It is laudable that the demographic problems are being spoken about in public by senior government ministers albeit many years after it was first identified.

However, there is a basic inconsistency between the government's public statements today about an aging population and its actual policy.

On the one hand, we are warned that we must work longer, get more adults into the workforce, we must all work harder and smarter, and we must all try to live healthier lives to solve a potential financial crunch which begins to bite in about 13 years time and is expected to get steadily worse from that point on.

Note: superannuation is staying at 9%. Not one cent more unless the employer and employee want to do it voluntarily. But the government announced today that it wants to double the percentage of employees who participate in employee share schemes to 11% by 2009.

"There is no need for panic measures, but there is a need for careful and determined policy," Peter Costello recently commented.

This comment is based on the premise that the budgetary problems caused by ageing arise in 40 years time. They are projected to reach their peak in 40 years time and will be very apparent by then. But these problems are already with us but we aren't suffering from them to any extent.

In other words, the government does not appear to be entirely truthful.

I don't buy the line that we have lots of time on our side. We have a bit of time, but not much.

In a number of places the government's documents state, "the people who will be carrying the tax system in 40 years time have already been born."

If we are talking about 13 years time when the federal budgetary deficits begin to appear, then this statement is absolutely correct. But this statement assumes that someone born in 2005 will not do any work before age 39. Well, if they can get away with that, good luck to them. Perhaps what this statement is really trying to say is that in 2040 we will not have enough people born after today and before 2015 to make a sufficiently sizeable contribution to tax collections. If this is the case, why not say it?

The government claims a number of times that, "it was decided in 1997 that the preservation age will increase to 60 years by 2024." This is incorrect. This policy was first released in 1992 by John Dawkins in his ‘Security in Retirement’ document.

In all this, the government has refused to consider dropping it's spending. This will please some of you and annoy others. Personally, I don't see why we shouldn't have a debate about how much the government spends. One of the reasons our tax rates are so high is because of the spending demands on government. Reduce those demands and you reduce the amount of tax you need to raise.

Nothing in recent government announcements make significant tangible differences to the identified problems. These changes probably reflect how far the government can push the policy agenda in an election year. Perhaps further changes might become politically possible in some future period.

If the government were really serious about solving these problems, it would introduce the following measures:

• Immediately begin increasing the aged pension age by at least 0.5 years for each calendar year for the next 20 years and longer if necessary; within this there would have to be serious consideration to applying this to all pensioners and income recipients.
• The current Centrelink benefit structure doesn't penalise for the wasting or overspending of money and assets; it is not uncommon to hear of people who spend up on disposable assets to improve their aged pension or other types of benefits; this is the same problem as being allowed to take lump sums from super and not use the proceeds to buy a pension; if you banned lump sums from super, some people wouldn't use super if there were restrictions on how assets had to be used elsewhere in the benefit system.
• For Centrelink assessment test purposes, count the market value of the family home where the value of the premises is greater than the median house/unit price for the local area or city (in other words, exemption is provided up the median house/unit price; the market value above this figure would be assets tests counted and deemed for income tests counted).
• Review the size of tax concessions that retirees can receive; many retirees of quite considerable wealth hardly pay any income tax because of tax rebates; the Howard Government has introduced most of these measures and perhaps these can't be afforded.
• Require disclosure of how super funds have generated their performance – income or capital gains and the consequent tax imposts.
• Develop funding arrangements for long term health and aged care.

You have your say. What do you think?

Source :Tony Negline All Things Considered.biz