Why the Greens were wrong to support the pension cuts

June 25, 2015
How the federal government gives more support to the very rich than any other group. Image: Mia Saunders (source AIST/Mercer Sup

Many people are dismayed that the Greens have supported the Coalition government’s age pension cuts. Greens’ social media has been awash with commentary, with many people venting their anger at the Greens.

Some have defended the deal, trusting the Greens to do the right thing and labelling criticism as Labor propaganda. Others just want an explanation.

After receiving much negative feedback, the Greens put out a “fact sheet” in support of the cuts. However, as explained below, their arguments are highly questionable.

The legislation was rushed to a vote with little time for public scrutiny. There were no public hearings. Even Senate scrutiny was curtailed: it voted only a few hours after submissions to the relevant Senate committee closed.

The age pension is means tested using an assets test and income test. Pensioners get the lower calculated rate. This pension deal doubles the assets test taper rate. For homeowners, the pension will be reduced for couples with more than $451,500, (singles $289,500), and eliminated for couples with more than $823,000 (singles $547,000).

To a young person, retirees with such assets plus a home may sound rich. However, a meaningful judgement must consider that this is the income that such retirees would live off for the rest of their lives.


The government supports people’s retirement through the age pension (which appears in the Budget) and tax concessions on superannuation (which do not appear in the Budget). Tax concessions have been rising rapidly and by 2017 could cost more than the entire age pension. Wealthy people benefit the most.

The Greens want to reduce benefits to the rich and provide more support for the poor. However, this pension deal doesn’t do this.

The poorest pensioners get nothing extra. Rich retirees keep superannuation tax concessions. This deal cuts support to “middle Australia”.

By agreeing to this deal, the Greens have secured a review of superannuation tax concessions. Tax concessions may be tweaked in the future — though the government has ruled this out for now.

The concessions are rising so steeply that even former banker David Murray and former Business Council of Australia president Tony Shepherd want a review.

But neoliberalism aims to increase the gap between rich and poor. Attempts to reduce benefits to the rich will be fought vigorously. Attacking the middle will not address growing inequality.

Rather than hold out for a broad review of retirement incomes, the Greens just accepted the Coalition’s deal to cut pensions. They claimed that this was better than the Coalition’s previous proposal to reduce pension indexation.

Why didn’t they say No to both deals?


The Greens argue that only 8% of pensioners will have their pensions cut or eliminated.

These figures refer to pensioners affected now. But these cuts also affect future retirees. According to Industry Super Australia (ISA), the proportion of retirees disadvantaged by the changes will increase dramatically over the coming decades. By 2055, half of singles will be worse off.

Modelling by the Australian Institute of Superannuation Trustees (AIST) shows that in the future, the cuts will substantially affect those in the bottom 30–50% income range.

Those affected are not rich. Most own a home (at currently inflated values), but many will reserve this to cover aged care costs. According to Treasury modelling, single homeowners retiring with $550,000 could live off $38,000 annually from interest, asset drawdown and eventual pension payments. This is less than the Australian Financial Security Authority Retirement Standard for a comfortable income of $42,500.

This also assumes no further cuts to the pension, a problematic assumption given that the welfare state is under attack.


The Greens argue that they “are just reversing a John Howard-era decision that made the pension system unfair”.

Are they suggesting that prior to the 2007 pension changes, people with assets above the threshold couldn’t get the pension?

This is incorrect. Previously, pensioners could rearrange their superannuation so that some assets did not count towards the assets test. They bought income streams, assessed under the income test.

Howard’s 2007 changes ended this. The asset test threshold was adjusted accordingly.

The current deal increases the assets test taper rate back to pre-2007 levels. But it does not reverse the 2007 changes. The new pension regime is less equitable than the pre-2007 regime.

There were major, interrelated changes to pensions and superannuation in 2007. These must be considered as a whole. The current deal just seeks to reverse one measure in isolation from associated measures.

Actually, Howard’s worst measure in 2007 was not the assets test change: it was making superannuation benefits tax free for those over 60.

The Greens emphasise that 171,000 pensioners (for example couples with around $400,000) will gain on average $15 a week. This number may be overstated. Deemed income from financial assets is assessed under the income test.

For many pensioners, the income test, not the asset test, determines payments. The ISA noted that the government’s analysis ignored this.

Moreover, once interest rates rise, any pension increase could be wiped out.

The Greens claim “experts and service providers have been calling for this change”. Some did support changes to the assets test — in conjunction with a thorough review of retirement incomes.

But others, including National Seniors Australia and experts who financially modelled the changes — AIST and ISA — were highly critical. The Greens have even denigrated the ISA, claiming they have a vested interest. Yet the ISA, which represents not-for-profit super funds, analysed the future effects of the changes, analysis missing from the government’s report.

The Greens claim that the pension deal is “fairer”. Others disagree. The AIST produced a fairness score showing that the pension cuts massively reduce the fairness of retirement incomes.


The Greens have fixated on the idea that wealthier people shouldn’t get the pension. But pensions, income and assets interact in complex ways.

Means testing of any benefit can produce perverse and unfair impacts. Pensioners working part-time can face effective marginal tax rates of more than 70% — much more than high income earners.

The new assets test taper rate could see pensioners’ interest earnings taxed at around 160%. Retirees might decide to keep their assets in the asset-exempt home. Means testing creates a major disincentive for pensioners to work, to save or even to downsize their home.

To address these perverse, unfair impacts and reduce benefits to the rich we need a universal pension with no means testing, an end to super tax concessions and steeply progressive taxes on all income. This is the only way to get a fair outcome.

A key aim of neoliberalism is to slash the welfare state and make individuals responsible for meeting their own needs. These pension cuts will justify further welfare cuts. As well as the pain they cause pensioners, they help erode the idea of universal benefits in other areas including health and education. What we actually need are higher taxes for the rich.

Many people have looked to the Greens for moral leadership on a range of progressive issues. Now that the Greens have opted for pragmatism —i.e. jumping onto the neoliberal bandwagon — many will look elsewhere.

Like the article? Subscribe to Green Left now! You can also like us on Facebook and follow us on Twitter.

You need Green Left, and we need you!

Green Left is funded by contributions from readers and supporters. Help us reach our funding target.

Make a One-off Donation or choose from one of our Monthly Donation options.

Become a supporter to get the digital edition for $5 per month or the print edition for $10 per month. One-time payment options are available.

You can also call 1800 634 206 to make a donation or to become a supporter. Thank you.