HON. WAYNE SWAN MP
FEDERAL MEMBER FOR LILLEY
ADDRESS TO THE CHERMSIDE MEETING OF THE AUSTRALIAN PENSIONERS AND SUPERANNUANTS LEAGUE
"Budget Pension And Superannuation Reforms"
BRISBANE
FRIDAY, 10 JULY 2009
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Thank you for that introduction.
It's great to be back here in Queensland after another week of meetings across the country.
As you are all well aware, the Government has taken some significant decisions in relation to pensions and superannuation, so I am delighted to be here addressing the Australian Pensioners and Superannuants League.
I appreciate the invitation, because I'm keen to give you not just a run-down of what our decisions have been, but also the thinking behind them. I also want to hear your thoughts on our policies and future priorities.
I'd also value your insights on the present state of the economy. There's a lot of years of real economy experience in this room, including plenty of tough times. I'm fortunate in my job to spend a lot of time with some very bright economists and theorists, but I don't get the amount of time I'd like with people who not only live and breathe the real economic effects of this global recession, but also have past experience to compare it to.
So I'd like to talk briefly about three things today: a brief picture of how our economy is travelling; an outline of what the Government is doing to shield Australia from the worst effects of the global recession; and then a longer discussion of the initiatives we have taken for pensioners and superannuants.
So let me start with the global economic challenge we face, and what we're doing to support the economy and position Australia to take full advantage of the recovery.
Not since the 1930s has the Australian economy been exposed to this degree of turmoil in the global economy. Global trade and production has collapsed and virtually every advanced economy has fallen into recession.
This dramatic turnaround in the global economy has had inevitable consequences for our economy – for output and for jobs. You can see that in the statistics, but what those statistics don't show is the impact on real people. Not numbers on paper but the impact you can see etched in the faces of workers worried for the future of their jobs. And, of course, the worry of those like so many here today who have seen their retirement savings hit by the global financial crisis.
As this global recession came closer and closer to our shores, it wasn't so much the statistics that convinced us as Ministers that we needed to act. It was the concern you picked up in the community, and the memories of the impact of past recessions.
I don't need to go through all our actions in response – you would know them pretty well: a three‑phase stimulus package, starting with direct, one-off payments to the people who would likely spend the money the fastest – pensioners, carers, veterans and families. A second phase of shovel-ready infrastructure projects across the country, with a focus on upgrading our schools, homes and communities. And the third phase – investment in large and longer-term nation building infrastructure – announced in the Budget and rolling out over the next few years.
Now I'd like to talk a little bit about the question of deficits and debt. You rightly have a careful and conservative approach to your own budgets, and you want to see a government with the same approach. So I do want to take just a minute to explain why a temporary deficit has been necessary, and how we intend to get out of it.
Most of you would be aware that the global recession has hit our tax base hard. Many of you may not know how hard. We have lost $210 billion in tax revenue as a result.
That leaves a government with two choices: allow the Budget to go into temporary deficit, or seek to keep it in surplus.
The Opposition don't tend to give clear answers on this, but the facts are inescapable: if you can't find spending cuts or tax increases to replace that $210 billion in lost revenue, you can't avoid a deficit. And if you respond to a global recession by cutting government services or increasing taxes by a combined $210 billion, well, that's the sort of thinking that led to the Great Depression.
Of course, what the Great Depression taught us – or our side of politics, at least – is that when private sector activity collapses, government must increase spending temporarily to try and keep activity afloat. That is what we have done with the stimulus packages.
And the economic results so far are very encouraging: despite what we're up against in this global recession, the Australian economy grew by 0.4 per cent in the first three months of this year. That's no mean feat, particularly when you consider that advanced economies collectively are expected to shrink by 3.8 per cent this year according to the IMF.
Now there's still a long way to go, but the signs for Australia so far are encouraging.
But before I finish talking about the economy, I want also to affirm to you our plans to eliminate the deficit and pay down debt. We deliberately designed our stimulus packages to be temporary, so their Budget impact falls as the economy recovers. We have also put in place strict limits to keep real spending growth to 2 per cent once the economy is growing above trend. On current projections, this will return the Budget to surplus in 2015-16.
So that's my overview of the economy. I now want to talk about the Government's policies for pensioners and superannuants.
The Age Pension is a fundamental pillar in Australia's retirement income system that ensures people have an adequate standard of living.
There has been much focus on the Government's recent increase to the pension, and in particular, the assistance this has provided to single age pensioners on the full rate.
But in fact our reforms went much further than this in the Budget. Properly regarded, they were a much broader set of reforms designed specifically in response to the impact of the global recession on retirement incomes.
Because we recognise that the Age Pension is not just about full rate pensioners, it obviously provides benefits to many thousands on a part pension. We recognise also that with retirement savings being hit by the global recession, the pension provides a vital safety net for so many older Australians, absorbing some of the impact on retirement incomes. And finally, we also know a decent pension income is a big part of what makes us a good society, and gives everyone confidence they will not be left to fend for themselves in their old age.
All those reasons are why the Government delivered a substantial increase in pension payments, reforming the payments structure for pensioners, and providing more assistance for carers, at a cost of $16.0 billion over five years.
In May 2008 the Government commissioned the Harmer Pension Review – the most comprehensive review of pension payments in 20 years. This Review explored the adequacy of the Age Pension and what measures are needed to strengthen the financial security of seniors, carers and people with a disability.
The Pension Review found that the single pension rate is too low relative to the couple rate, and that the single rate should be increased to between 64 and 67 per cent of the couple combined rate. As part of the pension reform package, the Government will deliver an extra $32.49 per week to single pensioners on the full rate of pension. This is a 10 per cent increase and will bring the new pension package for singles to two-thirds of the couple combined rate, up from around 60 per cent.
The Government will continue to benchmark the Age Pension against Male Total Average Weekly Earnings, to ensure the Age Pension keeps pace with the living standards of working Australians. The Government has increased the benchmark for singles to 27.7 per cent of Male Total Average Weekly Earnings, up from the current 25 per cent.
Couple pensioners will receive additional assistance of $10.14 per week combined through the new Pension Supplement.
The Government's pension reform package will also simplify pension payments and provide greater flexibility to pensioners so that they can plan and budget more effectively.
From 20 September 2009, the Government will combine four existing allowances – the Goods and Services Tax Supplement, Pharmaceutical Allowance, Utilities Allowance and Telephone Allowance – into a single fortnightly Pension Supplement. Similarly, from 1 July 2010, pensioners will have the choice of receiving around half the value of the new Pension Supplement as either a quarterly or fortnightly payment, providing pensioners with the opportunity to structure their payments to better suit their needs.
The Government will also improve arrangements for pensioners to access advance payments through an increase in the maximum allowable advance and an increase in the number of times they can access advance payments in a year.
The Government recognises that part‑time employment remains an important component of the lives of many pensioners, providing increased financial security, social interaction and mental stimulation. There are also substantial benefits to be realised by the broader community – including the vital role senior Australians have to play in training our workforce.
The Government will also provide additional assistance to carers in recognition of the important role they play in the community and the sacrifices that they make. This will be done by introducing a Carer Supplement of $600 per annum for Carer Payment recipients and $600 per annum for Carer Allowance recipients for each eligible person in their care.
Once implemented, the Government's pension reform package will significantly increase the financial security of Australia's 3.3 million age, carer, disability and service pensioners.
One of the things I am proudest about in the last Budget is that despite the most difficult economic times in three-quarters of a century, the Government delivered on its commitment to pensioners. It would have been easier if the former government had funded a decent increase in the pension when it was raining gold bars from the mining boom, but this didn't happen.
But because we had to meet this commitment in difficult times, we needed to make some tough decisions to make sure it was affordable in the longer term. Central to this has been an increase in the Age Pension age.
Australia, like most developed countries, is facing the major challenge of an ageing population. When the Age Pension was introduced in 1909, around half the male population reached retirement age. Today, it's over 85 per cent. In 1909, those who reached Age Pension age could expect to receive the Pension for about 11 years. Today, it's nearly 20 years.
At the same time as more people are spending longer receiving the Age Pension, there will be fewer people to fund it. In 40 years there are expected to be half as many working-age people to support every person aged 65 years as there are today. This presents a major challenge to the long‑term sustainability of the pension system.
To respond to this challenge, and to reflect improvements in life expectancy, the Government will progressively increase the qualifying age for the Age Pension to 67 years. From 2017, the Age Pension will be increased at a rate of 6 months every two years, reaching 67 years in 2023.
The Government will also introduce greater targeting of the pension to ensure that spending is focused where it is most needed. From 20 September 2009, the Government will increase the rate at which the pension is withdrawn from 40 to 50 cents for each additional dollar of private income.
It is important to note that around 70 per cent of existing pensioners will be unaffected by this pension income test change. Existing part-rate pensioners who are affected will only transition to the new arrangements when they provide a better outcome.
When we were putting the Budget together, we were not just conscious of our commitments to full rate pensioners. We also understood the position of the millions of Australians with substantial retirement savings – many on a part-pension and many fully self-funded – who had suffered a loss of savings through the global financial crisis.
We put in place a number of policies to help.
From 20 September 2009, the Government will increase rewards to work through the introduction of a Work Bonus for income support recipients over Age or Service Pension age. Under these new arrangements, only half of the first $500 of fortnightly employment income will be assessed as part of the income test. This will ensure that part‑rate pensioners who work will retain more of their pension entitlements – up to an extra $125 per fortnight.
We also introduced further measures to respond to the effects of the downturn on the account-based pension portfolios of self-funded retirees. We have reduced the minimum payment amounts for account‑based pensions by 50 per cent for 2009-10. This measure extends the drawdown relief which the Government provided in February of this year for 2008-09.
Reducing the minimum drawdown amounts will help pension account balances to recover from capital losses associated with the global economic downturn. It will also benefit account-based pension holders to the extent that it reduces the need to sell assets at a loss in order to meet the minimum payment amount for 2009-10. This will assist retirees to recoup capital losses on their pension portfolios as markets recover.
I would also note that there is no longer a requirement for compulsory payment of superannuation benefits to members over the age of 65 who do not meet a work test. As a result, people who have reached 65 and stopped working no longer have to start drawing down on their superannuation benefits. Retirees now have the option of leaving all or part of their superannuation benefits inside their fund to access as they please.
Again, while making benefits more generous in a number of areas, we also sought to minimise the impact on the Budget with some savings.
As you would be aware, the Budget reduced the concessional and non-concessional contributions caps for superannuation. From 1 July 2009 the annual concessional contribution cap was reduced from $50,000 to $25,000 (indexed) from the 2009-10 financial year onwards. The transitional concessional contributions cap (for people aged 50 and over) was reduced from $100,000 to $50,000.
By changing concessions in this way, the Government introduced greater equity into the retirement income system by reducing the disproportionate benefits received by high income earners who can better afford to make concessional contributions. People making large contributions are overwhelmingly high income earners – 93 per cent of people over 50 years old who contribute more than $50,000 per annum are estimated to have total remuneration over $100,000.
The Government also reprioritised concessions for the superannuation system and, amongst other things, temporarily reduced the co-contribution matching rate. This measure will generate around $1.4 billion in savings over four years.
In conclusion, the last 12 months have been truly remarkable ones for our economy and for the Australian community. The actions the Government has taken are about supporting jobs – be they yours, your children's, or your grandchildren's.
As I said at the outset, you, more than anyone else in our society, have witnessed first hand how damaging periods of economic downturn can be. How hard it is for people who, through no fault of their own, are left without a livelihood. How damaging unemployment can be for people's self-respect, self-dignity and self-worth – and the devastating financial impact it can have on families. It happened in the 1970s. Then in the early 1980s. And again in the 1990s.
You have all borne witness to these difficult times. You therefore understand why it was so important that the Government undertook the early and decisive actions to support Australian jobs.
But the Government is also delivering on its core values, to support those most in need in our society and give all Australians the opportunity to lead a decent and fulfilling life. We need to be able to deliver on these values both now, and sustainably into the future. This requires some tough decisions to ensure our pension, carer and superannuation systems are affordable and sustainable.
The Government is laying the foundation for economic recovery today, and taking the hard decisions to ensure economic prosperity in the future. I thank you for the contribution you have made and continue to make to that prosperity.
