Comment
Research findings on taxation reform
In its submission to the Senate Select Committee into a new tax system, ARPA Over 50s Association indicated that details of its cost of living research project would be submitted to the Committee in a further document. The association’s national policy direct, Licia Kokocinski, explains the research and its findings.
In January and February 1999, 32 retirees participated in a lengthy research project in which they were required to accurately document every expenditure made during a designated four-week period and also to record their income.
Upon collection of the raw information, all expenditures were divided into the various wholesale tax categories for each case study to enable calculations to be made.
In summary, the findings were:
o Those retirees who currently are ahead in the financial stakes, will remain ahead, after the implementation of the taxation reform policies.
o Those who are behind, will remain behind and probably fall further behind.
o The greatest concern remains about the financial health of people receiving full or part pensions.
Impact on self-funded retirees
Of the 13 participants in this category, only two spent in excess of their income. Due to the complication of the interplay between the bonuses contained in the compensation package, taxation relief and amount of investments held, it was not possible to accurately calculate what changes in income will occur.
However, the impact of the GST on current goods and services consumed was able to be gauged accurately.
The research found that there would be significant increases in monthly expenditure, ranging from $25.50 to $448.76 per month.
It was possible to determine the percentage of current income that would be required by the participants in the sample to simply ‘stand still’ after the GST is introduced. On the monthly incomes earned, participants would be required to earn 3.5% extra income, ranging from 1.1% to 8.3%.
Patterns of expenditure
When using household expenditure as a method of analysis, the project found that in this sample, retirees spent on average 23 per cent on food and eating and 19 per cent on utility charges. However, when using a different method of analysis – that of using certain expenditures as a proportion of income – a slightly different picture emerged.
By using expenditure as a proportion of income, it was found that self-funded retirees spent on average 16% of the income on food and eating and an average of 11.5% on utility charges.
Impact on recipients of full or part-pensions
It is for people in this category of participants that the most concern is expressed. There were 18 people in the project in this category. Their incomes were considerably lower than for the first category of retirees.
Patterns of expenditure
Again, using household expenditure as a method of analysis, the project found that in this sample, the proportion of expenditure spent on food was 23% and for utilities 19.3%, almost exactly the same proportions as for self-funded retirees.
However, when using expenditure as a proportion of income, a very different picture emerges. Pensioners (both full and part) spent, on average, 23% of their income on food and eating and 21% on utilities, higher proportions of income than for self-funded retirees.
One other important factor was that of the 18 in the sample, 10 spent in excess of their incomes. This was not a surprising development, in fact this confirmed past research on what is called ‘dissaving’.
The research found that for those receiving a full pension in this sample, there would need to be a substantial increase in the compensation package to 5.1% just to stand still (that is, continue to spend in excess of their incomes for those in this position, but not to worsen the position).
The real increase in incomes for all pensioners to make up the excess to break-even point – especially post GST – averages 24.4%.
ARPA Over 50s Association recommendations
Our recommendations include:
o The current compensation package outlined by the Government is not adequate for retirees who are recipients of full or part pensions – over two million Australians.
o Food and utilities should be exempted from the GST to people on low incomes. Utilities and food items are essential costs of living. They cannot be avoided and are not discretionary expenditures.
o As a second best, retirees receiving part or full pensions should be extended rebates to cover the direct and indirect costs associated with the GST impact on utilities.
