A generation of parasites

If James Packer was down to his last $60 million, with no more than the apartment he recently purchased in the Crown Sydney Residences in Sydney plus less than $263,250 in the bank, or $394,500 if he was to remarry, he would be eligible for an age pension when he turns 67.

Packer has paid significant taxes in Australia all his life, as have his companies. If entitlement to a pension is a reflection of the gratitude of a nation towards those who have contributed, he is more than entitled.

He has 15 years before he reaches pension age, allowing time to rearrange his finances to meet the eligibility criteria. Options include giving money away, although not in the five years prior to reaching pension age, spending it on expensive holidays (right up until the date of assessment), and investing in upgrades to the apartment (on which there are no limits).

He would not be unusual if he did any of these. Every year, tens of thousands of Australians give money to their children, buy funeral bonds, take overseas trips and upgrade their home, simply to qualify for the pension. There is no shortage of specialist financial advisers helping them do it.

Most people would agree that someone with a $60 million apartment should not be eligible for a pension. And yet, with the family home excluded from the pension assets test, that is the reality.

Obviously, Packer is highly unlikely to be interested in qualifying for the pension. But there are a lot of people with homes worth $10 million, $5 million or $1 million who are very keen. According to an analysis by the Australian National University, more than 255,000 live on taxpayer-funded pensions while owning homes worth more than $1 million. Almost 30,000 of them live in homes worth more than $2 million.

The cost of paying pensions to people in houses worth at least $1 million is more than $6.3 billion a year, of a total cost to taxpayers of about $50 billion for all age pensions. This enormous cost of pensions is a major reason it is so difficult to return the budget to surplus. Moreover, quite a lot of those taxpayers are actually a lot less wealthy than those receiving a pension, particularly the ones with multi-million-dollar houses.

I am a firm believer in the effect of incentives on behaviour. Fairly obviously, the incentive to qualify for the age pension, including both the income, health benefits and various discounts, is enormously strong. The baby boomer generation, of which I am a member, has responded to this by learning how to take advantage of it, at massive cost to other generations. They have become, quite literally, a parasitic generation.

Clearly, the incentives need to change so the age pension returns to its original purpose. This should occur gradually and reassuringly, so that those affected have time to adjust to the fact that they are not poor and can look after themselves, but it absolutely must occur. The country cannot afford to be generous to those in need if it is being generous to those who are not in need.

The baby boomers will of course trot out their objections: I've paid taxes all my life; the government promised everyone a pension in 1945; you are forcing me out of my house; it's not my fault my house is worth so much; why should my profligate neighbour get a pension and not me; and, this is stealing my kids' inheritance. The assistance of younger generations may be needed to point out why they are wrong.

As to what pension eligibility ought to be, there are several options. One is to include an imputed return on house values in the income test. That would require the government to place a value on dwellings, but the median value of houses, units and townhouses by town or suburb is easy enough to work out.

Another might be to relax the eligibility criteria but treat pensions as taxable income, creating an incentive to generate additional cash including through the release of equity in the family home.

There are other options too but, irrespective of how it is achieved, something must be done. It is simply immoral for taxpayers who don't even own a house to be funding the pensions of those who could be living in a $60 million house. Incentives that promote parasitism cannot be defended.