tag:theconversation.com,2011:/us/topics/means-testing-13182/articlesMeans testing – The Conversation2023-10-24T04:32:29Ztag:theconversation.com,2011:article/2162602023-10-24T04:32:29Z2023-10-24T04:32:29ZIf you’re 65 or over and want to work, you’re far better off in New Zealand than Australia<figure><img src="https://images.theconversation.com/files/555494/original/file-20231024-27-eeulzt.png?ixlib=rb-1.1.0&rect=735%2C1083%2C2935%2C1549&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Want to keep working after you’ve reached pension age? </p>
<p>The Australian government has just made it a <a href="https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/getting-more-australians-back-work">little bit</a> easier, increasing the amount you can earn per year from work before losing some of your pension by A$4,000 on an ongoing basis.</p>
<p>Late last year, it temporarily upped the so-called <a href="https://www.dss.gov.au/seniors/programmes-services/work-bonus">work bonus</a> from $7,800 per year to $11,800 to “<a href="https://images.theconversation.com/files/555212/original/file-20231023-17-xduxan.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip">incentivise pensioners into the workforce</a>”. It was part of the government’s response to its September jobs and skills summit.</p>
<p>It meant pensioners could earn an underwhelming $227 per week from work without harming their pension, up from the previous $150. </p>
<p>The rules for older workers are very different in New Zealand. In fact, if Australia adopted New Zealand’s approach, we could have an extra 500,000 willing workers – a fair chunk of them paying tax.</p>
<h2>What’s NZ doing differently for older workers?</h2>
<p>Last month, as part of his <a href="https://treasury.gov.au/employment-whitepaper/final-report">employment white paper</a>, Australian Treasurer Jim Chalmers made the increase to $227 per week permanent.</p>
<p>Chalmers headlined the announcement: <a href="https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/getting-more-australians-back-work">Getting more Australians back into work</a>.</p>
<p>But it’s doing an underwhelming job. In Australia, <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia-detailed/aug-2023">15.1%</a> of the population aged 65 and older are in some kind of paid work, up from 14.7% a year earlier.</p>
<p>In contrast, in New Zealand the proportion has just hit <a href="https://www.stats.govt.nz/information-releases/labour-market-statistics-june-2023-quarter/">26%</a>. That’s right: more than one-quarter of New Zealanders aged 65 and older are employed.</p>
<p>It’s a similar story if we look at how Australia and New Zealand compared to others internationally on labour force participation (which covers those in paid work plus people actively looking for it).</p>
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<p>New Zealand wants to see that number rise further. It has been talking about <a href="https://www.msd.govt.nz/documents/what-we-can-do/seniorcitizens/older-workers-employment-action-plan/the-ageing-workforce-briefing-paper-future-of-work-governance-group-meeting-4-may-.pdf">33.1%</a> of its population aged 65 or more in paid work, which is what Iceland has.</p>
<p>What is New Zealand doing for over-65s that Australia is not? </p>
<p>You won’t find it mentioned in either treasury’s employment <a href="https://treasury.gov.au/employment-whitepaper/final-report">white paper</a> (released in September) or <a href="https://treasury.gov.au/publication/2023-intergenerational-report">intergenerational report</a> (released in August) – even though National Seniors Australia <a href="https://nationalseniors.com.au/uploads/NSA-Employment-White-Paper-Submission-Final-Web.pdf">pointed it out</a> in submissions.</p>
<p>One crucial thing New Zealand is not doing is annoying pensioners who work. </p>
<p>Australian pensioners in paid work get called in for discussions with Centrelink, if it looks as if they are at risk of doing too many hours and going over the $227 per week limit.</p>
<h2>The more you work, the more your pension is cut</h2>
<p>Pensioners who do go over the $227 per week limit lose half of every extra dollar they earn in a cut to their pension. </p>
<p>Plus tax, this means they lose a total of <a href="https://ipa.org.au/publications-ipa/media-releases/employment-white-paper-cop-out">69%</a> of what they earn over the limit where their tax rate is 19%, and 82.5% on the portion of earnings taxed at 32.5%.</p>
<p>And this is <em>after</em> the boost designed to “<a href="https://images.theconversation.com/files/555212/original/file-20231023-17-xduxan.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip">incentivise pensioners into the workforce</a>”.</p>
<p>Last year’s jobs summit also set up a <a href="https://www.pmc.gov.au/sites/default/files/resource/download/womens-economic-equality-taskforce-final-report.pdf">Women’s Economic Equality Taskforce</a>. It reported this week, drawing attention to the “disincentive rates” facing second earners (usually women) who return to work after caring for children.</p>
<p>It said that taking the loss of benefits, tax and childcare costs together, the penalty for returning to work was more than half of what was earned on the first three days of the week, and up to 110% of what was earned on the fourth and fifth days.</p>
<p>My point here is that the losses facing age pensioners who attempt to work are of a similar order – in Australia but not in New Zealand.</p>
<p>Australia’s rules aren’t just stopping pensioners from taking on extra hours. They seem to stop them taking up paid work at all. </p>
<p>There were 2.6 million Australians on the age pension in June this year. Only <a href="https://data.gov.au/data/dataset/dss-payment-demographic-data/resource/7a6457a8-44a3-406c-b552-62eb0fef9d66">83,925</a> reported income from working. That’s just 3.2%.</p>
<h2>NZ pensioners keep their pensions</h2>
<p>What’s different about New Zealand is that New Zealand’s pensioners don’t face a penalty if they work. They simply face income tax.</p>
<p>In New Zealand, the age pension (which is called <a href="https://www.workandincome.govt.nz/eligibility/seniors/superannuation/who-can-get-it.html">superannuation</a>, making it confusing for Australians) is paid to everyone of pension age. There’s no income test or assets test. You get it because you are a citizen or permanent resident.</p>
<p>Australia wouldn’t need to go as far as New Zealand to get the same benefit. We would simply need to ditch the pension income test in cases where that income came from paid work, leaving the assets test in place.</p>
<p>Then there would be no concern about working. </p>
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Read more:
<a href="https://theconversation.com/heres-a-radical-reform-that-could-pay-every-retiree-the-full-pension-131289">Here's a radical reform that could pay every retiree the full pension</a>
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<h2>Half a million reasons for change</h2>
<p>If we made that change – and if the same proportion of older Australians chose to work as New Zealanders – we would soon have an extra half a million older Australians able to step into fields such as teaching, where there are <a href="https://www.abs.gov.au/statistics/labour/jobs/job-vacancies-australia/latest-release#">15,500 vacancies</a>, and health care and social assistance, where there are 68,100 vacancies.</p>
<p>It would cost the federal government money because it’d put more Australians of pension age on the pension. </p>
<p>But it’d cost less if we abolished the special tax concession for seniors and pensioners, known as the <a href="https://www.ato.gov.au/individuals/income-deductions-offsets-and-records/tax-offsets/seniors-and-pensioners-tax-offset/">seniors and pensioners tax offset</a>. In New Zealand, senior citizens face the same tax rates as everyone else.</p>
<p>And it would cost less as more pensioners earned wages and paid income tax. </p>
<p>Calculations prepared for <a href="https://nationalseniors.com.au/uploads/NSA-Employment-White-Paper-Submission-Final-Web.pdf">National Seniors Australia</a> by Deloitte suggest that beyond a certain point, the change would become revenue-positive – actually boosting federal coffers – as the extra income tax revenue outweighed the cost of the extra pensions. </p>
<p>National Seniors is calling its campaign <a href="https://nationalseniors.com.au/advocacy/fairer-retirement-income-system/let-pensioners-work">“let pensioners work”</a>.</p>
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<a href="https://images.theconversation.com/files/549500/original/file-20230921-19-v6cu46.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="$100 notes" src="https://images.theconversation.com/files/549500/original/file-20230921-19-v6cu46.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/549500/original/file-20230921-19-v6cu46.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=964&fit=crop&dpr=1 600w, https://images.theconversation.com/files/549500/original/file-20230921-19-v6cu46.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=964&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/549500/original/file-20230921-19-v6cu46.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=964&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/549500/original/file-20230921-19-v6cu46.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1212&fit=crop&dpr=1 754w, https://images.theconversation.com/files/549500/original/file-20230921-19-v6cu46.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1212&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/549500/original/file-20230921-19-v6cu46.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1212&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Australians hold an unusually high number of $100 notes.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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<h2>Tapping into the cash economy</h2>
<p>Importantly – and here’s where we get to a fact National Seniors might not like me mentioning – that would happen not only because more senior Australians were employed, but also because more senior Australians were employed <em>legitimately</em>.</p>
<p>It’s hard to get a handle on how many senior Australians are working and being paid in cash, which they store rather than bank to avoid tripping the income test. But we do know this.</p>
<p>At the end of March, there were <a href="https://www.rba.gov.au/statistics/tables/xls/a06hist.xls?v=2021-04-05-19-23-58">18</a> Australian $100 notes in circulation for each Australian resident, an astonishingly high proportion given the use of cash for transactions is <a href="https://theconversation.com/cash-could-be-almost-gone-in-australia-in-a-decade-but-like-cheques-wholl-miss-it-208020">collapsing</a>.</p>
<p>In New Zealand at the end of March, there were just <a href="https://www.rbnz.govt.nz/statistics/series/reserve-bank/bank-notes-in-the-hands-of-the-public">five</a> New Zealand $100 notes in circulation for each New Zealand resident.</p>
<p>That may be just a coincidence. </p>
<p>But New Zealand is certainly making it easier for retirees to work legitimately, rather than stay at home or accept cash in hand.</p><img src="https://counter.theconversation.com/content/216260/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin is Economics Editor of The Conversation.</span></em></p>Australian age pensioners who earn more than $227 a week from paid work lose two-thirds of it in tax and pension cuts. If we adopted NZ’s approach, we could have an extra 500,000 willing workers.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1747462022-01-14T16:37:59Z2022-01-14T16:37:59ZWhy lowering everyone’s energy bills is a better solution than targeting only the most vulnerable<figure><img src="https://images.theconversation.com/files/440853/original/file-20220114-15-1iga1fh.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C6000%2C3997&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://unsplash.com/photos/E31OyLefPTs">Vitolda Klein/Unsplash</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>Energy bills will rise by <a href="https://www.bbc.co.uk/news/business-59760331">as much as 50%</a> from April 2022 unless the government intervenes, as Britain’s energy regulator Ofgem is expected to raise its price cap. Many households face a cost of living crisis and dramatically increased fuel poverty.</p>
<p>Most political parties <a href="https://www.bbc.co.uk/news/uk-politics-59935555">agree</a> that the government will need to step in to shelter consumers from this expected price rise. There is also widespread agreement in Westminster that financial support, such as expanding the <a href="https://www.gov.uk/the-warm-home-discount-scheme">Warm Home Discount</a>, should be especially focused on those who are most in need.</p>
<p>On the surface, this seems sensible. But attempting to target relief measures in this way could actually exclude some of the most vulnerable people. The best way to ensure help reaches everyone who needs it is through universal approaches that seek to lower energy bills for all.</p>
<h2>Who counts as vulnerable?</h2>
<p>Targeting support means defining a section of the population who are eligible for assistance. Despite appearing straightforward, this is actually very difficult. It demands a subjective (and often political) judgement about who counts as genuinely in need.</p>
<p>Take the relevant example of fuel poverty. In England, the official definition of a fuel poor household was changed <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/211135/government_response_fuel_poverty_consultation.pdf">in 2013</a> and again <a href="https://www.gov.uk/government/publications/sustainable-warmth-protecting-vulnerable-households-in-england">in 2021</a> – ostensibly to <a href="https://doi.org/10.1177/0261018316674851">better target support</a>. The devolved nations have maintained the older definition <a href="https://www.eas.org.uk/en/fuel-poverty-across-the-uk_50535/">used in England before 2013</a>.</p>
<p>Altering the definition produces starkly different profiles of <a href="https://doi.org/10.1016/j.erss.2017.09.035">who is vulnerable</a> and so deemed deserving of help by targeted support schemes. The older definition emphasises rural households reliant on expensive oil heating, while a newer one draws attention to those living in energy inefficient urban housing. <a href="https://doi.org/10.1177/1420326X17718054">Neither indicator</a> is categorically better. Instead, each one reveals certain forms of vulnerability, <a href="https://doi.org/10.1177/0308518X18764121">while hiding others</a>.</p>
<p>However the vulnerable are defined, narrowly targeting financial support invariably excludes people experiencing hardship who, under another definition, would be eligible for help. And even if a definition could be agreed upon, there are further issues with means-tested approaches.</p>
<p>Accurately identifying and reaching people entitled to assistance is often limited by incomplete or unavailable data. Efforts to target support also tend to rely on people applying for it, but many don’t. For example, only about 60% of UK households entitled to the Pension Credit <a href="https://www.gov.uk/government/statistics/income-related-benefits-estimates-of-take-up-financial-year-2018-to-2019/income-related-benefits-estimates-of-take-up-financial-year-2018-to-2019">receive the benefit</a>. People may not apply for a host of reasons: <a href="https://www.citizensadvice.org.uk/Global/CitizensAdvice/Energy/Final%20-%20modernising%20consumer%20support%20in%20essential%20markets.pdf">complex and confusing</a> application processes, limited knowledge of entitlements, <a href="https://raceequalityfoundation.org.uk/wp-content/uploads/2017/11/Better-Housing-27-Universal-Credit.pdf">language barriers</a>, or limited access to the <a href="https://www.cas.org.uk/system/files/publications/vff_online_barriers_to_maintaining_uc_claims_0.pdf">internet and computers</a>. Often, those who fail to apply are among the most marginalised sectors of society.</p>
<p>Being identified as in need and targeted for special assistance can also be <a href="https://doi.org/10.1016/j.socscimed.2006.01.012">stigmatising</a>. This <a href="https://www.researchgate.net/publication/322315936_EVALUATE_project_policy_brief_no_4_Qualitative_findings">puts people off</a> applying for help even when they really need it. One British study found one in four people <a href="https://www.turn2us.org.uk/T2UWebsite/media/Documents/Benefits-Stigma-in-Britain.pdf">delayed or avoided claiming</a> means-tested benefits due to the stigma attached to it.</p>
<p>A common argument for stringent targeting is that it enables public money to be spent more cost-effectively. But often the savings are much less than anticipated, because means-testing requires significant <a href="https://www.theguardian.com/social-care-network/2013/jan/14/means-testing-benefits-not-efficient-fair">additional bureaucracy</a>.</p>
<h2>The alternatives</h2>
<p>Compared to targeted approaches, universal social assistance schemes are <a href="https://ideas4development.org/en/social-protection-universal-provision-is-more-effective-than-poverty-targeting/">superior</a> at reaching those in hardship. They avoid the difficult task of defining a vulnerable population and remove the barriers, complexity <a href="https://doi.org/10.1177/0010414006295234">and stigma</a> that prevent people accessing support. So, although universal measures can be more expensive, they are also much more effective and inclusive.</p>
<p>There is no single solution to rising energy costs, but a range of policies could reduce bills for everyone, now and in the future.</p>
<p>Subsidies for building more renewable energy installations like wind farms and making homes more energy efficient are essential for tackling climate change and fuel poverty. But funding these through taxation rather than levies on energy bills – as is currently the case <a href="https://www.cityam.com/treasury-considers-cutting-green-levy-to-ease-cost-of-living-crisis-for-uk-households/">in the UK</a> – would reduce bills by around <a href="https://www.newscientist.com/article/2303699-energy-crisis-what-can-the-uk-government-do-to-help-cut-fuel-bills/">£160 per year</a>. It would also be fairer, because higher earners <a href="https://www.jrf.org.uk/sites/default/files/jrf/migrated/files/fuel-poverty-policy-summary.pdf">would pay proportionally more</a>.</p>
<p>Removing VAT from energy bills would save <a href="https://www.newscientist.com/article/2303699-energy-crisis-what-can-the-uk-government-do-to-help-cut-fuel-bills/">a further £90 per year</a>. Another option is to provide government loans to energy suppliers to cover the costs of wholesale gas price rises, potentially lowering bills by <a href="https://www.cornwall-insight.com/wp-content/uploads/2021/12/Options-for-suppliers.pdf">about £500 per year</a>.</p>
<p>There may well be a place for some degree of targeted financial support, but this should be as a supplement, rather than a replacement, for universal measures. And ultimately, much more needs to be done to tackle the root causes of fuel poverty and rising energy costs. This means significant investment in energy efficiency to <a href="https://www.theccc.org.uk/publication/uk-housing-fit-for-the-future/">fix the UK’s leaky housing stock</a>, and rapidly deploying renewable energy and low-carbon heating to reduce our reliance on expensive and volatile gas supplies.</p>
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<p class="fine-print"><em><span>Neil Simcock receives funding from UK Research and Innovation through the Centre for Research into Energy Demand Solutions, grant reference number EP/R035288/1. He also receives funding from the Royal Geographical Society (with IBG), and is a member of Energy Action Scotland. The views expressed in this article are his own and do not necessarily reflect the views of these funders or organisations.</span></em></p>Means-testing support for fuel-poor households will leave millions in hardship.Neil Simcock, Lecturer in Human Geography, Liverpool John Moores UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1203332019-07-14T08:56:35Z2019-07-14T08:56:35ZThey’ve cut deeming rates, but what are they?<figure><img src="https://images.theconversation.com/files/283961/original/file-20190714-173338-zx1zp9.jpg?ixlib=rb-1.1.0&rect=646%2C268%2C2554%2C1224&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Not cutting deeming rates when other rates are falling keeps people off the pension.</span> </figcaption></figure><p>Treasurer Josh Frydenberg has cut the deeming rate for large investments from 3.25% to 3%, and for smaller ones from 1.75% all the way down to 1%, <a href="https://www.abc.net.au/news/2019-07-14/federal-government-announces-600-million-pension-boost/11307454">backdated to the start of July</a>.</p>
<p>But what exactly is a deeming rate, and why does it matter so much to about one million Australians on benefits, among them around about 630,000 age pensioners?</p>
<p>It’s a topic I covered in The Conversation mid last week in an <a href="https://theconversation.com/deeming-rates-explained-what-is-deeming-how-does-it-cut-pensions-and-why-do-we-have-it-120089">explainer</a> that went all the way back to the beginning, or at least the most recent beginning, when treasurer Paul Keating brought deeming rates back to Australia’s benefits system in 1991.</p>
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Read more:
<a href="https://theconversation.com/deeming-rates-explained-what-is-deeming-how-does-it-cut-pensions-and-why-do-we-have-it-120089">Deeming rates explained. What is deeming, how does it cut pensions, and why do we have it?</a>
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<p>Before that, applicants for the pension were able to pass income tests by ensuring that their assets didn’t earn much income, a service banks and other institutions were happy to provide for them.</p>
<p>From 1991, on applicants for the age pension (and later other benefits) were “deemed” to have earned from their financial assets amounts set by the government, whatever they actually earned.</p>
<h2>Of late, deeming rates haven’t kept up</h2>
<p>For most of the past two decades both the high deeming rate (which at the moment applies to financial assets in excess of A$51,800 for singles and $86,200 for couples) and also the low deeming rate (for lesser assets) have been below the Reserve Bank’s cash rate, benefiting applicants who could earn more than those low rates while continuing to get benefits.</p>
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<p><strong>Deeming rates versus RBA cash rate, July 1996 - July 2019, per cent</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/283959/original/file-20190714-173342-lcrcvo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/283959/original/file-20190714-173342-lcrcvo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/283959/original/file-20190714-173342-lcrcvo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=215&fit=crop&dpr=1 600w, https://images.theconversation.com/files/283959/original/file-20190714-173342-lcrcvo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=215&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/283959/original/file-20190714-173342-lcrcvo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=215&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/283959/original/file-20190714-173342-lcrcvo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=270&fit=crop&dpr=1 754w, https://images.theconversation.com/files/283959/original/file-20190714-173342-lcrcvo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=270&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/283959/original/file-20190714-173342-lcrcvo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=270&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="http://guides.dss.gov.au/guide-social-security-law/4/4/1/10">Australian government, RBA</a></span>
</figcaption>
</figure>
<hr>
<p>Then, beginning with prime minister Kevin Rudd (who, to be fair to him, in 2009 delivered the <a href="https://www.sbs.com.au/news/interactive-how-australia-s-pension-system-works">biggest ever increase in the pension</a> – $100 a fortnight for singles and $76 for couples) and continuing under his successors Gillard, Abbott, Turnbull and Morrision, the government adjusted the deeming rate more slowly, meaning that as the Reserve Bank’s cash rate fell, both the high and low deeming rates ended up above it.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/283965/original/file-20190714-173366-evx51s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/283965/original/file-20190714-173366-evx51s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/283965/original/file-20190714-173366-evx51s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=732&fit=crop&dpr=1 600w, https://images.theconversation.com/files/283965/original/file-20190714-173366-evx51s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=732&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/283965/original/file-20190714-173366-evx51s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=732&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/283965/original/file-20190714-173366-evx51s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=919&fit=crop&dpr=1 754w, https://images.theconversation.com/files/283965/original/file-20190714-173366-evx51s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=919&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/283965/original/file-20190714-173366-evx51s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=919&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The new deeming rates: 3% and 1%</span>
</figcaption>
</figure>
<p>The decisions announced by Frydenberg on Sunday go a long way to putting things right.</p>
<p>The lower deeming rate will once more be close to the cash rate (exactly at the cash rate, for as long as the cash rate stays at 1%). The higher deeming rate will not be, but then it probably shouldn’t be.</p>
<p>The higher rate applies to the return on financial assets (including shares) worth more than $51,800. As Frydenberg pointed out on Sunday, many of those assets return much more, not much less, than the deeming rate:</p>
<blockquote>
<p>It could apply to superannuation returns, and that’s averaging around 5.5%. Or to yields on ASX 200 stocks, which are averaging about 4.5%</p>
</blockquote>
<p>The low deeming rate is on the face of it unfair, because few bank deposits pay 1%. The special retirees accounts offered by ANZ and the Commonwealth pay 0.25%. Many deposit accounts pay nothing.</p>
<p>But the low rate applies to financial assets all the way up to $51,800 ($86,200 for couples), and to all types of assets. Many pension applicants are likely to earn a total return on those assets well above 1%.</p>
<p>Deeming is by design, rough and ready. There will always be complaints, and of late those complaints had force. They are now back broadly where they should be.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/deeming-rates-explained-what-is-deeming-how-does-it-cut-pensions-and-why-do-we-have-it-120089">Deeming rates explained. What is deeming, how does it cut pensions, and why do we have it?</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/120333/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Often misunderstood, deeming rates are back broadly where they should be.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1200892019-07-10T20:19:29Z2019-07-10T20:19:29ZDeeming rates explained. What is deeming, how does it cut pensions, and why do we have it?<figure><img src="https://images.theconversation.com/files/283483/original/file-20190710-44497-61rmpe.jpg?ixlib=rb-1.1.0&rect=821%2C0%2C2623%2C1632&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Deeming rates began as a way to stop people cheating in order to obtain the pension.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Now it’s the Coalition that’s being accused of a “<a href="https://theconversation.com/words-that-matter-whats-a-franking-credit-whats-dividend-imputation-and-whats-retiree-tax-111423">retiree tax</a>”.</p>
<p>As interest rates have come down over the past four years, the rate that retirees are “<a href="https://www.humanservices.gov.au/individuals/topics/deeming/29656">deemed</a>” to have earned for the purpose of the pension income test hasn’t budged, meaning that although retirees have been earning less (in some cases a good deal less), they haven’t been getting more access to the pension.</p>
<p>Depending on how you look at it, it’s either been making a mockery of the idea of an income test, or making the test more restrictive.</p>
<p>So how did it happen? Why is income “deemed” rather than actually measured when determining eligibility for government benefits, and is the system hopelessly compromised?</p>
<p>It’s important to understand what deeming is and where it came from if we are to understand the debate that will ensue when the government completes its <a href="https://thenewdaily.com.au/money/finance-news/2019/07/06/deeming-rates-retirees/">review of the deeming rate</a> in the next few weeks.</p>
<h2>Where did deeming come from?</h2>
<p>Modern day deeming was introduced by former prime minister Paul Keating in his final budget as treasurer in 1990.</p>
<p>As he explained in that <a href="https://bit.ly/2xKKRtz">budget speech</a>: </p>
<blockquote>
<p>many pensioners still disadvantage themselves by holding their savings in accounts that pay little or no interest</p>
</blockquote>
<p>He was being diplomatic. It was widely believed that many retirees deliberately earned low rates on their savings in order to qualify for the pension or get a bigger pension. It cost the government money (while making the banks money) and it cost many of the pensioners money, because they lost more in interest than they gained in pension – although for those that used low earnings to ensure they at least got some pension, the associated benefits cards made it worth it.</p>
<p>From March 1991 cash and deposits were to assumed to be earning at least 10%, whatever they actually earned. If they earned more than 10% they were treated as earning more.</p>
<p>Except for the first A$2000. That was treated as earning only what it did, because many pensioners held small savings in low interest accounts for day to day purchases.</p>
<h2>How has it changed?</h2>
<p>Deeming is different today. It applies to more assets, including gold,<br>
managed investments, superannuation account-based income streams and listed shares; and it is used to assess eligibility for more benefits, including veterans and disability pensions.</p>
<p>And it’s no longer a win-win for the government. If someone earns more than the deeming rate, their income is assessed at only the deeming rate.</p>
<p>In the words of the <a href="https://www.humanservices.gov.au/individuals/services/centrelink/age-pension/how-much-you-can-get/assets-test/assets/deeming">department of human services</a>:</p>
<blockquote>
<p>if your investment return is higher than the deemed rates, the extra amount doesn’t count as your income</p>
</blockquote>
<p>There are two rates: one for the first $51,800 of financial assets (for a couple, the first $86,200) which is currently 1.75%, and the other for those assets in excess of that amount, which is currently 3.25%.</p>
<p>The threshold climbs <a href="http://guides.dss.gov.au/guide-social-security-law/4/4/1/20">in line with the consumer price index</a> each July.</p>
<p>(In its first budget in 2014 the Abbott government tried to <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/BudgetReview201415/Indexation">cut the threshold</a> to $30,000 for singles and $50,000 for couples but was thwarted by the Senate.)</p>
<h2>We deem by whim…</h2>
<p>But there’s nothing automatic about setting the rates. It’s up to the government (specifically the <a href="http://guides.dss.gov.au/guide-social-security-law/4/4/1/20">minister for families and social services</a>) to adjust them, or not, as it sees fit.</p>
<p>Both the high and low deeming rate used to be below the Reserve Bank’s cash rate (with the low rate typically 1.5 to 2 percentage points below the high rate), but after the cash rate dived in 2016 they have been left above it, in the case of the low rate, for <a href="http://guides.dss.gov.au/guide-social-security-law/4/4/1/10">the first time ever</a>.</p>
<p>The high deeming rates mean many applicants are being means tested on income they haven’t received.</p>
<hr>
<p><strong>Deeming rates versus RBA cash rate, 1996 - 2019, per cent</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/283959/original/file-20190714-173342-lcrcvo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/283959/original/file-20190714-173342-lcrcvo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/283959/original/file-20190714-173342-lcrcvo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=215&fit=crop&dpr=1 600w, https://images.theconversation.com/files/283959/original/file-20190714-173342-lcrcvo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=215&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/283959/original/file-20190714-173342-lcrcvo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=215&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/283959/original/file-20190714-173342-lcrcvo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=270&fit=crop&dpr=1 754w, https://images.theconversation.com/files/283959/original/file-20190714-173342-lcrcvo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=270&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/283959/original/file-20190714-173342-lcrcvo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=270&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="http://guides.dss.gov.au/guide-social-security-law/4/4/1/10">Australian government, RBA</a></span>
</figcaption>
</figure>
<hr>
<h2>…leaving rates curiously out of whack</h2>
<p>Back when the deeming rates were lower relative to deposit rates, each of the big four banks offered “<a href="https://www.canstar.com.au/savings-accounts/what-is-a-deeming-account-and-what-interest-rate-does-it-earn/">deeming accounts</a>” that paid the deeming rates.</p>
<p>Today none of them do. They are not allowed to call accounts deeming accounts unless they pay the deeming rate, so instead they have retitled them “retirement accounts”. </p>
<p>The National Australia Bank’s retirement account (closed to new customers) pays just <a href="https://www.nab.com.au/personal/interest-rates-fees-and-charges/indicator-rates-deposit-products">0.20%</a> for the first $10,000, well below the lowest deeming rate of 1.75%. The ANZ and the Commonwealth pay 0.25%. Westpac pays 0.3%. If you have more than $250,000 on deposit it pays <a href="https://www.westpac.com.au/personal-banking/bank-accounts/transaction/choice/deeming/">1.5%</a> on the part above $250,000, which is still lower than the lowest of the two deeming rates.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-pensioners-are-cruising-their-way-around-budget-changes-42544">Why pensioners are cruising their way around budget changes</a>
</strong>
</em>
</p>
<hr>
<p>Labor believes that not cutting deeming rates since 2015 has saved the government more than <a href="https://www.afr.com/news/economy/labor-s-deeming-rate-reduction-to-cost-1b-20190707-p524xt">$1 billion per year</a> in pension payments. It’s a significant portion of the $7.1 billion surplus it has forecast for 2019-20.</p>
<p>That is probably why the government has said it will take its decision about rates to its <a href="https://www.afr.com/news/politics/national/pensioners-face-deeming-delay-until-september-20190708-p5256u">expenditure review committee</a>, in what amounts to an admission that those decisions have as much to do with government finances as they do with treating applicants for pensions fairly.</p>
<h2>There’s actually a case for extending deeming</h2>
<p>As unrealistic as deeming rates have become, there’s a case for extending their use.</p>
<p>At the moment applicants for the pension face two means tests: one for assets and one for income. </p>
<p>Both the <a href="https://bit.ly/2LM3sxI">Henry Tax Review</a> and the Abbott government’s <a href="https://www.ncoa.gov.au/sites/g/files/net4136/f/phase_one_report.pdf">National Commission of Audit</a> recommended replacing them with a “merged means test” of the kind Australia had up until the 1970s. </p>
<p>Instead of an assets test, all assets would be deemed to earn a prudent rate of return; among them cars, holiday homes, investment properties, and high-value family homes. </p>
<p>The Commission put the case this way:</p>
<blockquote>
<p>Exempting the principal residence from the means test is inequitable as it allows for high levels of wealth to be sheltered from means testing. For example, under current rules a single person who owns a $400,000 house and has $750,000 in shares ($1.15 million in total assets) would not be eligible for the pension, while a similar person with a principal residence worth $2 million and $100,000 in shares ($2.1 million in total assets) would be able to claim a pension at the full rate.</p>
</blockquote>
<p>It’s a worthwhile idea whose time might come, but it is unlikely to come while deeming rates are seen to be unfair and capriciously set.</p>
<p>The government has an opportunity to restore confidence in deeming and pensions. The decisions it is about to make will show how important it thinks that is.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/words-that-matter-whats-a-franking-credit-whats-dividend-imputation-and-whats-retiree-tax-111423">Words that matter. What’s a franking credit? What’s dividend imputation? And what's 'retiree tax'?</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/120089/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It’s a good idea to deem income, but of late we’ve doing it badly.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/987602018-06-26T01:49:07Z2018-06-26T01:49:07ZHow superannuation discriminates against middle income earners<figure><img src="https://images.theconversation.com/files/224596/original/file-20180625-152156-1om8b5x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tax rules baked into superannuation favour those on low and high incomes. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/australian-money-aud-calculator-notebook-small-522411646?src=FcCJFb4RWMJ6dMHsPnZH_Q-2-29">Shutterstock</a></span></figcaption></figure><p>While all workers benefit from the 9% superannuation guarantee, those on middle incomes benefit significantly less than lower and upper incomes, according to my <a href="https://www.sciencedirect.com/science/article/pii/S0313592618301516">research</a>.</p>
<p>I ran simulations on the financial assets accumulated over a working life, comparing this to what would have been earned on the same amount saved but invested outside the superannuation system and earning the same rate of return. <strong>I’ve added back the last few words here as this is an important assumption in my analysis</strong> </p>
<p><iframe id="A15NZ" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/A15NZ/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>People on low, middle and high incomes are all better off under the superannuation guarantee levy. This is due largely to the concessional tax rate (a flat 15%) on income earned in the super fund. </p>
<p>But lower income earners see a lifetime gain 9% higher than for the medium earner. The high income earners receive a gain 8% greater than those on medium incomes.</p>
<h2>Ghosts in the system</h2>
<p>About <a href="https://www.aihw.gov.au/reports/australias-welfare/australias-welfare-2017-in-brief/contents/welfare-in-australia">80% of Australian government spending</a> on cash benefits to individuals and families is subject to means-testing. This includes the low income superannuation tax offset (<a href="https://www.ato.gov.au/Individuals/Super/Super-changes/New-low-income-super-tax-offset-contribution/">LISTO</a>), as well as unemployment benefits, pensions and family tax benefits. </p>
<p>LISTO provides a refund of the 15% tax paid on the super contributions. It is a way of compensating low earners for the greater sacrifice they make in forgoing current spending in favour of superannuation saving.</p>
<p>However, means-testing of the LISTO and other cash benefits is a double-edged sword. It may promote some level of fairness, but it can also discourage work through high effective marginal tax rates. </p>
<p>This is because benefits are phased out or cut completely once income reaches a certain threshold, costing the person a benefit they had been entitled to. This is essentially the same as paying a tax.</p>
<p>Means-testing of the LISTO is one way in which our compulsory superannuation levy (SGL) discriminates against middle income earners. Only employees with a taxable income up to A$37,000 are eligible for the refund and it’s capped at A$500 per year. </p>
<p>The super tax offset is lost once taxable income exceeds A$37,000, creating a jump in the effective marginal tax rate paid. This means, according to my simulations, the superannuation guarantee levy provides significantly greater gains to low income earners than middle earners over a working lifetime.</p>
<p><iframe id="S9yHg" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/S9yHg/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>And there are a lot of low income earners. In 2016, roughly <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6306.0May%202016?OpenDocument">2.9 million</a> employees (28% of all employees) were eligible for the LISTO. This figure is probably an underestimate, as the ABS data used here refers to cash earnings while LISTO is based on taxable income. </p>
<p>The top 20%, or 2 million earners, also gain more than middle earners from their superannuation. This is due to the flat 15% tax on super fund earnings, which represents a significant drop from the marginal tax rate that the high income earner would pay for equivalent savings outside superannuation.</p>
<p>A person with taxable income over A$180,000 will pay 47 cents in tax for every additional dollar earned over A$180,000. But the tax payable on additional income from superannuation earnings is just 15%. This represents a 32% concession (47% minus 15%).</p>
<h2>What we could do differently</h2>
<p>There is no reason why the superannuation guarantee levy should discriminate against one income group over another. We already have a public pension scheme to support retirement of low income earners – there is no need for superannuation to do this. </p>
<p>New Zealand’s super system, KiwiSaver, offers <a href="https://theconversation.com/what-australia-can-learn-from-the-new-zealand-retirement-system-77719">a great example</a>. KiwiSaver is <a href="http://www.kiwisaver.govt.nz/new/opt-out/">an “opt out” model</a> of superannuation. Employees are automatically enrolled when they are first employed but they can choose to withdraw their savings. </p>
<p>And unlike Australia’s superannuation guarantee, KiwiSaver allows members to suspend their contributions for between three months and five years after one year of membership. KiwiSaver funds can also be withdrawn to buy an owner-occupied house, provided certain requirements are met. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-australia-can-learn-from-the-new-zealand-retirement-system-77719">What Australia can learn from the New Zealand retirement system</a>
</strong>
</em>
</p>
<hr>
<p>The flexibility afforded by KiwiSaver means that low income earners are not forced to save through superannuation. In turn this means there is less reason to have tax concessions like LISTO to compensate low earners. </p>
<p>The absence of means-testing benefits in Kiwisaver also avoids the high effective marginal tax rates that act as a disincentive to earn higher income through employment.</p>
<p>KiwiSaver contributions and returns are taxed the same as other savings. This eliminates the gains to high earners from the concessional rate of tax on super fund earnings enjoyed in Australia. </p>
<p>The combination of these KiwiSaver features is that neither the low or high earners are advantaged relative to middle earners. </p>
<p>This is one of several aspects where the New Zealand system of taxation and government benefits is <a href="https://taxpolicy.ird.govt.nz/sites/default/files/2017-other-bim-nz-tax-system.pdf">superior</a> to Australia’s in terms of disincentives and complexity, while still allowing New Zealand to have slightly <a href="https://taxpolicy.ird.govt.nz/sites/default/files/2017-other-bim-nz-tax-system.pdf">less inequality</a> than Australia.</p><img src="https://counter.theconversation.com/content/98760/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ross Guest does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Everyone is better off under the superannuation guarantee levy, but low and high income earners see a greater benefit than those in the middle.Ross Guest, Professor of Economics and National Senior Teaching Fellow, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/450712015-09-01T16:09:30Z2015-09-01T16:09:30ZHard Evidence: do elderly disabled people get the state support they need?<figure><img src="https://images.theconversation.com/files/89498/original/image-20150723-22849-79zj71.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Who benefits from benefits?</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The UK government continues to resist calls to means-test disability benefits for older people, despite <a href="http://www.kingsfund.org.uk/publications/securing-good-care-older-people">concern</a> in some quarters that money is going to better-off people who don’t need it at the expense of those who do. </p>
<p>This resistance is surprising in view of rising costs, the large budget deficit, frequent protests about <a href="http://www.theguardian.com/business/2015/mar/11/pensioners-escaped-effects-austerity-young-suffered-most-resolution">intergenerational inequity</a> and the current government’s apparent willingness to be <a href="https://twitter.com/steveplrose/status/596602886550851584">radical</a>. The older population makes up the largest proportion of disability claimants, which would suggest that there could be room for reform and savings to be made. So is there good reason for this resistance, or is it just politics?</p>
<p>Britain’s system of public support for older people with disabilities has two elements: there is a national system of cash disability benefits administered by the Department of Work and Pensions and a Local Authority-administered system of social care.</p>
<p>Disability benefits for older people consist of two main benefits: <a href="https://www.gov.uk/attendance-allowance/overview">Attendance Allowance</a> (AA) which can be claimed from the age of 65 and <a href="https://www.gov.uk/dla-disability-living-allowance-benefit/overview">Disability Living Allowance</a> (DLA) which must be claimed before reaching 65 but can be continued past that age. Both are intended to help with the extra living costs faced by disabled people. AA has two possible rates: £55.10 or £82.30 per week, in 2015. DLA payments range from £21.80 to £139.75. And unlike benefits for social care, neither are means tested.</p>
<p>That may be because evidence suggests disability benefits are surprisingly well targeted, despite the absence of a means test. Together with <a href="https://www.uea.ac.uk/medicine/people/profile/r-hancock">Ruth Hancock</a> and <a href="https://www.uea.ac.uk/medicine/people/profile/m-morciano">Marcello Morciano</a> of the University of East Anglia, I’ve looked at the pattern of receipt of these benefits and simulated what it might look like under a different system.</p>
<p>We found that, although not means tested, AA and DLA payments to older people do end up being targeted at people on lower incomes. That’s because people on low incomes are more likely to have severe disability. And, because of their greater need, they are more likely to make a claim.</p>
<p>That’s not to say the system is functioning perfectly. Money may not be going to people who don’t need it – but those who need it aren’t necessarily getting it. Fewer than half (47%) of the 20% of older people with the highest levels of disability report receiving either AA or DLA. The extent to which the current disability benefits system misses out some of those most in need far outweighs the amount of disability benefits spending on older people whose disability costs do not push them below the poverty line.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/89499/original/image-20150723-22814-1u5twqg.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/89499/original/image-20150723-22814-1u5twqg.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/89499/original/image-20150723-22814-1u5twqg.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=357&fit=crop&dpr=1 600w, https://images.theconversation.com/files/89499/original/image-20150723-22814-1u5twqg.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=357&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/89499/original/image-20150723-22814-1u5twqg.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=357&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/89499/original/image-20150723-22814-1u5twqg.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=448&fit=crop&dpr=1 754w, https://images.theconversation.com/files/89499/original/image-20150723-22814-1u5twqg.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=448&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/89499/original/image-20150723-22814-1u5twqg.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=448&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">[DB = disability benefit; LA = Local Authority social care. Source.</span>
<span class="attribution"><span class="source">Authors’ analysis of the English Longitudinal Study of Ageing, wave 6, 2012</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>To work out who needs the most support, we need some idea of the additional personal costs associated with disability, such as adapting homes, getting help from carers and arranging transport. We used <a href="https://www.gov.uk/government/collections/family-resources-survey--2">large-scale survey data</a> to estimate average disability costs – and they are high, particularly for the most severely disabled. It seems the cost of being disabled considerably exceeds the average value of public support received.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/89500/original/image-20150723-22830-l7py3.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/89500/original/image-20150723-22830-l7py3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/89500/original/image-20150723-22830-l7py3.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=331&fit=crop&dpr=1 600w, https://images.theconversation.com/files/89500/original/image-20150723-22830-l7py3.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=331&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/89500/original/image-20150723-22830-l7py3.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=331&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/89500/original/image-20150723-22830-l7py3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=416&fit=crop&dpr=1 754w, https://images.theconversation.com/files/89500/original/image-20150723-22830-l7py3.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=416&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/89500/original/image-20150723-22830-l7py3.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=416&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Are the most in need getting the most help?</span>
<span class="attribution"><span class="source">Authors’ analysis of the Family Resources Survey 2004/5-2007/8</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>To show that means-testing isn’t necessary, we’ve looked at a hypothetical disability benefit system (costing the same as the current system overall) with no means testing, but with payments tailored more closely to the severity of disability.</p>
<p>In assessing the outcome, we are particularly concerned with reducing poverty, but it is important to adjust the poverty line to take account of the additional costs that disabled people face. It’s also important to think how best to measure poverty. </p>
<p>The simplest method is just to count the number of people below the poverty line (the “poverty headcount”), but this ignores how far people fall below the poverty line. Disability costs can be so high that there is a risk of very severe poverty. A better way of measuring poverty is to give more weight in the count to people who fall a long way below the poverty line (this is our “depth of poverty” measure).</p>
<p>The current benefit system is very good at controlling the number of people below the poverty line, but not very good at preventing very severe poverty.</p>
<p>Almost any plausible reform (including our alternative system) that stays within the current spending total tends to leave unchanged, or even increase slightly, the number of people below the poverty line.</p>
<p>But there is scope for improvement in terms of the depth of poverty, especially if take-up can be increased among the most disabled older people (compare the solid curves). Means-testing turns out to be unnecessary to achieve better targeting on people in deep poverty – and it could prove to be a barrier to achieving higher take-up.</p>
<p>Even when we remove means testing completely, the better alignment of benefit amounts to disability costs, and higher take-up among the most disabled in our hypothetical alternative system means that the number of people in very severe poverty could be much lower than in the current system.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/89502/original/image-20150723-22826-1ykghbw.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/89502/original/image-20150723-22826-1ykghbw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/89502/original/image-20150723-22826-1ykghbw.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=363&fit=crop&dpr=1 600w, https://images.theconversation.com/files/89502/original/image-20150723-22826-1ykghbw.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=363&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/89502/original/image-20150723-22826-1ykghbw.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=363&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/89502/original/image-20150723-22826-1ykghbw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=457&fit=crop&dpr=1 754w, https://images.theconversation.com/files/89502/original/image-20150723-22826-1ykghbw.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=457&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/89502/original/image-20150723-22826-1ykghbw.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=457&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Simulated poverty amongst the 50% of most disabled older people under: (i) current policy; and (ii) a hypothetical system with no means-testing and benefit levels rebalanced towards those facing the highest disability costs.</span>
<span class="attribution"><span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>So our advice to Osborne would be this – you’re probably right not to means test this kind of benefit but if you want to help older disabled people who are deep in poverty, think more about how much it actually costs to live with a disability when deciding how much everyone gets.</p><img src="https://counter.theconversation.com/content/45071/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Pudney receives funding from the Economic and Social Research Council and Medical Research Council, and has in the past received funding from the Nuffield Foundation and Age UK</span></em></p>The government faces pressure to means test benefits to stop richer elderly people claiming at the expense of their poorer peers.Stephen Pudney, Professor of Economics, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/436112015-06-22T02:34:19Z2015-06-22T02:34:19ZWithdrawing federal funding for public schooling would exacerbate two-tiered system<p>Fairfax press has <a href="http://www.smh.com.au/federal-politics/political-news/tony-abbotts-school-reform-paper-proposes-cutting-federal-funding-20150621-ghtkkz.html">reported</a> the federal government’s green paper on <a href="https://federation.dpmc.gov.au/">reforming the federation</a> has suggested four possible scenarios for school funding:</p>
<ol>
<li>Give states and territories complete funding responsibility</li>
<li>The federal government to fund independent schools, while states and territories fully fund public schools</li>
<li>Reduce overall federal involvement in schools</li>
<li>The federal government to become the major funder of schools.</li>
</ol>
<p>Given there is nearly a A$30 billion shortfall in <a href="https://theconversation.com/the-education-budget-report-card-f-for-fail-41746">school funding</a> from 2018 in this year’s federal budget, it can be assumed that number 4 is the most unlikely scenario. Given the Coalition’s commitment to <a href="https://theconversation.com/au/topics/renewing-federalism">small central government</a>, it is most likely they would support divesting in school funding, pushing back onto the states and territories.</p>
<p>The opposition has <a href="http://www.abc.net.au/news/2015-06-22/labor-condemns-proposed-fundamental-shift-in-schools-funding/6562562">condemned</a> the proposed changes. The government was quick to <a href="http://www.theguardian.com/australia-news/2015/jun/22/christopher-pyne-rules-out-rich-paying-fees-for-public-schooling">rule out</a> means-testing parents who send their children to public schools. Education minister, Christopher Pyne took to Twitter:</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"612755616591810560"}"></div></p>
<p>However, the question remains: if the federal government withdraws from funding public schools, which is looking increasingly likely, how will the states and territories pick up the slack?</p>
<h2>A two-tiered school system?</h2>
<p>The <a href="http://www.theaustralian.com.au/opinion/editorials/value-for-the-education-dollar/story-e6frg71x-1226903790451">user-pays</a> mentality should be no surprise, considering that in the past 18 months the government has attempted (unsuccessfully) to introduce a GP co-payment and privatise the university sector by deregulating fees.</p>
<p>I have argued <a href="https://theconversation.com/pyne-misses-the-point-in-education-reform-26233">previously</a> that the reform agenda misses one of the most important questions: what kind of society do we want to live in? A two-tiered system of schooling will have devastating effects on our social fabric, widening an already too large and persistent <a href="https://theconversation.com/why-poor-kids-continue-to-do-poorly-in-the-education-game-23500">equity gap</a>. </p>
<p>Under a market approach to schooling, poor students will be even <a href="http://www.smh.com.au/comment/students-captive-to-market-forces-and-unfair-school-funding-models-20131208-2yza6.html">worse off</a>. Considering the <a href="http://www.theguardian.com/australia-news/2015/jun/21/australian-inequality-rising-as-top-20-increase-wealth-and-income-report">rising inequality</a> in Australia, this will only further exacerbate the situation.</p>
<p>The 2011 <a href="http://www.appa.asn.au/content/gonski-report/Review-of-Funding-for-Schooling-Final-Report-Dec-2011.pdf">Gonski Review</a> of School Funding was a sector-blind, needs-based and equitable funding model, which had at its heart the promise that</p>
<blockquote>
<p>all students have access to a high standard of education regardless of their background or circumstances.</p>
</blockquote>
<p>Despite claiming to be on a <a href="http://www.themonthly.com.au/politicoz/november/1385419988/unity-ticket">unity ticket</a> for school funding in the lead-up to the 2013 election, the Coalition government has gone against many of Gonski’s recommendations, including the bulk of Gonski funding.</p>
<p>The focus on whether parents <a href="http://www.couriermail.com.au/news/national/wealthy-parents-could-be-forced-to-pay-for-public-schooling/story-fnihslxi-1227409005468">might have to pay</a> more to send their children to public schools is a distraction from the real situation, which is that the government is increasingly seeking to <a href="https://theconversation.com/health-and-schools-spending-growth-must-eventually-be-slowed-abbott-23622">divest</a> in public health and education.</p>
<p>Prime Minister Tony Abbott’s <a href="http://www.theaustralian.com.au/national-affairs/education/school-funding-co-payment-for-wealthy-a-matter-for-states-pm-says/story-fn59nlz9-1227409186021">statement</a> that school funding is a matter for the states and territories belies the broader federalism “reform” agenda that puts market logic at the heart of education, health, welfare and other social services; turning them from public goods to private commodities.</p>
<h2>Why we should all fight for public education</h2>
<p>A common neoliberal myth supposes that if everyone is working in their own economic, social and political interests, then it will have benefits for others. <a href="http://www.theguardian.com/business/economics-blog/2015/jun/21/so-much-for-trickle-down-bold-reforms-are-required-to-tackle-inequality">Trickle-down economics</a> is one example, with another being the argument that having a university degree <a href="http://theconversation.com/university-a-worthwhile-investment-for-individuals-and-society-oecd-31516">benefits</a> the degree-holder more than society.</p>
<p>When it comes to schooling, the argument is made that parents should have the <a href="https://theconversation.com/school-choice-no-great-love-for-the-private-path-but-parents-follow-the-money-40376">choice</a> to send their children to the best school in order to get the best education they can. This has played out in the US with the rise of charter schools, and in the UK with its focus on free schools and academies. Yet, as I have previously <a href="https://theconversation.com/education-is-a-public-good-not-a-private-commodity-31408">described</a>, such moves increase inequity.</p>
<p>The adverse effects of the <a href="http://www.theguardian.com/world/2015/jun/10/sweden-schools-crisis-political-failure-education">Swedish free schools</a> system, where the creation of for-profit schools being funded by public money has seen both decreasing educational outcomes and increasing inequality, should provide a cautionary tale for Australia.</p>
<p>Since the New South Wales <a href="http://www5.austlii.edu.au/au/legis/nsw/num_act/psao1866n33208.pdf">Public Schools Act 1866</a>, legislation has enshrined compulsory, secular and universal access to public schooling. This is not something that should be taken lightly, nor should it be cast aside with a spurious argument that it is not the responsibility of the federal government.</p>
<p>Providing universal access to high-quality education that is publicly provided is something we are all collectively responsible for.</p>
<p>Public schooling should not be seen as a safety net, providing limited education for those who cannot afford to go to a private school. Instead, it needs to be celebrated as being one of the most important foundations for a healthy democracy.</p>
<p>Access to education provides enormous <a href="http://unesdoc.unesco.org/images/0022/002296/229603E.pdf">benefits</a> to individuals and societies – increasing health, prosperity, social cohesion and political awareness – while also reducing welfare dependency, crime and incarceration rates.</p>
<p>If we are serious about our attempts to close the gap in Indigenous education, raise literacy and numeracy levels, reduce social disadvantage and provide a meaningful education for all students in Australia, regardless of where they live, then we must have a strong public education system. </p>
<p>Any attempt to undermine the fabric of public education is an attempt to undermine the fabric of society. As such, it is something that every single one of us should be very concerned about.</p><img src="https://counter.theconversation.com/content/43611/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stewart Riddle does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Fairfax press has reported the federal government’s green paper on reforming the federation has suggested four possible scenarios for school funding: Give states and territories complete funding responsibility…Stewart Riddle, Senior Lecturer, University of Southern QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/334602014-10-28T01:14:25Z2014-10-28T01:14:25ZMeans-testing child-care rebate means families are paying twice<figure><img src="https://images.theconversation.com/files/62923/original/5b55wz7t-1414453511.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Means-testing the child care rebate means some families are paying twice since their taxes already support education.</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/downloading_tips.mhtml?code=&id=193504688&size=medium&image_format=jpg&method=download&super_url=http%3A%2F%2Fdownload.shutterstock.com%2Fgatekeeper%2FW3siZSI6MTQxNDQ4MjI2NiwiYyI6Il9waG90b19zZXNzaW9uX2lkIiwiZGMiOiJpZGxfMTkzNTA0Njg4IiwicCI6InYxfDEwMTI3NTg4fDE5MzUwNDY4OCIsImsiOiJwaG90by8xOTM1MDQ2ODgvbWVkaXVtLmpwZyIsIm0iOiIxIiwiZCI6InNodXR0ZXJzdG9jay1tZWRpYSJ9LCJnTW9IVWRPQk5iTVJCQ3E3SEZZS3NsS0E5Nk0iXQ%2Fshutterstock_193504688.jpg&racksite_id=ny&chosen_subscription=1&license=standard&src=DdoEc6datjCFFMF6RbQqgw-1-9">Shutterstock</a></span></figcaption></figure><p><a href="http://www.dailytelegraph.com.au/news/nsw/childcare-rebate-faces-new-means-test-for-highincome-earners-under-push-to-include-nannies/story-fni0cx12-1227102127566?nk=8ef12a7e6d4a6ec55eb56147663b6635">Recent media reports</a> suggest that the <a href="https://education.gov.au/productivity-commission-inquiry-child-care-and-early-childhood-learning">Productivity Commission into Child Care and Early Childhood Learning</a> will recommend that the simplified single-payment child-care rebate is means-tested. This is not unexpected given that the new rebate combines both the current child care rebate (not means-tested) and the means-tested child care benefit in the one payment - the precedence for means-testing already exists. But is it really necessary?</p>
<p>Providing a means-tested rebate in which the most needy families receive rebates of up to 90% of child-care costs, middle-income families receive 50% and the most wealthy receive a minimum 30% rebate seems fair in a country where the average full-time yearly salary is <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6302.0">around $75,000</a>.</p>
<h2>Making wealthier families pay twice?</h2>
<p>Those who “do not have” receive more, and those who “do have” receive less. It cannot be denied that the most vulnerable and needy families should receive additional rebates to encourage participation in early childhood and preschool services for children in these families. The long-term social and economic benefits of attendance at early childhood services with well-qualified educators and teachers is well known - particularly for our most vulnerable children. </p>
<p>This suggests that rebates should be based on need. That leads to the argument that the wealthy have the money to fund their children’s care and shouldn’t receive the same benefits as middle-income families. Wouldn’t it be better if their rebates were reduced and the monies redirected to families in greater need? </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/62924/original/m68xzszp-1414453690.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/62924/original/m68xzszp-1414453690.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/62924/original/m68xzszp-1414453690.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=398&fit=crop&dpr=1 600w, https://images.theconversation.com/files/62924/original/m68xzszp-1414453690.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=398&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/62924/original/m68xzszp-1414453690.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=398&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/62924/original/m68xzszp-1414453690.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/62924/original/m68xzszp-1414453690.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/62924/original/m68xzszp-1414453690.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Early childhood learning is fundamental to development in the early years - especially when the child is from a disadvantaged background.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/downloading_tips.mhtml?code=&id=129864989&size=medium&image_format=jpg&method=download&super_url=http%3A%2F%2Fdownload.shutterstock.com%2Fgatekeeper%2FW3siZSI6MTQxNDQ4MjQ2NSwiYyI6Il9waG90b19zZXNzaW9uX2lkIiwiZGMiOiJpZGxfMTI5ODY0OTg5IiwicCI6InYxfDEwMTI3NTg4fDEyOTg2NDk4OSIsImsiOiJwaG90by8xMjk4NjQ5ODkvbWVkaXVtLmpwZyIsIm0iOiIxIiwiZCI6InNodXR0ZXJzdG9jay1tZWRpYSJ9LCJwMnM2ZHB1L2lDWFh2NHYzeGJZWFBlemhqcTgiXQ%2Fshutterstock_129864989.jpg&racksite_id=ny&chosen_subscription=1&license=standard&src=a0esuCWb_tHGa3kzQZX_Sg-1-24">Shutterstock</a></span>
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<p>However, when one considers that people on higher incomes pay higher taxes and contribute more to the pool of money used to provide education, health care and other services - as well as contributing to the overall economy through higher levels of spending - the above argument loses ground. </p>
<p>It can be argued that with means testing, these families end up paying more for a service to which they have already contributed through their taxes and to which they are as entitled to as a family. Since they have already contributed to the system, they should not have to pay more to use it. </p>
<h2>What’s the magic cut-off number?</h2>
<p>A key issue with means testing is the cut-off point for decreasing the average rebate. This is complicated and is not just about income. It is exacerbated by the number and ages of children in the family - the more children under school age, the greater the costs of early childhood education and care.</p>
<p>So what is the cut-off point for reducing the rebate and what economic modelling will be used to determine it?</p>
<p>Means testing is complex and adds layers of bureaucracy to a system that could otherwise be simple and economical to administer. Assistant Education Minister Sussan Ley has advocated a streamlined, single-payment child rebate system; means testing will add unnecessary layers of complexity and cost and result in a system that is far from simple.</p>
<p>The Productivity Commission is to be commended for considering greater flexibility in the types of child care to which the rebate can be applied - including nanny and other home-based care – enabling families to choose types and combinations of care best suited to them and their children. Let’s not add to this new complexity by means-testing middle and upper-income families.</p><img src="https://counter.theconversation.com/content/33460/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kay Margetts consults to early childhood organisations and primary schools. She is affiliated with the Melbourne Graduate School of Education and the Association of Graduates in Early Childhood Studies.</span></em></p>Recent media reports suggest that the Productivity Commission into Child Care and Early Childhood Learning will recommend that the simplified single-payment child-care rebate is means-tested. This is not…Kay Margetts, Coordinator: International Baccalaureate Education Program, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.