As the silver tsunami of retirees crashes over the Australian economy, there are growing calls for reform to keep the tax and welfare system fair and sustainable. The Age Pension is no longer viewed as an entitlement, but tweaks to how recipients are assessed for eligibility could be a key policy change to shore up the national budget, experts say.
“The welfare system in this country is coming to a reckoning. We know that in the next 10 to 15 years, the demand on the welfare system is going to absolutely exceed what it’s ever seen before,” says economist Evan Lucas, who is among those who have sounded the alarm about welfare payments growing faster than the economy.
“As more and more of us retire, that age pension, the way we use childcare subsidies, all of these kinds of indirect inputs, and blanket subsidisation is going to make the welfare system incredibly weighed down … which means we need new thinking.”
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“It is the kind of thinking that we might get dragged to kicking and screaming whether politicians like it or not,” Evans told Yahoo Finance.
He was referring to ideas put forth by the Policy Institute Australia (PIA) to tighten means testing for the Age Pension and the concept of a government run HECS-style system meaning wealthy retirees in expensive properties would draw down on the value of their family home for cash payments to fund retirement.
Appearing on his podcast, Exchanges with Evan Lucas, PIA CEO Amy Auster said the think tank wanted to apply the same lens of generational equity that was used to justify increasing capital gains tax and apply it to the transfer system.
“I’ve got to say, I was even surprised by how inequitable the distribution in our transfer system has become,” she said. “Not through design, but more because it’s been set up in a different time, especially with regard to the pension.”
A recent report by the group highlighted how asset rich homeowners living in a $5 million Sydney property can arrange their affairs to still claim a public pension from the taxpayer.
The Age Pension is the second largest federal government expense each year, accounting for 8.4 per cent of the budget in 2024-25, according to the National Audit Office. It costs taxpayers more than $62 billion, but the current means test rules see “substantial benefits” flow to the top 20 per cent of households by wealth, the Institute said.
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