10 March 2016
by Warwick Smith
A report published this week by the Centre for Independent Studies claims age pensions are set to become unaffordable and that we will have to reduce future pension rates and raise the pension access age.
Access to the pension is being lifted from the age of 65 to 67 and the government and the centre want to raise it to 70 . Is this really necessary? Should we let it happen without a reduction in the hours we work during the rest of our working lives?
For a long time now, commentators – from Karl Marx to John Maynard Keynes and the Jetsons – have been predicting that increasing productivity will allow us to work less and have more leisure time. While computers and robots do more, we will be able to do less. So far things haven’t panned out that way. Labour productivity has been steadily increasing, while working hours in Australia have stayed pretty constant over the past 30 years. During the same period, workforce participation has increased dramatically, particularly among women. Meanwhile, wage growth has stagnated.
Why haven’t all the computers and other technological innovations that improve productivity translated into more leisure time for us? Well, in actual fact, they have. However, this change has mostly slipped under the radar.
We’re working less and having more leisure time, because we’re living longer. The extra leisure time kicks in when we’re over 65. In a recent speech, Productivity Commission chairman Peter Harris said that “in 1909, the original age pension recipients generally had spent near enough to 75 per cent of their life after the age of 15 in full-time work; for the Baby Boomers, that figure has fallen to about 60 per cent; and for the generation today in high school, that figure will fall to about 50 per cent, mostly based on significant health gains, including in retirement.”
That’s a substantial dividend paid in leisure hours after retirement. But look out, the government is coming after that dividend.
The justification for increasing the retirement age is the impact our ageing population will have on government budgets and the remaining workforce. We’re told we won’t be able to afford the blowouts in pension, healthcare and aged care costs that will come with the increasing proportion of Australians who are over 65.
The trouble with that argument is that its only true if you make particular assumptions. The economic modelling included in the federal government’s 2015 intergenerational report makes it clear there will be huge government deficits for many years – but, and this is a big but, these deficits assume regular income tax cuts.
In the absence of these cuts, the government would be flooded with cash. That’s right; those long-range forecasts assume regular income tax cuts without which we wouldn’t have a budget problem and we’d still have dramatically higher material standard of living than we do today.
We are a relatively low-taxing country. There are comparable OECD countries with much higher tax to GDP ratios than ours that also have thriving economies, first-rate health and education systems and very high standards of living. So, we have a choice. We can either work longer and surrender our share of the productivity growth dividend in service of small-government ideology; or we can pay a little more tax (not necessarily income tax; there are better options for extra revenue).
This choice is currently being made for us and being painted as an inevitable result of demographic and economic realities. Nothing could be further from the truth.
Many Baby Boomers are not ready to retire at 65, at least not completely, but that doesn’t mean we should force them all to keep working. Easy for us desk jockeys to say that everyone should work longer, but if you’ve already been laying bricks every day for 45 years, the prospect of doing so for another five years is unlikely to be a happy one.
Instead of deferring access to the pension, the focus should be on job creation and flexible working arrangements (that suit older employees). If we make working longer easier to do and more flexible, then many will come to the party.
Alternatively, if we’re to contemplate increasing the pension access age to 70 and beyond, we should ask for something in return.
All Australians could benefit from a standard working week of 30 to 32 hours, not just the older workers. Most of us would be happy to work a few years longer if it meant shorter work days or a shorter working week. It’s a good trade-off isn’t it? We keep our productivity dividend, but get to have some of it while we’re young and when we’re raising kids.
Three day-weekends every week? Yes, please.