Let older Australians work, Liberal MPs tell Frydenberg

Article by Shane Wright courtesy the Sydney Morning Herald.

Liberal Party backbenchers are pushing Treasurer Josh Frydenberg to use next week’s budget to unleash a “grey army” of retired workers to boost the nation’s stretched employment market, calling for an end to an effective tax rate of more than 60 per cent on their incomes.

In a policy that has strong support from retiree groups and even mining billionaire Gina Rinehart, several backbench members are pressing for Mr Frydenberg to trial a system under which people on the age pension could work without their entitlement being reduced.

Businesses are reporting difficulties finding staff in most industries, particularly in hospitality and sectors reliant on skilled migrants. Unemployment has fallen to a 14-year low of 4 per cent and the budget is expected to forecast the jobless rate will be even lower by year’s end.

This week, the Committee for Sydney used its federal election agenda to call for changes that would allow international students who completed a local university degree to have access to a four-year work visa and an easier path to citizenship.

But a group of Coalition MPs believes the government should tap the large number of retirees already in the country who face severe financial penalties even if they work one or two extra days a fortnight.

Under current rules, a single person can earn up to $480 a fortnight without affecting their pension entitlement. Beyond $480, the pension is reduced at 50¢ for every dollar in income or an effective marginal tax rate of 50 per cent. That rate climbs above 60¢ in the dollar as income tax thresholds start to affect their pay.

The high tax rate has been blamed for the tiny proportion of pensioners who work. A briefing paper being circulated by those calling for change says fewer than 3 per cent of Australian pensioners earned income from paid work compared to almost 25 per cent in New Zealand, where people can work without losing their pension.

The briefing paper, a copy of which has been seen by The Sydney Morning Herald and The Age, argues if Australia matched New Zealand’s participation rate, an extra 445,000 people could enter the workforce. It also claims that if married pensioners earned $80,000 a year, the income tax they paid would cover the cost of their pension.

Advocates believe worked income should be excluded from the pension income test. A person would then pay the normal marginal tax rate on their weekly wage.

The issue has gone to members of the expenditure review committee, where there has been push-back against the policy although there has yet to be any formal costing.

One of the backbenchers involved, speaking on condition of anonymity, said the government could deal with cost-of-living issues and labour shortages at the same time by at least trialling the policy.

“Current tax arrangements are a huge disincentive to older Australians who choose to work extra hours and benefit from the financial and social opportunities work presents,” they said. “Small businesses are seeking immediate solutions to day-to-day economic challenges and this would provide welcome relief to business owners across Australia.”

National Seniors’ chief advocate, Ian Henschke, said the worker shortage facing businesses could be addressed by giving pensioners a proper financial incentive to remain in employment.

He said the tax arrangements around the pension meant it was virtually worthless for a person to work more than one day a week.

“We have a grey army out there to work if the right incentives are offered to them. At the moment, you’re asking people to lose more than 60¢ in every dollar they earn and go through the hassle of Centrelink checking on everything they earn,” he said.

“If people want to work, let them and make it easy for them. At the moment, we have a system that actively discourages people from working.”

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