Action was needed and we acted. We announced a proposal in the Budget of August last year to replace the income test with a means test along similar lines to the previously existing one but with some important modifications and improvements. Unfortunately for the two and a half million income tested pensioners in Australia, the Opposition and much of the media in this country then found themselves unable to conduct a reasoned and informed debate about the proposals. Pensioners were subjected to some of the worst scaremongering, misinformation and hysterical outbursts ever. The predictable result was that the community was highly confused about what the proposals were and how individuals would be affected.

In order to restore some reason and sanity to the debate on these questions and to restore the confidence of pensioners, the Government established a broadly- based advisory panel of people drawn from important areas of the community. We were able to gain the benefit of high quality advice from informed representatives, including people directly affected by the changes to the pension system. The value of this important contribution is reflected clearly in the changes that the Government is introducing. The Panel of Review of Proposed Income and Assets Test, headed by Professor Gruen, reported to the Government in May this year and proposed what it called a 'tall poppies' test. The Government accepted the broad thrust of the Panel's proposals and, on 1 June, the details were announced. These followed closely the recommendation of the Panel. But the most important modification was that the pensioner's home be exempted from the assets test.

Senator Chaney —That is a very big change.

Senator COATES —Yes, it is a big change but it was acknowledged that the opposition to the test would be much heightened if the home were included as was proposed. So it was a compromise. The Government is willing to consult and to compromise. It has compromised after consultation.

There are several important features that are worth mentioning. As the title ' tall poppies' implies, the assets test clearly and unambiguously leaves most pensioners unaffected. Only those with significant assets will be affected. These are people with assets in excess of very generous thresholds-namely, $100, 000 for a couple who own their own home; $150,000 for a couple who do not own their own home; $70,000 for a single pensioner who owns a home; and $120,000 for a single pensioner who does not own a home. So this simple, clear and somewhat generous approach to the problem of assets gives less opportunities for others to misrepresent and distort our proposals. The assets test will put a stop to the worst of the abuses that have grown up around the previous Government's income test.

In response to Senator Messner's interjections that abuses will continue, of course the Government will have to be alert to possible abuses and ensure that they do not happen. It is not just a matter of letting the scheme continue without any monitoring. The range of schemes, many of a very dubious nature, which have been developed by sharp operators specifically for wealthy clients and which are not available to the ordinary pensioner represent the worst sorts of excesses which wealth and privilege breed. The assets test will ensure that those operators will not be successful any more.

The assets test will help restore some sanity to the investment decisions of retired people. Because the income test ignores the value of capital gains and asset holdings, until now many retired people have been encouraged to invest their funds in areas that are usually non-income earning. Of course, this is an anachronism for people whose primary need in retirement is a regular income. It also serves to divert vast sums of community resources into artificial and non- productive schemes which slow and distort our economic development.

The assets test will slow down somewhat the spiralling growth in pension costs. Given the present taxation base and methods of funding age, service and other pensions, it is imperative that the rate of growth of costs in this area be contained. If action is not taken, important recent improvements to pensions are likely to be put in jeopardy as costs in the future outstrip the community's ability to reach them. The Opposition makes a great fuss of the fact that in the first year there will be a high implementation cost compared to revenue. Of course, there is an extra cost in the first years, as there is in respect of most new schemes. But it has to be paid for in one form or another and it is worth setting up the system and begin its operation so that in future years the net revenue from the assets test is of value in redistributing wealth. The main point is that reintroducing the assets test will bring us back to a much more equitable system of pension payments than we have had in the last seven or eight years.

We do not pretend that this proposal will provide all the answers. We do say that as long as there is a proper needs test on pensioners, that test should be as effective and as efficient as is possible, with abuse kept to a minimum. Some claim that there is a quick fix to solve all our problems in the retirement incomes area-to give means test free pension to everyone. But I do not believe that Australia can afford this sort of luxury, nor do I believe that the taxpayers who already carry a large burden would be prepared to foot the bill. It would mean that a universal pension would have to be smaller than the pension at present in order to spread it around.

Some of the people who argue for this free pension believe that people should be able to have a pension in their retirement as a right because they have paid taxes all their working lives. Unfortunately, that is not so because the taxes that one pays today go to meet today's bills. In our taxation system there is no retirement benefit fund into which people pay taxes to provide for their future. People who wish to make provision for the future do so personally through superannuation schemes or other private arrangements. Of course, I would like to see superannuation schemes made available to more people who have missed out up until now. Other countries have retirement benefit schemes which are partly or wholly funded by taxpayers through their working lives but such a system has not operated and does not operate in Australia. If it did, taxes would be considerably higher than they are now, and would have been much higher in recent years.

We have said that we are serious about looking at these wider questions in the retirement incomes area and this matter is being actively pursued at the moment. This should lead to an informed debate and reasoned decisions but I think it is asking for too much to expect overnight results in this highly complex area. If overnight results were possible, surely some of our predecessors would have been able to realise them before now, unless they attribute to us superior abilities which they do not possess.

In conclusion, the assets test is not a complete panacea but it will bring some sense of rationality to our present pension system. As long as the present system of providing pensions in retirement continues, we believe we have a responsibility to make the system work properly and not to let it be abused. There are wider questions of important structural changes in the retirement income area and we are looking at those in an ongoing way. But as a matter of principle, we must have a more equitable system and I hope that the Senate will support this Bill. We should not have on the statute books legislation in the form of an income only test which is incapable of operating as it was intended.