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COMMUNITY AFFAIRS LEGISLATION COMMITTEE
19/06/2009
Social Security and Other Legislation Amendment (Pension Reform and Other 2009 Budget Measures) Bill 2009

CHAIR (Senator Moore) —The Senate Community Affairs Legislation Committee is looking into the Social Security and Other Legislation Amendment (Pension Reform and Other 2009 Budget Measures) Bill 2009. We welcome the witnesses from ACOSS. I am aware that you are at a conference. I know you are both very experienced at this. In the room we have Senator Furner from Queensland, Senator Siewert from Western Australia, who is the Deputy Chair, Senator Boyce from Queensland and Senator Williams from New South Wales.

I would like to put on the record from the start that this is a very rushed inquiry for very significant issues, but as everyone would understand this is a budget measure and we are trying to get the debate on so whatever is approved will be able to flow quickly through the process. We understand and note your concerns that were stated in your submission about that. I wanted to acknowledge that we did agree on that basis. Would either of you like to make some opening comments and then we will go to questions?

Ms Martin —Yes. We will make some brief opening statements and then, of course, it is over to you. I would like to restate that we are concerned about the short time frame of this inquiry, given that it deals with such fundamental changes in Australia’s social security system. The government consulted with ACOSS and other interested parties in the development of these policies, both through the Harmer pension review and the Henry review on retirement incomes. However, a fundamental weakness of this process this time was that there was no opportunity to consider the impact of the proposed changes on the social security system as a whole, which the Henry review is now examining. This has contributed in no small part to the problems with the legislation. In particular, the adequacy of most, but not all, pensions was considered by the Harmer review without regard to the adequacy of other payments and a major change is now proposed to the family tax benefits that was not examined in either the Henry or Harmer inquiries.

While the outcome of the legislation before the Senate will be greatly improved income support for most pensioners, which we certainly acclaim, it will also result in a less equitable and more complex social security system. We strongly support the increase in the single pension rate contained in the bill, but we also urge the committee to recommend that the bill be amended to extend this increase across the pensions to sole parents on parenting payment (single) and that the government be urged to bring new legislation before the parliament to extend the increase to recipients of all other income support payments, including, importantly, the Newstart allowance.

We also recommend that the proposed freeze in the real value of family tax benefits for low-income families be opposed. We recommend that the proposed tightening of the pension income test to restore the pre 2000 taper rate of 50c in the dollar be supported. We also recommend that the proposed increase in the pension age be opposed in the absence of an increase in the superannuation preservation age, and instead that the committee recommend a more rapid increase in the preservation age for superannuation to equal the current pension age, as was recommended by the Henry review. We also urge that the legislation to implement the proposed lowering of the annual cap on the concessional taxed superannuation contribution be introduced as soon as possible so that it can be voted on in conjunction with the current bill. That is an opening position from me and I will hand across to Mr Davidson.

Mr Davidson —Social security payments are a system where people move from one payment to another. If you change one part it affects the rest of the system. These issues were not considered by the Harmer review because the terms of reference were limited to a narrow range of payments. The outcome is a clear win for single pensioners—that is the largest increase since the Whitlam government—but a more unbalanced social security system and therefore a more inequitable and unstable social security system. That imbalance is made worse by the reduction in future family tax benefit payments for poorer families. The benchmarking of family payments to pension rates was the centrepiece of a carefully crafted strategy by the previous Labor administration to reduce child poverty. If those benchmarks go then the government needs to seriously consider how it will prevent child poverty from increasing.

Those facing the most severe hardship as a result of the recession, unemployed people and sole parents, will miss out on an increase. If the bill is passed in its present form the gap between pensions and Newstart allowance will be over $100 a week, which in our view is irrational and unsustainable.

ACOSS supports the measures in the budget to make the pension system more sustainable as the population ages, or at least some of those measures. In particular, the tighter pension income test and also the proposed lowering of the cap on concessionally taxed superannuation contributions. It did not make sense to continue to extend the pension to couples on over $60,000 a year while the poorest pensioners struggle on inadequate payments. However, we believe any increase in the pension age should come after the preservation age for superannuation is increased more rapidly; that is, in raising retirement ages we should begin with the 55- to 65-year-old group and move on from there, especially given that only half the people aged 60 to 65 are currently employed. Thank you.

CHAIR —Thank you. We will now go to questions.

Senator SIEWERT —I would like to go to the issue of the taper rate in terms of the new changes. I do not know if you have had a chance to look at the Hansard from estimates, but I will paraphrase what the department was saying. They said that you do not need to worry about the taper rate because what they are doing is phasing it in, I am fairly certain over five years, and they are going to run a test that if you are better off on the old system then you will stay on the old system. For example, if you are currently doing some part-time work you are better off on the old system; if you are not doing any work at all they are saying that you would be better off on the new system so you will be moved, but no-one will be moved to the new system if they are going to be worse off. Have you looked at the Hansard or have you heard that argument?

Mr Davidson —Yes, we have. I have to say the phasing-in arrangements are very generous. This is unusual and they have been deliberately designed, as we understand it, so that no-one loses. People remain on the old system until, due to the increase in the maximum rates, they are no worse off under the new system. As far as we can tell the proposed arrangements meet that objective.

Senator SIEWERT —Do you still have the same issues with the taper rate? Quite frankly, I have had a lot of emails about it expressing strong concerns. Do you still have concerns with the phasing-in process?

Mr Davidson —We do not have concerns. Indeed, we support the tightening of the income test because in the absence of that, with a large increase in the pension rate, it is not going to be fiscally sustainable. We thought it was unfair that couples on over $60,000 a year could receive a part-pension when the poorest were doing it tough. We do not have a problem with that part of the bill.

Senator SIEWERT —I note your comment that you touched on earlier regarding the inequities in terms of one pension increasing and another not increasing for those on Newstart—I am aware that Newstart is not classed as a pension under the act—but particularly payments for single parents. You commented in your evidence and in your submission about the increase in child poverty and also that to rob low-income families to pay pensioners is unnecessary and inequitable. Have you made those arguments to government and what was the government’s response?

Ms Martin —We certainly have made the arguments to government. There has been a range of responses, particularly in talking about sole parenting payment, that it was not included in the Harmer review, therefore it was not part of the pension increase in the last budget because it is going to be dealt with separately through the Henry review. That was one argument that came out of that. The other argument was that over the last nine months sole parents received support through the back-to-school bonus in the second economic stimulus package, and there was a payment in the first stimulus package so that was adequate but, as we reported, if you were on a support pension with children or if you were a carer with children you would have got the same bonus. It was not a logical response and we have pointed that out to government. To detach the sole parent from the other pensioners has not been given an adequate response.

Senator SIEWERT —You also talk about the cost of living pressures being greater on PPS and Newstart. Could you explain that in a little bit more detail? I have other questions that relate to housing, but we could firstly talk about your comments around the cost of living.

Mr Davidson —The evidence from research on the actual living standards of different kinds of families of different ages certainly has suggested consistently that sole parent families and unemployed people are among those households that struggle the most; if anything, more so on average than age pensions, for example. Part of the reason for this is that much larger proportions of those groups than age pensioners are renting their housing, so often half of their budget goes into rent, which makes home ownership a big advantage for people on low incomes. It also comes down to the cost of children, which the benchmarking of family tax benefits to the married rate of pension was originally designed to address, and of course the Newstart allowance is already around $70 a week less than the single age pension so they are behind the eight ball in terms of income.

Senator BOYCE —Can you speak up a little bit? I can hardly hear a word you are saying.

Mr Davidson —Do I need to repeat that?

Senator BOYCE —I heard you saying something about $70, but I am not sure what that was about.

Senator SIEWERT —Newstart is already $70 below age pension.

Mr Davidson —That is right.

Senator SIEWERT —I apologise; it is extremely hard to hear. My next question relates to the comments you have made around the freezing of the FTBA and then forcing children into poverty. While we are talking about the poverty line, could you also address the issues around how to calculate housing costs and the poverty line? I have been looking at some interesting work by the St Vincent de Paul Society, who have been looking at the issues around housing costs and their calculation.

Mr Davidson —It is inevitable if family payments are frozen in real terms that child poverty will increase; that is if you understand poverty as a living standard that is relative to living standards in the community, that is, poverty that falls behind the living standards of the rest of the community and not having what the rest of the community regards as essential goods and services. That is why the previous Labor government, in its family payment package, deliberately linked family tax benefit to the pension rate, which in turn is linked to average wages, so family payments would not fall behind community living standards. Low-income families on maximum rates of income support are hovering around the poverty line already, if you take commonly used poverty lines like 50 or 60 per cent of median income or the Henderson poverty line. If the payments are frozen in real terms the numbers of children in poverty measured in that way will inevitably increase over time, but more importantly there is direct evidence that the living standards of many sole parent families and unemployed people, in particular, are very low and that people lack essential items such as a decent and secure home, the ability to raise $500 in an emergency and so on. That risk is considerably higher for those groups than most other social security recipients. As I mentioned earlier, housing costs are critical when measuring poverty and, in our view, they should be taken into account.

Senator SIEWERT —Thank you.

Senator BOYCE —Please accept my apologies if you have already answered questions that I ask because it was very difficult to hear the answers. Ms Martin, you mentioned that the proposed system was, in your view, less equitable and more complex. Could you list through for us the ways in which that is the case?

Ms Martin —I hope you can hear me. I will speak as loudly as I can. What we have got now in terms of a social security system is four levels of payment. We have a level of payment for the pensioners who are getting the terrific increase of $32.50 a week, that is for the aged, carers, disability support and veteran’s affairs. They will roughly be on a level of about $330 a week, including the supplements that they get, but that leaves sole parents $47 behind; it leaves your average Newstart recipient $106 behind, and it leaves those on a youth allowance or Austudy at $147 a week behind. There is no logic in having a four tiered system, particularly when it is recognised that if you are on a Newstart allowance there are additional costs that you have, particularly in searching for a job and travelling to those jobs, that someone who is on an age pension does not have. When you look at the budgets and the attempts at survival of say a single recipient on the Newstart allowance, they are doing it very tough and regularly going to community organisations to get emergency relief payments because they just cannot meet their bills even while living frugally.

Senator BOYCE —Could you quantify the use of emergency payments by sole parents and people on Newstart?

Ms Martin —There has been some work done recently by the Salvation Army and St Vincent de Paul on what they have seen from those who have been seeking emergency relief. I just cannot remember the increase in numbers or the percentages, but I think the Salvation Army reported almost 50 per cent of those coming to seek emergency relief for a variety of reasons were sole parents and St Vincent de Paul certainly said that those on Newstart were a significant proportion of those seeking emergency relief. We know that when it comes to those who are increasingly seeking that additional support it is those two vulnerable groups, the sole parents and Newstart.

Mr Davidson —In both cases, with St Vincent de Paul and Salvation Army, the vast majority of those seeking relief are either unemployed or sole parents.

Senator BOYCE —I note that whilst you support the increase in the pension age, you suggest that superannuation payments should not be available until pension age; is that correct?

Ms Martin —We think that is the end where the government should start encouraging people to retire later. Only half of people aged 60 to 65 are currently employed and one of the reasons that we have low participation in the workforce among people between 55 and 65 is that they can access their super that soon. We are suggesting that we should start with that group and then consider raising the pension age above 65.

The other advantage of that is that the people who benefit most from early access to super, that is those with the highest amounts of super, are generally the healthiest people in the community and generally the ones with the best prospects in the labour market, so starting with that group would also deliver the best results. Indeed, many of the people going onto the pension at 65 are coming off other income support payments—indeed, half of them are—so we are concerned that many of that group will simply end up staying for longer on other social security payments if the pension age is raised too soon.

Senator BOYCE —I have one more question on that. Firstly, on what statistics have you based your claim that it is the healthier people who retire earlier?

Ms Martin —It is not the healthier who retire earlier; the healthier people have gained the most benefit from accessing their super at 55 because they have the highest amounts in their accounts. They are the people who have had relatively well-paid jobs and access to super over their lifetimes. Many of the people who retire early have no choice because they have been retrenched, they have disabilities or they have caring responsibilities. Our concern is that many of those will wait for longer on other payments before they can receive the age pension. Our point is that if you raise the preservation age for super it will trigger a larger increase in employment amongst mature-aged people because those relatively healthy, relatively well off groups will remain in the workforce for longer.

Senator BOYCE —Thank you.

Senator FURNER —I have a number of questions in respect to some of the initiatives of the measures. Firstly, with the work bonus of $500 a fortnight before the income test applies, I appreciate that you have made the example in your submissions regarding limited opportunities for people to work. I was wondering what your opinion was on that initiative for the access of income testing before the exhaustion of $500 per fortnight? What do you think of that advantage?

Mr Davidson —It is beneficial for pensioners and should encourage more participation in the workforce, so we support it.

Senator FURNER —Do you think the opportunities will open for greater participation in the workforce in a variety of areas? I would appreciate any examples you may have.

Mr Davidson —I have no specific examples, but there is always a group of age pensioners who have the capacity to work, as there is in the present system. This will encourage more people who are able to do so to test the waters.

Senator FURNER —In your submission you make the point that relatively few perform permanent employment. I can imagine why. I think it was up to about 50 per cent perform some form of part-time employment. I think that was where you were dealing with the taper rate. Are you able to identify where those statistics would be available?

Mr Davidson —I think you are referring to the figure that I quoted earlier that only 50 per cent of people aged 60 to 65 are employed. That was either from the Harmer report or the Henry report on retirement income, but it is ABS data that is readily available.

Senator FURNER —Forgive me if I have not picked this up in your submissions, but can you give me your opinion on the amendments to the Aged Care Act where, out of the $32.49, the proportion of $22.40 per week goes to the residential care provider?

Mr Davidson —One of the major concerns of pensioner organisations is the potential for claw-back of pension increases through the aged care system. This is clearly an attempt to address that problem and to contain it a little, but I think it remains a concern.

Senator FURNER —In respect to the lifting of the superannuation age for access, do you consider that should be a voluntary or mandatory process?

Mr Davidson —It would have to be a mandatory process. Another option to consider, rather than simply raising the preservation age to the pension age more rapidly, is to restrict the amount that can be accessed at different ages so that, in effect, there is a phased preservation age so you cannot take out more than a certain amount in a lump sum until you are at least 65, but you can take out something. There are a number of ways that it could be achieved, but the objective is to encourage people to retire later. We do not encourage people to retire later if we give them open access to their super at age 55, especially for those who have enough in their accounts to give them a comfortable standard of living from aged 55 onwards. Why would they not just leave the workforce?

Senator FURNER —Thank you.

Senator WILLIAMS —In relation to your comments that the current single pension rate is 60 per cent of that for married couples, which is low by international standards, I am well aware that the proposed budget changes are to take that to 66 per cent. Can you give me some examples of international standards? What are some of the rates of single compared to married couples in other countries?

Mr Davidson —Those are in the Harmer report. I am just turning to that. There is a graph there that compares a number of the overseas schemes and it is clear that on average the rate for singles compared to couples is well above 60 per cent.

CHAIR —We can get that from the report.

Mr Davidson —It is on page 45.

Senator WILLIAMS —I would like to go to your support for the increase in the pension age as time goes by. I have some concerns about that. I am from a country area and I have been a shearer myself so I am concerned about people in labouring jobs, such as shearing, bricklaying and so on. Are you concerned that for those very hard physical jobs people may not be able to work to the age of 67 as 2023 approaches?

Mr Davidson —That is one of the reasons we are saying to not do it yet, to start with the 55 to 65 age group and with those who are relatively healthy and relatively well off financially who are the ones that benefit most from the early preservation age for super. We are very concerned about those people approaching 65 years who have disabilities, caring responsibilities and in many cases have had a lifetime of manual work on relatively low incomes. We are very concerned that quite a few of those people will be cooling their heels on Newstart allowance for a number of years, which will be $100 a week less than the pension. We do not think that is the place to start.

Ultimately, the pension age will have to be lifted and ultimately future cohorts of retirees will be healthier than the present cohorts, but that is one of the reasons we are urging caution and that we start with the 55 to 65 age group. There is a lot of work to be done with that group because a lot of that group are not participating in the workforce, so let us start with them.

Senator WILLIAMS —Exactly. Those people are actually burnt out by the time they get to 65, so to raise it to 67 over time would be a huge concern. I would like to take you to another issue, which is the proposed changes in the budget to youth allowance. I know people in regional areas have a huge concern about this, especially those in their current gap year and, of course, the second part of the change is those who wish to declare their independence from their parents have to work 30 hours a week for 18 months, which poses all sorts of problems such as deferring from university for two years. Even though some universities may well do that, others may be reluctant to defer for two years. There are also the problems of finding a job, especially in the smaller country areas, of 30 hours a week when we know that the forecast is for unemployment to rise to 8.5 per cent next year and one million people out of work. What is your attitude to the changes in regard to the youth allowance in the budget in respect to people in regional areas who live some distance from universities?

CHAIR —Senator Williams, I have let you go through the whole question, but as you know that is not part of this bill.

Senator WILLIAMS —Fair enough.

CHAIR —I do apologise, but we are on limited time.

Senator WILLIAMS —Could you take that question on notice? No doubt when that legislation comes to the Senate it will be referred and we would value your input on that issue.

Mr Davidson —Yes.

Ms Martin —I can comment quickly, even though it is not on this bill. I agree with the points you are raising. I think it needs to be very carefully examined. We do not want to see students who benefit from a gap year being forced to take longer out of university. There is a lot of anxiety from parents currently about whether students will go to university after a gap year, so you would not want to see that extended and students who we want to see educated being disadvantaged. There are a whole lot of issues there.

Senator WILLIAMS —Thank you. I look forward to your input on that later on.

Ms Martin —I have two university students myself.

CHAIR —Thank you. I realise it is a very short time. If there are other issues you would like to send to us, please do so. We will now be reporting on this bill on Wednesday, not on Tuesday, so there is a little bit of extra time. These are important issues. Thank you for your time.

[10.03 am]