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Government's assets test to "backfire"

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IP I& IE S S [& IE L IE A § (E t „ ^ Senator Tony Messner

Shadow Minister for Social Security




"The imposition of the assets test by the Hawke Labor Government was showing signs that it would backfire."

Senator Tony Messner - the Shadow Minister for Social Security - was speaking after asking the Minister a question in the Senate (copy of question and answer attached).

"The Government's proclaimed intention in proposing the test was to reduce the payment of pensions to those relatively well off members of the community, while

improving payments to the most needy.

"However, indications are arising which suggest that the great bulk of pensioners do currently arrange their affairs so as to maximise their investment returns at more than 10% which is the notiohal rate the Government will be applying to all assets except those specifically


"As a result, pension entitlement for these people is likely to increase and as these are the great bulk of pensioners, the overall cost to the Government of providing such benefits will rise and not fall.

"On the other hand, those pensioners who rely for their income on low yields from modest, but legitimate, assets (e.g. rental from farms) will be subject to the notional rate of 10% although their actual return may be only 2%.

"As a consequence, not only will they be precluded from the pension, but their capital will be eroded and eventually they will be forced to sell their assets and re-invest them at a higher yield.

"The irony is that, under Labor's proposed test, this will then render them eligible for the pension as the notional rate of 10% will work in their favour.

"Furthermore, if they were to sell their farms and invest the proceeds in capital growth investments such as antiques or works of arts, which the Government intends to exempt from the assets test, they would become eligible for the full pension.

"This exemplifies the anomalies which abound in Labor's proposed test.

"It is clear that the Government failed to think through the consequences of its proposed actions or fully invest­ igate the financial effects of its proposals. It too glibly accepted the line that rip-offs occuring through

1 double-dipping' were of such enormous proportions that its proposal was the only option to cure that evil.

"If it had fully thought through the issue, the Government would have decided upon a different course of action.

"All this goes to show that the Government's ill-considered proposals were too hastily prepared. The only way to ensure that the anomalies apparent in Labor's proposed assets test is to scrap it and start again," Senator Messner concluded.


For comment: 062 72.6966


Senator Messner -- My question is directed to the Minister for Social Security. Does the Ministers Department's preliminary analysis of questionnaire replies from over 70 pensioners

reveal that substantial numbers of such pensioners are entitled to the full pensions,but are currently only drawing the frozen over 7 0 1 * * * s pension? Is it a fact that this analysis also shows that most pensioners of all categories are earning more than 10% on their investments which - as a result of the proposed assets test - will entitle them to higher pensions than they are; presently receiving? By

contrast, will pensioners with modest, but legitimate, low yielding investments (eg a farm) find his pension reduced and capital eroded by the same 10% test on assets proposed by the Labor Government? Would the Minister agree that the likely overall effect of this will be to

increase the cost of providing old age pensions rather than reducing them ? If so, how can the Minister claim

that the changes are for the benefit of the most needy?

Senator Grimes: Yes,in the assessment of forms which have been

sent out and have been so far returned on those who are over 70

and/come under the new income test, some people - and I am

uncertain of the numbers yet but I am trying to get the

exact numbers -/Speople have in fact been found who

previously were on the frozen rate pension who in fact should

have been on a higher pension or the full pension. And I

think that's one side effect that we knew would happen of the

introduction of the new over 70 's income test. I will find

out)when the full assessment of these are done, how many are

involved but I think it important that the people who were to entitled^more than they were getting^ get more than they were

getting and get those higher pensions. They are obviously in \

need and I am glad that they will get that and I think it is

important that they do so.

In Senator Messner's questions about the asset test, certainly

there will be people under the assets test who have put their

money into legitimate investments such as Australian Bonds,

such as power loans, who have been getting a yield higher than

10 percent who would be better off under the assets test than

they were under the income test.

I have said that from the first announcement that there will be

an assets test and have repeated that and it is interesting the

number of examples which come up at meetings where people will

in fact be better off. We are, as I have said in this place,

at the moment formulating the full assets test, the full



regulations and the full outline of the test and one of the things

which is of importance in such formulations, as I have said in

answers to Senator Collard and others here, is how we handle the

situation of those who own farms in particular the situation of

those who have lived in farms all their life and wish to stay in

the house on that property while the property is run by a relative.

I have had representations from pensioner organisations, individuals

and from farmer organisations about this and these are being

taken into consideration at the present time by the Government,

by the Committees of the Government and will be taken into

consideration by the Cabinet next week.

As a result of those considerations we will be making an announce­

ment and introducing legislation which will include the special

treatment of peopl'e in that situation to make sure that hardship

does not occur. If Senator Messner has any suggestions of his

own, we are happy to listen to even Senator Messner1s suggestions.

I suggest in the meantime that rather than cause anxiety amongst

people Senator Messner waits till the legislation comes in,

waits till the complete outline of the assets test comes out

and then we can have a debate in this place based on fact.


Sen Messner — Would the Minister address himself to the last

part of my question which i s :whether or not this will lead to

increased costs to the social security system and whether eee'i^-kzc^-

OBt it will assist the most needy?

Senator Grimes: First of all, no the introduction of the assets

test will not lead to increased costs to the social security

system, the aim of the assets test is to make it a/neeBs based

so that in fact we have more money to provide/lRcERSsBise rate

pension for those who are in most need and as Senator Messners

predecessors came to realise that if you are in a situation

where large amounts of money are being leached out of the system

khxHHghxaxfxxKdxkXHxkxHkK by people with fixed trusts etc^ then

no governement -Labor or Liberal - is able to raise the base rate

of pension. So that I have said that the assets test once it is

ijagiiHKisHkEd introduced will result in less expenditure on aged



And Senator Chaney knows this^ ass he was involved in agonising over

this himself for a couple of years. The second thing is yes

will result in the removal of the discrimination that now

exists now whereby people with large asset holdings can so

manipulate those holdings and aee> avoid the income testz wheras

people with fixed payments, - like f i S M superannuation pensions,

cannot do so and therefore because of the Govt's inability to

increase the base rate pension those people suffer. That what

its all about. Senator Messner know thats what its all about.

I suggest that Senator Messner, rather than sit in this place at

question place nit picking and carrying on like a nark get to the

job he said he would proceed with when he became Shadow Minister

and that is for the first time develop a comprehensive retirement

policy that the Liberal Party can attempt to sell.