David Leyonhjelm guest post. A generation of parasites

If James Packer was down to his last $60 million, with no more than the apartment he recently purchased in the Crown Sydney Residences in Sydney plus less than $263,250 in the bank, or $394,500 if he was to remarry, he would be eligible for an age pension when he turns 67.

Packer has paid significant taxes in Australia all his life, as have his companies.  If entitlement to a pension is a reflection of the gratitude of a nation towards those who have contributed, he is more than entitled.

He has 15 years before he reaches pension age, allowing time to rearrange his finances to meet the eligibility criteria.  Options include giving money away, although not in the five years prior to reaching pension age, spending it on expensive holidays (right up until the date of assessment), and investing in upgrades to the apartment (on which there are no limits).

He would not be unusual if he did any of these. Every year, tens of thousands of Australians give money to their children, buy funeral bonds, take overseas trips and upgrade their home, simply to qualify for the pension. There is no shortage of specialist financial advisers helping them do it.

Most people would agree that someone with a $60 million apartment should not be eligible for a pension. And yet, with the family home excluded from the pension assets test, that is the reality.

Obviously, Packer is highly unlikely to be interested in qualifying for the pension. But there are a lot of people with homes worth $10 million, $5 million or $1 million who are very keen. According to an analysis by the Australian National University, more than 255,000 live on taxpayer-funded pensions while owning homes worth more than $1 million. Almost 30,000 of them live in homes worth more than $2 million.

The cost of paying pensions to people in houses worth at least $1 million is more than $6.3 billion a year, of a total cost to taxpayers of about $50 billion for all age pensions. This enormous cost of pensions is a major reason it is so difficult to return the budget to surplus. Moreover, quite a lot of those taxpayers are actually a lot less wealthy than those receiving a pension, particularly the ones with multi-million-dollar houses.

I am a firm believer in the effect of incentives on behaviour. Fairly obviously, the incentive to qualify for the age pension, including both the income, health benefits and various discounts, is enormously strong. The baby boomer generation, of which I am a member, has responded to this by learning how to take advantage of it, at massive cost to other generations. They have become, quite literally, a parasitic generation.

Clearly, the incentives need to change so the age pension returns to its original purpose. This should occur gradually and reassuringly, so that those affected have time to adjust to the fact that they are not poor and can look after themselves, but it absolutely must occur. The country cannot afford to be generous to those in need if it is being generous to those who are not in need.

The baby boomers will of course trot out their objections: I’ve paid taxes all my life; the government promised everyone a pension in 1945; you are forcing me out of my house; it’s not my fault my house is worth so much; why should my profligate neighbour get a pension and not me; and, this is stealing my kids’ inheritance. The assistance of younger generations may be needed to point out why they are wrong.

As to what pension eligibility ought to be, there are several options. One is to include an imputed return on house values in the income test. That would require the government to place a value on dwellings, but the median value of houses, units and townhouses by town or suburb is easy enough to work out.

Another might be to relax the eligibility criteria but treat pensions as taxable income, creating an incentive to generate additional cash including through the release of equity in the family home.

There are other options too but, irrespective of how it is achieved, something must be done. It is simply immoral for taxpayers who don’t even own a house to be funding the pensions of those who could be living in a $60 million house.  Incentives that promote parasitism cannot be defended.

David Leyonhjelm is a former senator for the Liberal Democrats

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254 Responses to David Leyonhjelm guest post. A generation of parasites

  1. struth

    You also do not get super if you do not work.
    If you have a huge super payout you have worked and it’s your money you were forced to give to socialist unions to play with and enrich themselves with so as to attack business and force socialism on the country.
    You get super payout.
    Buy caravan and four wheel drive and busy yourself traveling around annoying others who use socialist badly maintained road for years and camp in parking bays filled with shit from other caravanners.
    Come back to die on pension.
    You’ve just stuck your fingers up the only way you can, pathetic vas it is to the high taxing over regulating socialist government that has kept you from creating your own real wealth all your life.
    Some catallaxians don’t like your behavior and side with socialist government.

  2. Helen

    Way back there was a figure mentioned I think it was in the link to memory vaults post about the establishment of a welfare fund. The figure was 7.5% tax raised to pay for it. I understand it may not have been constitutionally valid and was repealed. My question is this. Was the 7.5% tax levy ever repealed? Or has the government continued to collect it all these years?

  3. Deplorable

    With zero or negative interest rates and blue chip shares declining all the time dropping dividends etc a real rate of return in the near future on $1 mill could be from -5% to +5%. That means a loss of $50,000 or up to $50,000 return or somewhere in between. If you face losing real value why would you not go on a holiday of a lifetime at today’s prices, your physical abilities are in decline as is most likely your health after 65. Ensuring that your abode is mortgage free and in great condition means it will last for the rest of your life with no major future repairs needed when you are on the aged pension where you can afford little. The whole idea of having a reasonable threshold of assets and or cash before you completely lost the pension was to allow people to live in their homes and being able to maintain it without living in squalor. Aged pensioners have been used as scapegoats by politicians and public servants applauded by the selfish working families who pay no net tax with all the handouts. There are so many adjustments that can be made to other programs and socialist waste before we should ever have a conversation regarding aged pensions. Shame on all those attacking aged pensioners.

  4. Damian

    They get about a 15% contribution to their nominated super fund. That is still a pretty handy super contribution, considering a backbencher starts at about $200k these days.

    No but it’s ongoing once he leaves parliament, isn’t it.

    No, no ongoing contribution to members elected post 2004, once they leave parliament. They can be eligible for a redundancy payment, for example a Member of the House of Reps who stands at a general election but is defeated. That can be worth between three and six months salary, so a time serving blob that never rose from the backbench can cop a $100k redundancy payment to cushion the adjustment back to a non-parliamentary life.

    Mark Latham for example, and many other ex-members of the HoR or the Senate, are on the indexed pension for life, having been elected prior to 2004.

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