Comment
GST and older Australians — now for the real test
With the start of the Government’s ambitious tax reform agenda and the GST on 1 July, it’s time to assess the effect on older Australians. VERONICA SHEEN, Council on the Ageing national policy officer reviews some of the key issues.
The long awaited day has come – for some a day of dread, for some a day hoped for. In the months leading up to 1 July, the Council on the Ageing has been fielding a myriad of enquiries and complaints from mature age people about the impact of the GST and its compensation.
Of all the groups to be affected by tax reform and the GST, older people are amongst the most sensitive. They do not benefit greatly from the tax cuts because their incomes are low and they are paying tax through a much broader range of purchases than they have in the past.
The latest assessment of the effect of tax reform on different groups was made in May 2000 by the National Centre for Social and Economic Modelling (NATSEM) and published in The Australian newspaper on 27 May. It shows that for older people on low incomes, that is, most older people, their gains from tax reform are very small.
For instance, a single age pensioner, with no private income, will gain an additional $8 per week in the pension. The additional GST costs are estimated at $6.28 per week, leaving a net gain of $1.74.
A couple on the full age pension will get an additional $13.09 per week. They will face additional GST costs of $10.46 per week, so the net gain is just $2.63. Similar small gains apply also to low income self-funded retirees.
Things are a bit better for the higher income groups, but there is a lot of variation. A single self-funded retiree with an income of $20,000 per year will gain $10 a week extra from tax cuts and after the GST has been taken into account. A self-funded retiree couple on $20,000 gain nothing at all, but a self funded couple on $30,000 will be have about $17 extra per week after GST.
Of course, these estimates are based on average income and spending patterns across large populations. The effects of the GST and tax reform will vary enormously for individuals so there are likely to be some groups who are better off than others, depending on how they are spending their money. For instance single age pensioners who are able to buy and cook their own fresh food, which is GST free, will be much better off than those who buy packaged meals, take-away foods or restaurant meals, which have GST added.
The big issue will be the effect on the costs of goods and services which have not attracted tax in the past. Many older people have to pay for services so they can keep living at home (HACC services however are GST free). They also tend to get their belongings repaired rather than buy new ones. The GST add-on to these services may tip the balance for some seniors, making them worse off despite the compensation measures.
It is possible that the compensation arrangements for pensioners, which consists of a 2 per cent real increase in the pension, will mean that their budgets are not quite so tight in the future. It is also possible that those with private income will get some real benefits from tax cuts, the savings bonuses and other measures.
Older Australians can rest assured that the Council on the Ageing will be closely watching and pressing for new compensation measures where needed.
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