What is the Productivity Commission?
The Commission is an independent review body comprising a chairperson and between four and eleven commissioners, appointed by the Governor General, for periods of up to five years.
The Treasurer may appoint Associate Commissioners on a Part or Full-Time basis.
A body of public servant staff (197 in 2012) serves the Commission.
It provides a research and advisory role on a wide range of economic and social issues with economic implications, at the discretion of the Treasurer, and reports through Treasury to the Australian Parliament.
The Commission has evolved from the Tariff Board of the 1920’s, and the Industry Commissions of the 1970’s and 1980’s. The Productivity Commission of the present day was created by the amalgamation of three industry bodies in 1996, and established by enactment in 1998 to be Independent in its opinions, Transparent in being open to public scrutiny, and endowed with a Community Wide focus, not biased to particular interests or sectors of society.
The Productivity Commission Research paper on the economic implications of Ageing for the future
Their paper is entitled: “An Ageing Australia: Preparing for the Future“. It has just been released and has drawn headline media coverage and has been reported in the Guardian.
From these reports, and in particular an article in the Sydney Morning Herald by Peter Martin, published November 22, 2013, entitled “By 2060, Australia’s population likely to reach 42 million, says Productivity Commission paper” the Commission has provided revised predictions on the rate of ageing of Australia’s population.
These are at odds with those of the Bureau of Statistics figures, which assume that there will be no further progression of the rate of ageing, and the proportion of the population surviving into very old age.
The present life expectancy at retirement aged 65 is 19 years.
The Commission argues that a child born today will have a life expectancy at 65 years of a staggering (literally as well)29 years. This change if it eventuates, will create a major funding burden for government. If costs are not pruned they estimate that by 2060, Australians will have to pay an extra 6% of GDP in tax.
The proposals are:
- to lift the retirement age further. It is set to be 67 in 2023. The proposal is for it to be 70 by 2035.
- that care for the elderly be increasingly self-funded from their home equity.
The selling point for these measures is the pitch that they will reduce the tax burden for working Australians.
Implications for elderly Australians
These are changes that seem logical to a relatively youthful panel of Commissioners. All that needs to be done is to reduce government expenditure obligations, by pruning benefits to the elderly. But doing this will have a major impact on ageing Australians, not just the retired, but those approaching retirement.
ACTU President Ged Kearney has expressed the catch in rationale succinctly when she argues that “the proposal by the Productivity Commission ignores the reality that while life expectancy may have risen, the ability of Australians to work in physically demanding jobs or maintain secure employment hasn’t risen with it”.
The Commission makes a mistaken deduction that increased survival from improved medical care, and standards of living will lengthen working life. The population may be surviving longer, but the capacity to work, and to compete in the work force, has not. Most retirees are living longer but with an increasing array of medical issues to contend with.
There is another issue to consider, an issue of fairness. Setting the retirement bar higher by five years will deny those who die between 65 and 7o of a period of retirement.
Workers should have already funded their retirement in the taxes they have paid. A prudent government will preserve and invest sufficient tax to at least cushion the impact of rising costs. It may be a question of government priorities but a deserved and eagerly anticipated period of retirement, even if brief, should be the right of every tax-payer. Nor should they feel obligated to forfeit benefits for the sake of current tax-payers.
Are the life-expectancy predictions reasonable?
The Commission has discounted the predictions of the Bureau of Statistics. It is a big call to lift life expectancy by a decade to 94 within the next fifty years. Medical care may have created a more-favourable environment for survival, but will there be significant further advances in medicine during the forecast period, to add another ten years of life, and will they be fruitful years?
I suspect that these figures are a worst case scenario, calculated to alarm, and to persuade the public to accept drastic change.
The government can reduce costs with more funding for home care
Many elderly dread the prospect of having to leave their home, for a nursing home bed, or hostel unit. Of course the time does usually come when they have no choice but to move and accept their loss of independence.
However money spent to keep them in their homes as long as possible is money well spent in avoiding more expensive institutional care.
It is overly optimistic for governments to expect the aged to remain in the work-force, but the next best thing is more them to be helpful and independent within the general community in their own-home.
I would like to see continued home ownership encouraged with relief from rates and taxes, rather than have them forced out of their homes through insufficient income, and losing most of their remaining capital.
I like the provisions the Canadian government has taken to provide retirement benefits, measures that have Canadians substantially better of. They too have been adopting measures to cope with the problem of an ageing demographic.
The Canadian Pension Plan
Australians benefit from various pensions for age, sickness and disability budgeted for out of general revenue. Perhaps it is time to change our system to a contributory one, with a portion of the taxes paid allocated to social security costs, with the objective of balancing costs with revenue.
The Australian government could well take a closer look at the measures Canada has adopted, measures that have given their citizens a financial edge over Australians at retirement.
The Canadian Pension Plan is funded by employee/employer contributions which were increased in 2003 to 9.9% of annual income to a ceiling amount. Whilst this does not fully fund the government budget, it provides a reserve and stability of contributions to meet the growing costs for the foreseeable future. To increase the proportion already funded, the CPP Investment Board has been created.
A reduced pension is payable from age 60, and a disability pensions if required.
The government provides a deferred taxation benefit for voluntary and/or employer superannuation contributions to Registered Retirement Schemes. Advances from savings can be obtained to fund further study, and for home purchase.
A political background?
The Productivity Commission has conducted annual reviews of funding needs for Aged Care since 2010/11 at the behest of the Labor Treasurer.
Labor proposed reducing taxation concessions on superannuation lump sums, and would have liked to prune expenditure on the Aged Pension too if it had retained office. This was a feasible measure to offset the growing budget deficit.
I would expect that the new Coalition government will adopt a different approach that will largely preserve the present retirement benefits.
- Productivity Commission Proposes No Aged Pension Until 70 (technicality.me)
- Govt warned about raising pension age (skynews.com.au)
- Coalition rejects lifting pension age (smh.com.au)
- Keep working to 70 (abc.net.au)
- By 2060, Australia’s population likely to reach 42 million, says Productivity Commission paper (smh.com.au)