Are pensions on the line? New government report takes aim at seniors' welfare

Last week’s Tax and Transfer Incidence in Australia paper by the Productivity Commission highlighted some interesting things about tax. And while everyone’s worried about GST and welfare, there is a larger issue at hand: pensions.

The report showed the enormous amount of money being spent on welfare, specifically on the age pension. It’s becoming increasingly clear that the issue of taxation and welfare in Australia is all about the ageing population.

According to The Drum, it’s easy for everyday Australians, the media and even politicians to direct their focus on dole bludgers and the unemployed, however when the stats are brought out, it’s obvious where the majority of the government’s welfare spending is going: on the over 60s.

The age pension makes up about 31 per cent of welfare, and total assistance to the aged accounts for about 40 per cent. What that also means is that while the age pension is the greatest source of welfare, most of the tax paid is by those younger than 60. So how can it be made fairer? Or is it already?

Our welfare system is based around income and less around wealth and assets – in fact the family home is not included in assets tests.

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The Productive Commission’s report found a “significant proportion of transfers are paid to families with net assets of between $200,000 and $1,000,000. These are mostly age pension payments to families that own their own home”.

But perhaps the most interesting part of it all is that those with wealth greater than 60 per cent of Australians received more welfare payments than those in every single income bracket below them, except for the bottom income bracket.

And this also applies to those on the age pension, with the wealthier receive more welfare than those with less wealth.

The welfare system works well if you exclude the age pension as those who pay tax all their life will gain benefits at a later date – the only issue is that less and less people on welfare are paying tax because of our ageing population.

“As population ageing places pressure on the age pension, and more people use superannuation and private savings to fund retirement, the tax treatment of savings will become increasingly important”, says the report.

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It could mean that means testing of the family home could come into effect if the government wants to reduce spending.

We’ll have to wait and see at this point, but it is important to remain informed about the age pension and entitlements and how they may change.


Tell us, do you think we have a welfare spending problem? How can the ageing population issue be addressed?