By Emily Millane Tuesday 14 July 2015
Photo: A pensioner sits on the ground outside a Greek national bank branch. (AFP: Sakis Mitrolidis)
Australia's pension system is ranked as the most sustainable in the world, but that doesn't stop politicians treating it as a Greek-style crisis in the making, writes Emily Millane.
There's a difference between real problems and manufactured ones. Greek prime minister Alex Tsipras is a man who knows a thing or two about the former.
The Greek Parliament has until Wednesday to legislate on a list of matters decided by the European Union or it will lose the offer of a bailout and face bankruptcy.
One of those matters is the pension system. Under the terms of the agreement reached on Monday morning in Brussels, Greece must legislate for an ambitious reform of the pension system. These reforms include an increase to the retirement age and ending top-up payments for poor pensioners.
Greece's pension spending is high, relative to a tax-to-GDP ratio which has been consistently low. Even with substantial reforms to the system over recent years, the OECD still expects that Greece's spending on pensions will be around 15 per cent of GDP by the middle of the century.
Despite this, just under half of all pensioners in Greece are receiving a pension below the EU poverty limit of 665 euros per month. So that's quite a quandary to be in, a pension system ranked among the worst in the world in terms of sustainability and still not providing its citizens with a decent standard of living.
At the other end of the spectrum, on the other side of the world, with the system ranked best for sustainability is a country called Australia. Yet with the barest scintilla of democratic scrutiny, the Government and the Greens recently instituted a new pension means test based on the idea that our system is unsustainable - nay, a system of false entitlement.
As Government Minister Kevin Andrews said, "With the population ageing at the rate that it is, we've got to ensure in the future that we're able to sustain the welfare system, otherwise we'll find ourselves in 10 or 15 years' time in the situation that some of the countries in Europe are in."
Meanwhile, the OECD projects that Australia's age pension spending will be 4.9 per cent of GDP in 2050.
The $2.4 billion estimated savings over the forward estimates from the Government's deal with the Greens should have been used to increase the base pension rate up to the point where the change is budget neutral. Why? Because Australian pensioners on the full pension are living below the poverty line. They do not even have 'modest' incomes according to standards used by the retirement incomes industry.
To give some light and shade to these abstract concepts, regular hair cuts, bottled wine and the finances to run an air conditioner all count as a 'comfortable' lifestyle. The standards are also based on the assumption you own your home.
The deal had to be framed as a savings measure because of the manufactured idea that we have a pension sustainability crisis. Australia should be increasing taxation through the private pension system. Labor has shown that some minimal changes to tax on super earnings of more than $75,000 and contributions for incomes of more than $250,000 can generate significant savings.
Instead, we are left with an isolated change to the public pension system based on a 'deal' between the Government and the Greens where the Government agrees to 'consider' changes to superannuation.
It serves as yet another example of how bizarre, how warped, things have become in Australia that the debate over our pension system is on the same terms as that in Greece. Manufactured problems.
Emily Millane is a research fellow at the think tank Per Capita.
