Red tape locks pensioners out of work
28 September 2022
On the campaign trail, now Prime Minister Anthony Albanese stressed repeatedly that his government would ‘change the way that politics operates in this country’.
Four months since coming to power, observers of the Albanese government’s approach to reforming the age and veteran pension rules to allow recipients to work would be forgiven in thinking this pledge was just another campaign slogan.
It is clear reform on the work restrictions surrounding age and veteran pensioners is desperately required as Australia is facing an unprecedented worker shortage crisis.
According to the Australian Bureau of Statistics, Australia has a total job vacancy level of 480,000. This is 270 per cent higher than in May 2020.
Increasing immigration intake has been the most prominent proposal to aid in reducing this unprecedented crisis. However, this ignores the fact that there are currently millions of Australians who are not working.
While this may sound counterintuitive given Australia’s current unemployment rate of 3.5 per cent, this only includes people who are actively searching for work.
There are a significant number of Australians who can work but who currently not actively seeking to do so. Today, only 3 per cent of pensioners in Australian work, compared with approximately 25 per cent in New Zealand.
This is not because they do not want to work. A recent survey conducted by National Seniors found that 20 per cent of pensioners would consider re-entering paid work if work barriers were reduced.
This means there is up to half a million experienced and motivated Australians who would consider re-entering the workforce. Yet the roadblocks in getting them to participate in Australia’s workforce are rigid and complex.
Prior to the Prime Minister’s recent Jobs and Skills Summit, age and veteran pensioners could earn a work bonus of $300 a fortnight before their pension started to be reduced by 50c for every dollar they earn over $300.
On top of this, their earnings are also subject to income tax, meaning that pensioners are subject to an effective marginal tax rate of up to 69 per cent.
In one of his first policy forays following the Coalition’s election defeat in May, Opposition Leader Peter Dutton proposed in June a doubling of the work bonus to $600 a fortnight, or $7,800 annually.
Peter Dutton’s policy was costed at $145 million annually, and a private members bill to give it effect is currently being debate in the Senate.
Research by the Institute of Public Affairs has identified that increasing the amount of money that can be earned by pensioners and veterans before they start losing their pensions is a no regrets policy.
Firstly, the policy will pay for itself, because more pensioners and veterans in work means higher income tax for the government which will offset the cost of higher pension spending.
Secondly, pensioners gain the benefit of lower barriers to work, which is a critical source of social connection, dignity, and esteem.
And, third, businesses benefit through an increased pool of workers.
There was great anticipation to see if Labor would seek to find a bipartisan solution to this easily solved problem after consulting with the attendees at their Jobs and Skills Summit.
Instead, the Federal Government announced that the annual work bonus would increase by $4,000 until the end of this financial year, a little over half of what the Opposition’s private members bill proposes.
This does not go far enough to fully address the problem.
Not surprisingly, Labor used their Jobs and Skills Summit to announce their own policies, principally, multi-employer bargaining, which it can be argued may reduceemployment by eliminating individual employers from the bargaining process and make it easier for industry-wide strikes to occur.
If Anthony Albanese and Labor were to truly ‘change the way politics operates’, then reforming age and veteran pension recipient’s work rules is the perfect example to demonstrate bipartisanship. Both sides have identified the need for reform and the Coalition’s more generous policy is a better fit for Australian employers and pensioners.
Luckily, the Albanese government can correct their misstep quickly. Parliament could pass the private members bill in the Senate this sitting week and take politics out of the livelihoods of hundreds of thousands of age and veteran pensioners who just want to work.
Saxon Davidson is a Research Associate at the Institute of Public Affairs.