21 September 2012

4 Parliaments - single age pension

It's time for another 4 Parliaments comparison post, where we take a look at how changes in the tax transfer system over the last 4 Parliaments have affected a particular group.  This time it's single age pensioners.  Previous posts on this theme looked at single Newstart allowance (here), single parents (here) and single income couples on Newstart allowance (here).

As with the earlier posts, I'll start with a chart showing the change for all 4 Parliaments and then look at each Parliamentary term in a bit more detail.  So, first up is the comparison chart, which at first glance looks like a black canvass with strands of coloured spaghetti plastered over it.

Chart 1

(click to enlarge)
The figures in this chart and those that follow are in July 2012 dollars. The chart is showing how net incomes (ie, after tax and transfer adjustments) changed over the term of each Parliament.  These are CPI adjusted and so represent the so-called real change.  The charts don't incorporate wages growth so bear in mind that losses caused by changes (or a lack thereof) in the tax-transfer system may be more than offset by wage increases.  (I have a separate post that strays into wages territory here.)

In Chart 1, the standout feature at the low income end of the scale is the increase in disposable income under Parliament 42 (Rudd-Gillard).  Again at the low end, the worst outcomes were under Parliament 41 (the final Howard government), although at the high end that government provided the largest increases.  In contrast, the current government (Parliament 43 - Gillard) is so far producing net reductions in income for higher income folk.
Next up is a more detailed look at Parliament 40.

Chart 2

(click to enlarge)
There's not really much going on here.  The age pension grew in real terms because it was (and still is) benchmarked to wages (Male Total Average Weekly Earnings, or MTAWE), and wages have been increasing at a faster rate than the CPI (one of the other measures used to reset pension rates). 
We also have some gains at the higher income end due to tax cuts, but these are somewhat anaemic compared to what was delivered in the next Parliament...

Chart 3

(click to enlarge)

Tax cuts are the most obvious feature of this Parliament, but a closer inspection reveals a couple of other small items appear on the scene - utilities allowance (UA) and seniors concession allowance (SCA).  The first of these was a payment introduced to all pensioners except those getting parenting payment for single parents.  SCA was for people of age-pension age who weren't getting an age pension but who had a seniors concession card.  You can see it as the smallish grey item that appears just at the point age pension stops.  These two payments added to the package of assistance provided to people of age-pension age.  There was also another small payment not shown in this chart - telephone allowance - but it did not markedly change in real terms (up or down) and so would not show up even if included. 
Pensioners also attracted a pharmaceutical allowance and a pension supplement.  However, both of these were technically an increase in the pension rate rather than a separate entitlement and so in these charts they are incorporated into the pension plot.
I mention these small payments at some length because in the next Parliament they were bundled together into a new-fangled, bigger pension supplement...

Chart 4

(click to enlarge)

Here we can see (or can't fail to see!) a substantial increase in the single pension rate.  I've seen it described as the largest single increase in pension payments in the history of age pension and I've no reason to doubt it.  It followed the recommendations of a review (often referred to as the Harmer review) into pension payments.
What you can't see here, because this post is about single age pension, is how much bigger the increase for singles was compared to age pension couples.  That's because one of the review findings was that the single pension rate was too low relative to the amounts paid to couples.  So as well as the review providing a general increase that went to both singles and couples, singles were further boosted by the change in relativities between single and partnered rates.
We can also see that utilities allowance and the telephone allowance show up as negative amounts.  That's because they were replaced by the bigger pension supplement referred to earlier.  Note also that there's a second spike in the age-pension increase caused by a relaxation of the income test on some earned income (unearned income actually became subject to a tougher test).
At the point where the pension stops there is a new payment - senior supplement - which replaced the former SCA.  At incomes beyond this point it's tax cuts and a reduced medicare levy surcharge, but they pale compared to the pension changes.
Now we come to the current Parliament...

Chart 5

(click to enlarge)
The increase in pension here is much like that in Parliaments 40 and 41 - driven by MTAWE.  The small spike in the pension at around $10,000 reflects further tweaking of the income test on earned income.  The bright green plot reflects the carbon pricing compensation - the clean energy advance or CEA.  Beyond the income point at which pension stops, the net incomes have declined in real terms.  This is likely to continue for two reasons.  First, the Government intends removing a tax offset currently available to mature age workers (those aged 55+), and second, inflation. 
The paler green regions that represent medicare show declines as a result of the new 3-tier medicare surcharge and private health insurance rebate arrangements.  In all my charts no private health cover is assumed, so that the effect of the surcharge can be seen.
From the above charts we can see that single age pensioners have had above-CPI, or real increases in each of the 4 Parliaments.  Just how generous this has been is perhaps best illustrated by looking at the total change over the 4 Parliaments and comparing it to what has happened to single Newstart allowance recipients.  So that's what I've done for the final chart.

Chart 6

(click to enlarge)
At zero private income - in other words, for maximum rate payments - the single age pension package has increased by around 37% in real terms.  For Newstart allowance the increase is roughly 2%.  This (approximately) 2% is entirely a consequence of the carbon price compensation and will be reduced to about half this value once the price effects show up in the CPI.  In contrast pensions will undoubtedly continue to rise in real terms due to their link to wages.
I'll probably revise the Parliament 43 results for all the household types as we get closer to the next election.  If that interests you, stay tuned!

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