Saxon Davidson On Pension Reform ABC Adelaide Mornings – 12 February 2024

Written by:
12 February 2024
Saxon Davidson On Pension Reform ABC Adelaide Mornings – 12 February 2024 - Featured image

The Institute of Public Affairs’ Saxon Davidson joined David Bevan on ABC Adelaide to discuss the IPA’s research into how removing red tape and tax barriers on Australian pensioners can solve Australia’s worker shortage crisis.

All media appearances posted onto the IPA website are directly related to the promotion and dissemination of IPA research.

Below is a transcript of the interview.


David Bevan:

Saxon Davidson is a Research Fellow at the Institute of Public Affairs and joins us now. Good morning, Saxon Davidson.

Saxon Davidson:

Good morning. Thank you for having me.

David Bevan:

If you are a pensioner here in South Australia, or indeed anywhere in the country, but let’s make this local, if you’re a South Australian pensioner and you decide to go back to work because your wife is sick of you or maybe your husband’s sick of you and you think, “I’ll earn some money,” what is your effective tax rate?

Saxon Davidson:

A pensioned Australia who earns or who works just a day and a half per week on minimum wage will trigger a reduction in pension payments in addition to normal income tax rules. So for every dollar of employment income above around $226 per week, a pensioner has an effective marginal tax rate of about 69%. This is why only 3% of pensioners work in Australia. But when you compare this to New Zealand, they have an effective rate of 10.5% tax because they don’t reduce the amount of pension paid, they just pay tax on their combined benefits and income. And this is a major reason why 25% of pensioners work in New Zealand.

David Bevan:

Right. So it doesn’t affect your pension at all. You can go out and earn a $100,000 on top of your pension and you’re paying tax on that $100,000 at the progressive rates I imagine, but your pension is left alone.

Saxon Davidson:

That’s exactly right.

David Bevan:

Okay. Now, what’s the participation of pensioners in the New Zealand workforce? You mentioned the figure, but if you could tease that. There’s lots of numbers here, Saxon.

Saxon Davidson:

That’s about 25%, and this contributes to broader economic economic benefit to the entire country. So New Zealand has a workforce participation rate that’s approximately around 72% compared to Australia at 67%. And our research has calculated that 90% of this percentage point gap can be attributed to the participation of pensioners in the workforce.

David Bevan:

Right. So there’s a reason they’re up around nearly 80% of people who could work are working, their participation rate.

Saxon Davidson:

Yes.

David Bevan:

And that’s explained by the different tax arrangements for pensioners.

Saxon Davidson:

Yes, absolutely. And this has other broader benefits as well. We are currently experiencing an acute and persistent worker shortage crisis in Australia and as well in South Australia. Australia’s worker shortages is around 77% above what they were prior to the pandemic and as compared to New Zealand, which is only 5.5% higher and is attributed to the higher labour participation rates in New Zealand, which can largely be attributable to the amount of pensions in the workforce.

And this also following the New Zealand model and not punishing pensioners for working has long-term benefits as well as the most recent Intergenerational Report showed. We as a population are getting older and may be required to participate in the workforce for longer. And if people, once they reach the age of 65 and start receiving their pension, start getting taxed at 69%, it’s not going to be worth remaining in the workforce.

David Bevan:

Right. Now, you might have some questions for Saxon Davidson. He’s a Research Fellow at the Institute of Public Affairs and he’s returning to this debate, it’s not the first time we’ve discussed this, of how much we should tax pensioners if they want to go back to work? And effectively he says you end up under the current arrangements with a 69% tax rate because your pension is reduced according to how much extra you earn. And he’s saying over in New Zealand, they get around this by saying, “No, your pension’s left alone and you can earn as much as you like out there in the workforce.” And that’s taxed at the progressive rate like everybody else, but your pension isn’t affected, which means that your tax rate effectively is much lower. Faye has called from Gawler. Hello Faye.

Faye:

Good morning.

David Bevan:

Faye, what’s your experience?

Faye:

My experience is I’m 69 and I have tried to go back to work a number of times, and the problem is that it’s reporting that is the problem. You have to wait on the phone for hours to report. The last time I reported my earnings, I was told that I hadn’t reported my earnings. I gave them a report number, my receipt number, and eventually they said, “Oh, sorry, one computer didn’t talk to another computer.” But Centrelink are employing 3,000 more people to answer phones.

Now, I believe that why do we have to report when we’re allowed to earn up to $11,000 on top of our pension? Why do we have to report before we get to that point? It is taking up so many hours, it’s stopping people. I desperately want to work, but I’m fed up with the Centrelink side of it. And when you can earn $11,000, the people that are reporting by phone are the older people. If they just let us earn that $11,000 before we had to report, then that would save a lot of time, a lot of anguish, a lot of pensioners would be happier to go back to work. I agree with the New Zealand idea. I think that’s great. But even before that, I think we need to stop making pensioners have to report when it doesn’t affect their income and their pension.

David Bevan:

And Faye, I know you mentioned this, but again, there’s a lot for us to digest here. So to just tease out, how often do you have to report your earnings?

Faye:

Every fortnight. You earn a dollar, you have to report, which is ridiculous. Hours and hours on the phone every fortnight to report, when it doesn’t affect your pension at all, not until it gets to $11,000 a year. They increased that only last year I think it was. And so you can earn a reasonable amount, but because you have to report, then that just… The number of times I’ve had problems, I was part of the Robodebt, nothing to do with anything. It was because they claim I hadn’t reported and I had reported.

David Bevan:

I understand exactly what you’re saying here, Faye, and you sound like a very reasonable person. If we adopted what Saxon Davidson is talking about, that would make it even easier again, wouldn’t it?

Faye:

That’s right.

David Bevan:

Because your pension could never be affected by what you earned and any tax you pay would taken out as you go. It’d be pay as you go.

Faye:

That’s right. The same as every other Australian that works.

David Bevan:

Vote one for Faye, I say.

Faye:

Thank you.

David Bevan:

We’ll have to get you in touch with Roger and Pam and you can have a coalition with the No Junk Mail Party.

Faye:

Thank you very much.

David Bevan:

Faye, thank you very much. Saxon Davidson from the Institute of Public Affairs, Faye, I think she’s talking sense. Saxon Davidson, are you with us?

Saxon Davidson:

Yes, I think she’s speaking absolute sense and it’s absolutely right. Following the New Zealand model would limit the number of interactions that pensioners have to have with Centrelink and reduce the amount of reporting periods because the tax that you would owe would only have to be filtered in on an annual level like it is for every other working Australian.

David Bevan:

Okay, let’s go to Reg from Burnside. Good morning, Reg. Reg, what’s your experience?

Reg:

Yeah, so good morning. Well, I haven’t had any experience in this, but all I know is listening to talkback radio, mainly the ABC, that I haven’t heard anyone mention that the New Zealand and the English pension aren’t means-tested like the Australian one. So that’s the problem. You didn’t even bring up that point. I don’t know whether you knew that or not.

David Bevan:

I was waiting for you to bring it up, Reg.

Reg:

Oh, thanks mate. But that’s the only thing. And the other thing about having to wait on the line, the only reason I think Centrelink makes you report is because of the people that do abuse the system. So we suffer because of the abusers. And that’s really all I’ve got to say, but somebody needs to bring it up, the point that the English and the New Zealand pensions aren’t means-tested like ours. And you hear that through all the media. No one brings that up.

David Bevan:

All right, we’ll go back to Saxon Davidson and ask him about that. A lot of you are saying, “Well, you can report your earnings online.” Well, yes, Faye could do that instead of being on the phone. I imagine she’s doing it on the phone because she doesn’t feel comfortable doing it online. But whether you’re having to do it online or whether you’re waiting on the phone, the point would be that if you don’t affect a person’s pension, then you wouldn’t have to do any of this stuff. You just go out and you earn your money, you pay your tax on that money as you go and your pension is left alone.

But Saxon Davidson, coming back to you, Institute of Public Affairs, Reg’s point, can you explain that? Is the New Zealand pension and the UK pensions, are they not means-tested?

Saxon Davidson:

So with the New Zealand pension, the New Zealand pension is universal, so it was applied to every New Zealander above the age of 65. And then they pay their tax on the pension that they’ve received, and also the amount of income that they have earned, which is as… But they don’t have a non… In New Zealand, there is no non-taxable amount. It’s at 10.5% of the lowest and it just progressively goes up and up from there.

David Bevan:

Okay. Beverly from Athelstone is next. Hello, Beverly.

Beverly:

Good morning everybody. Look, why can’t the Centrelink just talk to ATO every fortnight? Really, really.

David Bevan:

Really. Okay. Beverly, I’ll put you in touch with Faye. I can see that there’s quite a… By 11 o’clock, we are going to have a new political force in this country. Okay.

Beverly:

I hope so.

David Bevan:

You’d be the Minister for Finance Beverly, and you just…

Beverly:

I’d love that.

David Bevan:

You’d tell Centrelink and ATO, share the data and stop bothering people.

Beverly:

That’s right.

David Bevan:

Beverly, thank you.

Beverly:

Have a great day.

David Bevan:

You too, Beverly. Bruce from Belair. Hello, Bruce.

Bruce:

Yeah, hi David. Beverly’s absolutely on the money and indeed she’s totally correct. ATO and Centrelink are married. When I do an automated reporting of income to Centrelink, they already know what I’ve earned. It’s all there. This is just a huge white elephant. The other thing is I’ve been to my local federal member, Louise Miller-Frost, and spoken to her about this, “Please take it to Canberra and suggest we adopt the New Zealand model.” And here we are talking about it again and again. This is a joke. This is seriously a joke.

David Bevan:

Yeah. Well, a lot of people are agreeing with you, Bruce. We’re getting lots of people ringing in, but also a lot of people on the text line. Sal says, “The stress with Centrelink is immense. It needs to be simplified.” And I suppose just wrapping up with you, Saxon Davidson from the Institute of Public Affairs, that’s part of the appeal of what you’re asking the government to consider. If you simplify it, you’re taking a lot of the stress out. Not only are you freeing people up to earn money, but you’re taking a lot of the stress, and we’re not talking about high rollers here. These are people who are on pensions. All they want to do is get a bit of social interaction and have a bit of money in their pockets so they can live modestly.

Saxon Davidson:

Absolutely. It’s allowing pensioners to experience the dignity of work, feel connected with the community, and have the ability to have that social interaction that you just mentioned. And also, following the New Zealand model will absolutely limit the interactions with Centrelink to just once a year compared to once a fortnight. And it increases their large, broader economic benefits to following the New Zealand model with our participation rate, our worker shortages, and just the overall economy.

David Bevan:

Yeah. Saxon Davidson, thank you very much for your time. Research Fellow at the Institute of Public Affairs.

This transcript with Saxon Davidson talking on ABC Adelaide from 12 February 2024 has been edited for clarity.

Support the IPA

If you liked what you read, consider supporting the IPA. We are entirely funded by individual supporters like you. You can become an IPA member and/or make a tax-deductible donation.