What do Scott Morrison and Vladimir Putin have in common? For one thing, they’ve both backed down from proposals to lift the eligibility age for the public pension.
In Putin’s case, it’s only a partial back down, but the fact there was any back down at all in Russia’s pseudo-democracy shows the intensity of opposition that withdrawal of social benefits can arouse in any country.
In Australia, the proposal to lift the eligibility age to 70 — a leftover from the 2014 so-called ‘austerity’ Budget two prime ministers ago — probably never stood a chance in our increasingly populist climate of public policy formulation.
The pension age is already being increased to 67 — a gradual adjustment set in train by the Gillard Labor government — and will reach that level in 2023. Increasing it further to 70 by 2035 was an option flagged in a Productivity Commission research paper in 2013, and in 2014 the Abbott government’s National Commission of Audit recommended linking the pension age to life expectancy from 2033, which it expected would lead to an eligibility age of 70 by 2053.
The Abbott government decided to run with the earlier savings generated by the Productivity Commission’s option, which the Commission estimated at more than 0.2 per cent of GDP every year in the long-run, and about half that after allowing for more people coming on to the disability support pension as a direct result of the change. Even at 0.1 per cent of GDP, the saving would be $1.8 billion a year in today’s dollars, which is larger than most individual budget saving measures.
This would have had no bearing on the budget estimates for many years — and in that sense Morrison’s back down is of no immediate consequence. However, it is exactly the kind of measure needed to address the long-term fiscal gap identified in reports such as the government’s own Intergenerational Report. Moreover, it would not have taken away anything currently being received by any voter, and would not even have reduced the future pensions of anyone born before 1 July 1958.
Seventy may not have been exactly the right number — and the idea of establishing an automatic link to life expectancy may have been better — but it is still regrettable that governments think they can no longer sell policies of this kind.
The back down is a sign of the times. As Terrence O’Brien and I discuss in our new CIS Policy Paper ‘Voting for a Living: A shift in Australian politics from selling policies to buying votes’, it is just the kind of thing we can expect to happen in a democracy when an increasing majority of its voters receive net benefits from government or are employed by government, while only a diminishing minority is left to pick up the net tax burden.
A recent Australian Bureau of Statistics (ABS) statistical release suggests that in 2015-16 close to half of Australian households received more in benefits (broadly defined to include in-kind as well as cash benefits) than they paid in direct and indirect taxes. When the number of public sector employees is added, there is close to a majority of voters benefiting more from the government than they contribute.
What is surprising is not that some households benefit from the tax/transfer system, but that so many do. It’s not just the lower income groups — as could be expected — but also those in the middle household income quintile (on average).
The creation of such a large population of net beneficiaries, through the incremental expansion of government benefits over the decades, could be placing pressure to swing policies towards the preservation of existing benefits and crafting of new benefits, while largely restricting new taxes to higher income households and selected businesses.
Not only will voters agitate to keep existing benefits and receive new ones, but political parties will also curry favour with this group and become more interested in buying votes than selling good policies. The government’s abandonment of age 70 eligibility — and Labor’s opposition to this proposal from the time it was announced — should be seen in this context.
When Scott Morrison meets Vladimir Putin, they should compare notes.
Robert Carling is a Senior Fellow at the Centre for Independent Studies.
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