The retirement years: Who is going to pay?

Tax hikes or pension cuts? UNSW researchers weigh up different approaches to funding the needs of Australia's ageing population.



Australia is recognised as one of few countries well placed to cope with population ageing pressure. Our retirement income policy features a low-cost, means-tested public pension and a privately managed, pre-funded superannuation scheme.

Also, we don't have to pay any specific labour income or payroll taxes, which in other developed countries are used to finance old age and disability pensions.   

There is, however, no doubt that the government will face pressing fiscal challenges from the projected increases in the old age-related spending programs, which need addressing.       

Increasing the pension access age to 67 by 2023 – and possibly to 70 – has been an early response. Reduced spending on other areas such as defence has been raised as another option.

But what about cuts to the pension or increased taxes as policy options to mitigate the anticipated financial pressure? The government’s latest Intergenerational Report provides little guidance on who bears the costs of the proposed policies.

In their recent working paper, Facing Demographic Challenges: Pensions Cuts or Tax Hikes​, George Kudrna, a research fellow at the Centre of Excellence in Population Ageing Research (CEPAR), and ​UNSW Business School Scientia Professor Alan Woodland ​and ANU senior lecturer Chung Tran, investigate the macroeconomic and welfare implications of the two fiscal policy approaches.

Read the full story on the Business Think website.