May 30th 2009

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Articles from this issue:

CLIMATE CHANGE: Solar inactivity points to further global cooling

EDITORIAL: Australia's biggest financial scam?

CANBERRA OBSERVED: Next generation to pay for Swan Budget

NATIONAL AFFAIRS: Fund infrastructure with a development bank

DEFENCE WHITE PAPER: Glaring flaw at heart of government defence thinking

ASIA: Will China "liberate" the South China Sea?

FOREIGN AFFAIRS: US auto industry meltdown highlights financial collapse

UNITED KINGDOM: Unrestrained greed caused banking crisis

HUMAN RIGHTS: A bill of rights will diminish our freedoms

ILLICIT DRUGS: Cannabis use linked to suicide, schizophrenia

EDUCATION: The Frankfurt School and the war on the West

OPINION: The forgotten factor: land prices

Bill of rights vs. common law (letter)

Beware of 'Plimer contrarianism' (letter)

CINEMA: Cold War metaphor encoded in vampire movie

BOOKS: THE HORNET'S STING: The Amazing Untold Story of WWII Spy Thomas Sneum, by Mark Ryan

BOOKS: HEROES: From Alexander the Great to Mae West, by Paul Johnson

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Next generation to pay for Swan Budget

News Weekly, May 30, 2009
The Treasury is seeking to shrink the number of years that the Government will need to look after the elderly in the future.

Kevin Rudd was certainly on the money when he nominated the Government's decision to raise the eligibility age for the old age pension to 67 as the "toughest decision" in the Budget.

Whether the Government had done some private polling beforehand, or whether he understood instinctively that tampering with the pension was a political minefield, we will never know.

But callers to talkback radio, letters to the editor, and newspaper polls after the Budget showed strong reactions to the policy, which will keep people in the workforce for an extra two years.

Even the fact that the measure will be phased in over time did little to allay people's concerns.

However, the Government will have an even greater political hot-potato on its hands if it follows through with another Treasury recommendation to raise the superannuation preservation age from 60 to 67.

Under the changes, the old-age pension eligibility age will gradually be increased to 67, at a rate of six months every two years.

The transition period starts in 2017 and finishes in 2023 and will only affect new entrants to the pension system, not current age pensioners.

The oldest person affected by the pension reform will be 57-years-old on July 1 - their pension age will increase by six months to 65.

But every Australian born after the key birth date of January 1, 1957, will have to work until 67 to be eligible for an old age pension.

The second recommendation to increase the superannuation access age is from Treasury chief Dr Ken Henry as part of his rolling review of the entire taxation system.

Currently, people born before July 1, 1960 can get hold of their superannuation nest egg at age 55; but people born after July 1, 1964 have to wait until they turn 60.

Tampering with retirement policy is a highly sensitive issue because, unlike lifting excise on alcohol or tobacco or tightening eligibility for temporary welfare, people actually plan for their post-work future over a long period of time.

And there is both an expectation in Australia that the Government should look after the elderly and a deep cynicism about superannuation, which is really a privately-funded pension designed to replace the government version, but is vulnerable to government meddling which will decrease its worth.

The changes are partly designed to force people to save their super for another two years.

Delayed retirement

But for those in occupations where physical work takes a long-term toll on health, the prospect of delayed retirement is almost untenable.

Many others in their late 50s or early 60s are eased out of the workforce or made redundant to make way for younger workers.

This was happening during the boom time and, despite all the talk about valuing older workers and official efforts to stop discrimination on the basis of age, it will accelerate now that unemployment is on the rise.

The raising of the pension age will therefore mean the creation of a poverty trap for people in the limbo years between being voluntarily or involuntarily phased out of the workforce and before being eligible for the pension.

In this situation, these people will have no choice but to fall back on the dole or the disability pension.

For those who can still work, but who are waiting to get hold of their super nest egg, they will have to mark time, possibly in low-paid or part-time work.

The real object for the Treasury is in shrinking the years the Government will need to look after the elderly in the future.

Average life expectancy has increased dramatically over recent decades to 79 years for men and 84 years for women and will probably increase further over the coming couple of decades.

The latest changes mean the Government's obligation to provide for the material needs of people will be reduced from 19-14 years to 17-12 years - a considerable saving.

The Rudd Government has given itself time to make some far-reaching reforms in the area of retirement policy.

Had the boom not ended so abruptly it was likely that Labor would have increased the compulsory super contribution beyond 9 per cent.

Instead, it is concentrating on ways to make people save longer, and to delay paying the pension while preparing the way for more restrictions on how people can access their superannuation.

In his final years as federal Treasurer, Peter Costello introduced several measures to make super highly popular.

Generous salary sacrifice arrangements, whereby people over 50 could pour up to $100,000 into super, and $50,000 if they were under 50, and pay just 15 per cent tax, have been cut in half by Wayne Swan.

The other two attractive measures - axing the exit tax and permitting access to the entire nest egg - remain in place.

In reality, the Rudd Government made a minor change to retirement policy which brings Australia into line with other countries.

The really difficult decisions are still to come, and the Government knows they are vote-changers.

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