Federal Government misses chance to boost skilled labour

The amount that pensioners may earn before being hit by tax should be increased in order to boost the economy and help them to keep using their expertise, according to a report published by the University of Adelaide.

An older worker marking text in a binder

Image: iStock

In their report, economists from the University’s SA Centre for Economic Studies working in association with the Independent Research Fund, say the recent decision by the Federal Government to increase the amount of tax-free income for pensioners, does not go far enough and only applies for 2022/23.

“The Federal Government has missed a golden opportunity to ease one of Australia’s most pressing economic challenges, the shortage of skilled labour, by not tapping into the expertise of pensioners to a greater extent,” said the University of Adelaide’s Associate Professor Michael O’Neil, Executive Director of SACES who worked on the report with Visiting Research Fellow, Mr Darryl Gobbett.

At September’s Jobs & Skills Summit, the Federal Government announced an increase of $4,000 per annum, to $11,800 per annum, in the amount of employment derived income a single Age Pensioner can receive before the Age Pension is reduced – at an effective tax rate of 50 cents in the dollar.

The report confirms that aged pensioners have much more to offer.

“While the effectiveness  of the Federal Government’s new changes will be how potential and actual Age Pensioners react, and the proposed changes are yet to be legislated, they appear likely too small and of potentially too short a duration to be of much impact,” Associate Professor O’Neil said.

Employment data shows that the average hours worked in full time employment by people in the 65 years and older cohort equals or exceeds people in the 15 to 64 years age group. Employment growth of those over 65 years of age over the past decade has been more than twice those under 65 years of age.

“There is clear evidence that people over 65 years of age are interested in continuing to work and, in fact, work equally as hard, or harder, than younger employees,” Associate Professor O’Neil said.

“It’s hard to reconcile this profile and motivation of older people with outcomes in the workplace where only 3.8 per cent of Age Pensioners are earning employment income but employment participation by those over 66 years of age who are not on the Age Pension, is estimated is around 28 per cent.

“Additionally, in contrast to the average full-time hours being worked by this cohort being at or above the workforce average, this 65 year and over cohort generally works less part time hours than those aged 15 – 64 years. Participation by 65 years and older in the hospitality sector is also well below the average of other sectors for this age group.”

Associate Professor O’Neil said the recently-announced limited increase in the tax-free income earning capacity of people on the pension showed a lack of understanding about the changing demographic in Australia.

“With the population of those 65 years and older expected to be the fastest growing for at least the next few decades, getting the appropriate public policy settings and employer and employee attitudes is likely to have a significant influence on workforce growth and composition, productivity and household incomes, amongst other issues,” he said.

Associate Professor O’Neil said the analysis undertaken by the SACES Independent Research Fund shows that when opportunities are available, the workforce 65 years and over can respond quite quickly.

“This might hold lessons for changes in Aged Pension Income test policy affecting the dis-incentive to work; the attitudes of employers about employing those 65 years and older; and reskilling and training policies of governments and employers,” he said.

“The Federal Government needs to revisit its earlier decision and examine all of these issues and create an environment in which all Australians who want to work can make the maximum contribution to our economy and community.”

The latest Issues Paper by the Independent Research Fund, with its detailed analysis of the labour market of older Australians, and earlier papers on this issue, and others, can be found on the University’s website.

Tagged in SACES, economics, Research