Evicting Nana II – is the age pension really welfare?

So a huge argument has broken out in the first Evicting Nana thread with everyone, in fine libertarian tradition, labelling everyone else a socialist. I am reminded of a comment made the previous time we had this argument by “MemoryVault”.

Can we clear up a misconception you both seem to be suffering? In Australia, Age Pensions, bona-fide Widow’s Pensions, bona-fide Invalid Pensions (now Disability Payments), and Orphans Payments are NOT “welfare”. Okay?

Many, many decades ago, politicians more intelligent than the ones we have today, legislated for the introduction of a compulsory superannuation scheme to cover these payments. Every working Australian had 9% of their gross wages deducted, along with their income tax, from every pay, which was forwarded along with their tax, to the Australian Tax Office.

Up until and including 1971, the annual tax return form was titled “Income Tax and Compulsory Superannuation Scheme Return for the Financial Year xxxx-xxxx”, or words to that effect, in much the same way as today’s forms reference the Medicare Levy. In 1972 the reference to the compulsory Superannuation Scheme was dropped from the form, but TO THIS DAY that 9% compulsory “contribution” continues to be part of what is deducted as “income tax”.

At the time I tried to follow up on that argument – but only found this explanation of the pre-1980s/1990s position:

Traditionally, the main source of government provision for retirement income in Australia has been a flat-rate age pension, which provides a means-tested payment generally indexed to 25 percent of average weekly earnings. This pension has existed for several decades and will remain in place as a safety net for those who do not accumulate sufficient private provision under the new system. The pension is funded from general government revenue and has never been contributory or related to an individual’s previous income. Although the pension is means tested and, in that sense, regarded as a safety net, it is currently the main source of income for more than 60 percent of retirees.

That does seem to contradict MemoryVault’s version of events, but I suspect there is some fiscal illusion going on. I have heard the “I’ve paid my taxes all my life and now the government is paying me back” argument from too many people to simply dismiss it. Peter Saunders described this as being the “piggy bank” theory of welfare. Can anyone provide further information on this point?

So I’m wondering if that sort of argument was historically common in Australia to justify high marginal tax rates?

The other thing that I have found is that the primary residence has been excluded from means testing since, at least, 1947.

In the computation of the value of property for the purposes of this Part-
(a) there shall be disregarded-
(i) the value of any property which is owned by a claimant or pensioner or by his spouse and is
the permanent home of the claimant or pensioner

It isn’t clear why that exemption was first introduced – but I suspect politicians were sensible enough not to want to be evicting the elderly from their home then. At the same time the age pension may have been more tightly targeted than it is now.

Update: Squirrel draws our attention to the 1988 ABS Yearbook.

There was a further development of specific relevance to social security in 1945. The Commonwealth split the personal income tax into two components. One, the social services contribution, was to be used exclusively to finance social security cash payments. Revenue from the contribution was paid into the National Welfare Fund, from which all such cash payments were to be made, but there was no link between personal contributions and entitlements. The fund was supplemented by subventions from payroll tax and general revenue. In the event, the social services contribution was again merged into a single personal income tax in 1950. All cash payments are now made direct from general revenue.

I have also found a One Nation document (that may or may not be accurate in its detail) that corroborates MemoryVault’s version of the story:

1945 also saw the introduction of PAYE and the Social Services Contribution Assessment Act 1945-1947.

This collection was made easy by inclusion on the Income Tax Return Form. This procedure was followed until 1965 when the Social Services Contribution was dropped. The Levy was not. Incomes were rising towards 1950 and minor changes were made which allowed the decrease in the rate of progression on several occasions whilst the maximum of contribution was raised in July 1949.

Under Menzies tax reform package, the contribution and tax collection merged. This was brought about by Act #52 of 1950. The government could now impose taxation as far down the income scale as the Social Services Contribution.

The National Welfare Act#65 of 1954 decreed that appropriation would be made out of consolidated revenue which would be equal to the amount paid out of the National Welfare Fund. Thus it put to rest the idea that people were contributing to their age pension which was to be paid as their right without any means test.

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301 Responses to Evicting Nana II – is the age pension really welfare?

  1. Louis Hissink

    Well at least one fact has emerged from all this catering – the welfare state remains unaffordable.

  2. dover_beach

    dot, that sounds like Obamacare, prior to which over 90% of Americans already had some kind of healthcare. But then he “saved us all”.

  3. .

    Exactly DB. It is like the “wizards” who come up with these schemes aren’t aware of what the current market is like anyway – not that they’d care.

    Obamacare was a joke because ‘da uninsured’ were largely young men on high incomes who got a lot of medical bills from playing sport/extreme sports.

    …then we got pyjama boy.

  4. Grigory M

    They screwed him out of taxes, then they screw us with regulation and cradle to grave welfare we will never get but pay the rest of.

    Why not move to Thailland? You could join up with Yobbo and pontificate on Australian matters from there, while the rest of us stay here and keep paying the additional tax to support our Nannas in their dotage. ;)

  5. .

    Make sure to be proud of employing an army of Centrelink workers and union leeches in the new office administering the NDIS with a caseload of less than one client per week per employee.

  6. LordAzrael

    Even if the scheme worked as suggested, your money was not quarantined for your own use – or how else do you pay pensions to people who never contributed ? Its ultimately a ponzi scheme – today’s tax receipts are used to pay today’s benefit.

    For the argument that “i have paid therefore I am entitled” would require that there be some sort of actuarial estimate of the likely future required payments, and then top up out of current taxes – so that future estimated liabilities for today’s taxpayers are being met out of today’s tax receipts. This doesn’t happen – the government does not practice accrual accounting.

    This is of course different from the MORAL obligation of govt to pay given it has perpetuated the myth of social security.

  7. Empire Strikes Back

    For the argument that “i have paid therefore I am entitled” would require that there be some sort of actuarial estimate of the likely future required payments, and then top up out of current taxes – so that future estimated liabilities for today’s taxpayers are being met out of today’s tax receipts. This doesn’t happen – the government does not practice accrual accounting.

    Thank you m’lord. I’ve been trying to articulate this all day.

  8. Pedro

    “Commencing from the 1st July, 1943, it is proposed to pay to the National Welfare Fund out of ‘Consolidated Revenue an annual sum of (a) £30,000,000; or (b) a sum equal to one-quarter of the total collections each year from income tax on individuals, whichever may be the lower. At a later stage proposals for increased taxation will be brought down to provide the necessary revenue for the fund. ”

    If that is from Hansard then it is pretty clear that the govt was setting up a welfare system paid for out of general taxes and that they were using a bit of rhetoric to make is sound like they were creating an earned entitlement.

    I don’t think that detracts of MV’s concern that the super funds will be raided except to the extent that the super funds are private investments and not a welfare system funded by general taxes paid into consolidated revenue and so if Hockey or whoever swoops they will very clearly be taxing accumulated wealth.

  9. Why not move to Thailland? You could join up with Yobbo and pontificate on Australian matters from there, while the rest of us stay here and keep paying the additional tax to support our Nannas in their dotage. ;)

    I am still required by force of law to vote in Australian elections even whilst living in Thailand, and I am still subject to taxation on any money earned inside Australia while I am living in Thailand, so I don’t see any reason why I should not have the right to have an opinion on political matters as well.

  10. Grigory M

    the government does not practice accrual accounting.

    LordAzrael, ESB – this might interest you:

    The Commonwealth Government’s 1999-2000 Budget will complete the transition from cash to accrual budgeting.

  11. dismissive

    Yobbo

    Don’t want to vote? Fill in one of these.

    Worked for me at the last election.

  12. Grigory M

    I don’t see any reason why I should not have the right to have an opinion on political matters as well

    Neither do I.

  13. lasernelson

    Both my wife and I have worked since we were 16. In those times it was accepted that the younger generation looked after the needs of the old. It was, if you liked a social compact, similar to the nation ensuring that those who helped defend the country were assisted to live a life that was decent and dignified. In short the country rallied to ensure that the disabled, infirm and the aged were not cast out to beg on the streets.

    I would suggest to you that any attempt to reduce to penury the older citizens of this country would result in a revolution the likes of which this country has never seen before.

    Old aged pensioners do not live a live of ease and comfort at the expense of the community. We have not only laboured over many years to build the country but have contributed to the welfare of those who have been needy before us, whether they have been aged, infirm or ex service people. We have always been there.

    It is fashionable in these times to apply the maxim of ‘user pays’. Well be assured that we have paid, not just for ourselves but also for the Australians before us who have been in need.

  14. Notafan

    Some have paid, some have not.
    A system that operates on the basis that you work (or not) for 40 years and then get a pension and free healthcare for 25 years is not sustainable.
    In any case taxes are collected for far more than providing welfare.
    I’ve worked since I was 17 and I will never get the Age pension.

  15. Tel

    I would suggest to you that any attempt to reduce to penury the older citizens of this country would result in a revolution the likes of which this country has never seen before.

    Those crotchetty old buggers are pretty revolting right now! Imagine the horror when the wave of zimmer frames wakes up earlier than everyone else then slowly charges out into the streets. When the video gets to youtube it will be titled, “The likes of which has never been seen before.”

    Mind you, lack of stealth will be their downfall, all the grumbling and muttering.

  16. JC

    I would suggest to you that any attempt to reduce to penury the older citizens of this country would result in a revolution the likes of which this country has never seen before.

    In wheel chairs and using walking sticks. Don’t over egg it dude.

  17. JC

    I am still required by force of law to vote in Australian elections even whilst living in Thailand,

    No you’re not. It’s not compulsory for Australians who are overseas at the time of an election. In fact it’s quite difficult administratively to get on the electoral roll if you’re not on one.

  18. So I have changed “I’m 100 per cent positive, I’ll bet Nanna’s house on it, that the Jews are poisoning the wells,” he said. to

    “I’m 100 per cent positive, I’ll bet Nanna’s house on it, that the JewsCatholics/Buddhists/Shintoists/Animists/any other bugger you can think of are poisoning the wells,” he said.
    Just to give us a break for a while.
    Kol tuv

    I think that’s fair enough.

    Could just as easily be Catholics poisoning the wells, after all, in between not-so-secretly extorting masses of private school subsidies out of otherwise law-abiding State governments.

  19. I would suggest to you that any attempt to reduce to penury the older citizens of this country would result in a revolution the likes of which this country has never seen before.

    Attack of the Grey Nomads II: Return of the Winnebagos.

  20. Helen

    Leave Nana’s house alone – raise the retirement age to 75.

  21. Notafan

    75? Then a lot of pokies palaces are going to die.
    Always the ununintended consequences

  22. lasernelson

    For the benefit of those who sneer at the elderly it might be just as well to remind them that we and our family members vote.

    Wise up dudes

  23. JC

    Laser

    I’m not sneering at you. I just thought it was funny how you suggested a bunch of oldsters were going to foment a revolution, the size of which we could never imagine.

    Have you seen Bad Grandpa produced by the jackasses from Jackass?
    Take a lookse.

  24. No you’re not. It’s not compulsory for Australians who are overseas at the time of an election. In fact it’s quite difficult administratively to get on the electoral roll if you’re not on one.

    It actually is. If I want to avoid prosecution I have to mail in the form linked to above. Not an easy task in a country where the postal service is about as reliable as the police force.

  25. JC

    Here:

    Voting is not compulsory for Australian citizens outside Australia on polling day. But if you are on the Roll, and you don’t vote in a federal election or referendum held while you are away, either in person or by post, even if you are registered with the AEC as an Eligible Overseas Elector, the AEC might well subsequently take your name off the Roll. If this happens, the time limitation on re-enrolment from overseas may mean you become disenfranchised for the rest of the time you live abroad. In other words, “use it, or lose it”.

    http://www.southern-cross-group.org/archives/Overseas%20Voting/2007/Brochure_Expat_Voting_Jan_2011.pdf

  26. Zulu Kilo Two Alpha

    In wheel chairs and using walking sticks

    You’ll recognize my motorized wheelchair. It will be the one with twin GPMG’s.

  27. Notafan

    Itaxes sn’t seem to matter that the ratio of working to non working has diminished significantly and that the few war veterans left are in their nineties.
    It is the hale and hearty in their sixties and seventies who have blown their super on a retirement knees up and sat down with the financial planner to maximise their pensions,
    They even want the taxpayers to fund their Viagra
    We don’t want your houses or your sense of entitlement
    If you can prove that you paid sufficient tax for 25 plus years of pension healthcare and all the other pension perks I’d like to see it.

  28. lasernelson

    Hi JC

    If the extent of your imagination is determined by some theatrical expression then maturity might hold some unpleasant revelations for you.

    The senior demographic is and will continue to form a significant sector in any electorate for quite some time into the future. The last time I looked governments were formed according to a majority of seats in parliament.

    Political candidates would do well to look both ways before crossing the street else they may well be run over by oldies pushing walking frames or driving Winnebagos.

  29. Tel

    For the benefit of those who sneer at the elderly it might be just as well to remind them that we and our family members vote.

    Wise up dudes

    You didn’t read the fine print about how a democracy turns against any demographic that shrinks below critical mass?

    Sucks to be a noisy minority without balance of power. Just go ask a Green how it feels right now.

  30. Monkey's Uncle

    I don’t think that detracts of MV’s concern that the super funds will be raided except to the extent that the super funds are private investments and not a welfare system funded by general taxes paid into consolidated revenue

    It is truly bizarre that MV seems to think there is some kind of moral equivalence between the government raiding individual super accounts that are clearly private property and the government changing or phasing out a welfare system that was once vaguely contribution-based. Moreover it doesn’t seem to occur to MV that if governments decide to raid or increase taxes on super accounts it will at least in part be driven by the need to raise more revenue in order to cover the increased cost of state pension liabilities. So it is absurd to suggest, as he does, that there is some inherent mutual exclusivity between either supporting raiding super and not believing pensioners are entitled or alternatively protecting super and believing pensioners have paid their way.

    If that is from Hansard then it is pretty clear that the govt was setting up a welfare system paid for out of general taxes and that they were using a bit of rhetoric to make is sound like they were creating an earned entitlement.

    I suspect it was probably similar to the Medicare levy that exists today. I bet MV thinks the Medicare levy covers the full cost of funding Medicare, and that it entitles him to claim Medicare benefits forever. Even if the Medicare levy was done away with, does that still mean one has paid for Medicare decades later?

  31. Ripper

    It goes back earlier than that.

    The first age pensions were paid by New South Wales (1900), Victoria (1900) and Queensland (1908). A national Age Pension system replaced these schemes from 1 July 1909. The first Age Pension was a modest means tested payment, which was worth around 12 per cent of male total average weekly earnings.

    In 1915, the first concessions for superannuation were introduced (with the introduction of income tax), comprising tax deductibility for employer contributions and an exemption of superannuation fund earnings from tax.

    How Keating must have laughed when He conned the populace all over again.

  32. JC

    Laser

    Thanks for the political science. I was amused because you suggested there would be a blue rinse revolution and the way described. I thought it was funny.

  33. Monkey's Uncle

    JC, how dare you resort to humour around people who take themselves so damn seriously!

  34. MT Isa Miner

    I reckon the argie bargie between Memory Vault in this thread comes from MV being a normal person. Normal people don’t follow legislation through 100 years of ins and outs. Normal people believe stuff they’re told. From what I’ve read here and know to be the “vibe” from those that lived the experience the government told people that they were paying in through taxes and they could draw out through pensions.

    Sure it seems like a convenient lie to those who are political enough to know that the government lies pretty well all the time now and maybe always did. It seems like a convenient lie to those economically wised up enough to know that what goes into consolidated revenue is easy pickings. Many normal people didn’t know 20 years ago. They didn’t know that they had to be so political and economically wised up otherwise they’d get done over. Many people sort of trusted the government more in days gone by.

    No-one likes being lied to. No-none likes thinking that they have ended up being a welfare burden when they thought- Ok mistakenly- they were paying their way.

    Times have changed. Now we have more information. Even 20 years ago only a couple 1000 people in Australia would have known this kind of info. Jeeze, maybe we forget what mushrooms we all were before the internet. ( Acadmics and accountants can stand down)

  35. entropy

    The concept that one has paid my taxes all my life and therefore I have earned retirement benefits is a bit silly when current governments are burning through not just the taxes raised today, but by borrowing, taxes from future taxpayers as well.

  36. Tel

    Government is simply not an appropriate vehicle for making long term promises. Just a few percent of the population can change their minds and you get a completely different government who can just change everything. This process happens around once a decade, and we can’t possibly be surprised by this.

    If your politician happens to promise that you get something in thirty or forty years in return for working hard now, you don’t even have to check who it is, you know they are full of it. No way can they expect to deliver on such a promise.

    If you check the details and see that they promised not just pensions but health care, unemployment benefits, “insurance” against accidents, and even left the door open for whatever else might come to mind next year… you should laugh long and loud. Only a fool would believe such milk and honey tales.

  37. Rabz

    They didn’t know that they had to be so political and economically wised up otherwise they’d get done over.

    Which is why I became an economist, Miner – so I could take control of my life, detect the bullshit immediately and strike back hard wherever it was possible (as I’ve been doing now for years through significantly minimising my tax).

  38. Grigory M

    MT Isa Miner
    #1179488, posted on February 6, 2014 at 6:37 am

    Very well said.

  39. tgs

    If the extent of your imagination is determined by some theatrical expression then maturity might hold some unpleasant revelations for you.

    The senior demographic is and will continue to form a significant sector in any electorate for quite some time into the future. The last time I looked governments were formed according to a majority of seats in parliament.

    Political candidates would do well to look both ways before crossing the street else they may well be run over by oldies pushing walking frames or driving Winnebagos.

    Translated:

    Keep giving us welfare or we’ll vote for someone who will.

    Pretty disgusting imo, typical rent seeking behaviour

    Both my wife and I have worked since we were 16.

    Congratulations?

    So have I and I will never see a cent of an aged pension.

  40. tgs

    To be 100% clear and to reiterate my position again:

    I am only against the aged pension being given to people with the means to support themselves. If you have enough wealth accumulated such that you have the ability to support yourself and not be a drain on taxpayers then I think it is immoral for you not to do so.

    The asset class that your wealth is held in is completely and utterly irrelevant.

    Thus I think that the value of primary residences should be included in the asset test for eligibility for the aged pension. Perhaps this should be phased in over time as Gab has suggested and perhaps the threshold needs to be simultaneously raised.

    However, I can find no reasonable argument why this shouldn’t occur. Most arguments made by others in this thread seems to be naken self-interest or emotional appeals with no logic behind them.

  41. Grigory M

    Pretty disgusting imo, typical rent seeking behaviour

    What’s disgusting here is the shit that you write.

    So have I and I will never see a cent of an aged pension.

    Same here, fuckwit. But that doesn’t excuse your boorish fuckwittery.

  42. tgs

    What a convincing argument.

  43. Monkey's Uncle

    I reckon the argie bargie between Memory Vault in this thread comes from MV being a normal person. Normal people don’t follow legislation through 100 years of ins and outs. Normal people believe stuff they’re told. From what I’ve read here and know to be the “vibe” from those that lived the experience the government told people that they were paying in through taxes and they could draw out through pensions.

    I think it is simpler than that. I don’t think people were really misled about the nature of the system to any great extent. Rather, it is more a case of people simply believing what they want to believe or only seeing those things that suit their interests. It is also a case of cognitive dissonance, as a larger percentage of the population tend to believe they are net contributors rather than net recipients of government than what is actually the case. The MVs of this world can’t see the bigger picture or understand anything beyond their own narrow self-interest and sense of entitlement. It is all about me, mine, I is entitled, I wuz robbed, we wuz promised. Who cares about who has to pay, whether it is sustainable, to what extent they were really promised etc. It is a selfish, primitive, infantile mindset. The MVs would rather live in their own little world of convenient fictions and delusions than confront the reality of how things really work.

    As the saying goes, you will never convince someone of something if their livelihood depends on their not getting it. These issues tend to bring out the worst in people, as it is always easy when dealing with vast inpersonal bureaucracies to ignore the costs that one’s own choices impose on others that are largely anonymous strangers. The ultimate irony is that while many believe that increased government provision improves social cohesion, the reality is often actually that competition for socialised resources exacerbates conflict and bitterness between different groups.

  44. Grigory M

    Monkey’s Uncle
    #1180416, posted on February 7, 2014 at 12:10 am

    Crap.

  45. tgs

    Another brilliant and insightful argument from Grigory.

    What an intelligent guy.

  46. Grigory M

    Another brilliant and insightful argument from Grigory.

    Glad you liked it. Concise and accurate, I thought. About you and the Monkey.

  47. .

    There is nothing wrong with tgs said. Very little real argument has been raised against it.

    Come up with a better argument please.

  48. Grigory M

    Go fuck yourself Dot. All the discussion for and against has already been presented upthread and on the earlier thread. tpg and his/her/its uncle are just trolling.

  49. tgs

    Go fuck yourself Dot. All the discussion for and against has already been presented upthread and on the earlier thread. tpg and his/her/its uncle are just trolling.

    In the interests of debate I clearly restated my position to avoid any confusion. Perhaps you could leave the juvenile name calling aside for a moment and reiterate your position so that we could discuss it like adults.

    Or perhaps you’d rather continue to try out your school-boy insults and to accuse others of trolling to mask your inability to raise a coherent point in opposition of what I and others have argued.

    Up to you, champ.

  50. feelthebern

    I thought this thread was dead, so I have missed a bit since the other day.
    I agree will TGS.
    It raises another topic that could be discussed.
    “Preparing the population for NO aged pension”.
    I’m 36 & fully expect that pensions will be a thing of the past by the time I make it to 70.
    But then again, I am working my ring off so I am not beholden to some politician(s).

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