IPA Research: New Zealand Pension Model Roadmap To Solving Australia’s Worker Shortage Crisis

Written by:
12 February 2024
IPA Research: New Zealand Pension Model Roadmap To Solving Australia’s Worker Shortage Crisis - Featured image

“The current tax debate in Canberra has failed to notice that Australian pensioners and veterans face an effective marginal tax rate of 69 per cent if they choose to work. Without reform, Australia will not solve its worker shortage crisis,” said Saxon Davidson, Research Fellow at the Institute of Public Affairs.

Today, the IPA released a new report, How New Zealand Solved its Worker Shortage Crisis, which compares how Australia and New Zealand responded to the unprecedented growth in job vacancies in the period between 2019 and 2023. The research found:

  • Job vacancies in New Zealand are only 5.4 percent above its 2019 level. In contrast, the number of job vacancies in Australia remain 77 per cent above 2019 levels.
  • New Zealand’s job vacancy recovery is due to higher rates of labour participation—particularly among pensioners. One in four New Zealand pensioners work, compared to only 3 per cent of pensioners in Australia.
  • 90 per cent of the difference between Australia and New Zealand’s labour force participation rate is attributable to the gap in pensioner participation.
  • Pensioners and veterans in New Zealand can earn income without their entitlements being clawed back, meaning their total tax rate is as low as 10.5 per cent. In Australia, pensioners and veterans who work are taxed at an effective rate of 69 per cent.
  • Adopting the New Zealand pension model could result in up to 520,000 more Australians participating in the labour force, far more than the 388,000 job vacancies currently in the economy.

“Unlike Australia, New Zealand has recovered from Covid related worker shortages due to its pension work system that does not punish its mature-aged citizens for simply wanting to work,” said Mr Davidson.

“Only three per cent of Australian pensioners work, despite surveys showing that 20 per cent of Australian pensioners would be willing to work, but do not because of government tax and red tape barriers.”

“At a time when one in five Australian businesses are struggling to find the workers they need to grow, the federal government should implement New Zealand style reforms so our pensioners, veterans and students can work without facing marginal tax rates which cruels incentive,” said Mr Davidson.

Removing the complex tax and red tape barriers on pensioners, veterans and students is a simple policy that is good for people wanting to work, good for businesses desperately seeking employees, and good for the nation.

“With almost 400,000 job vacancies nationwide, it is completely short-sighted to rely on unplanned mass-migration to fill these vacancies when there are Australians who want to work. The present policy settings are only adding to the housing and cost of living crisis,” said Mr Davidson.

To download the IPA’s research click here.

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