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Tax Forum

Session 4: Transfer payments

MICHAEL PASCOE:

Thank you, Dr Ken Henry. I did ask him before the session this morning was he going to be predictable. He was worried that he was, but more importantly, I think he has been considerate in giving us a lot of that very rare quality perspective with which to start today.

You all know the rules of the game by now. The phones are off. We start with two speakers and thereby take the discussion on. We will concentrate on the inner panel but try to take in some discussion from the broader room as well. So to get us started specifically on this session, I will ask Peter Whiteford from the University of New South Wales.

PETER WHITEFORD:

Thanks very much. Why, looking at tax reform, are we also looking at transfers? There are three main reasons. First, out of every dollar raised in tax in Australia around 45 cents goes on health, Social Security and welfare. So it's the largest component of why we are raising tax overall.

Secondly, as Ken Henry made a comment at the ACOSS Conference in 2009, the social security and tax systems are the main way in which we try to affect the distribution of income, as you just mentioned now. So the social security system's main aim is to reduce poverty and inequality and it works together with the tax system to do that.

Third, the interactions between the tax system and the transfer system are important incentives to work, save and invest. What we have to look at in looking at the transfer system is both the broad architecture and a lot of the details.

Now, I would say that the Australian social security system has many strengths. We spend less than the average of the rich countries in the OECD that we like to compare ourselves with. We are about the sixth or seventh lowest spender on social security but we income test more than any other country in the world, I would say. So we target to the poor more than any other OECD country. So the amount of social security benefits we pay in cash to the poorest 20% are about 15 times greater that we pay to the richest 20%. In the United States, that ratio is 2-1. In some European countries it is less than 1.

As a result of our targeting, we have the most target efficient system in the OECD. For every dollar we spend on social security we reduce inequality by about 50% more than the next ranked country. Also, as a result of the design of our system we have less middle class welfare than any other OECD country, however you measure it. We also have less churning of taxes and social security than any other country except Korea, and the reason why they are low is because it doesn't have much of a welfare system. So we have a lot of strengths. Having said that, we also have a lot of challenges and the fact that we achieve a lot doesn't mean that we can't achieve more or that we can't target more effectively.

The Henry Review pointed out that one of I suppose the main issues for payments to people of working age is the need for a more consistent payment structure that also addresses the adequacy issue. The reason why we have a social security system is to reduce poverty. In doing that, we want to also maintain equity between families so we want that to happen maybe throughout income distribution as well, and we also want to not adversely affect people to work, save and invest. But fundamentally we have a system that is supposed to be directed towards reducing poverty and I think the Henry Review's recommendations, that for payments to people of working age we should establish adequacy benchmarks, it is a very important proposal.

There are a number of areas, despite the fact that we target to the poor, where we have, in my view, clearly inadequate payments. In 1997, when age pensions and disability pensions started to be indexed to average earnings, the single rate of payment for an unemployed person was about 91% of the single rate of pension. Currently it's 65% of the single rate of pension. That is due in first instance to the differential indexation provisions and also to the very welcomed increase in the single rate of pension that the government introduced following the Harmer review. This useful paper that the finance put out about the fiscal context also points to the assumption of the intergenerational report, that spending on payments to people of working age are projected to fall over the next 40 years. The main reason for that is the differential indexation provisions. I don't actually think this is likely to happen but if we continue to index unemployment payments to prices only, in 2050 an unemployed person will be receiving about one third of what gets paid to a person with a disability. That is just simply impossible.

When you look at the adequacy of payments for the unemployment, it interacts very strongly with the adequacy of support for rental costs. If you rented the cheapest one-bedroom house in the Sydney area, if you had an unemployment payment and Rent Assistance, after you paid your rent you would have $16.50 a day for everything else for looking for work. So this is a clearly urgent priority for the government to address but it needs also to be done in the context of looking at, as I said, establishing adequacy benchmarks, but I think what we need is a system that is adequate to allow people to look for work.

Thank you.

MICHAEL PASCOE:

Cassandra, from the Australian Council of Social Service.

CASSANDRA GOLDIE:

Like Peter, I do want to commence this session first of all actually with a reflection, as probably many of us in the room reflected on the media coverage to this event and to some extent the level of cynicism appears to be about some of the commentary about what might be achieved over these two days. The session we have this morning where we will talk about the experience of people who do live in poverty should bring us together as a group to ensure that we do get positive outcomes out of these two days and in the next steps coming out the back of it.

So I want to kick off today by urging us all to really be determined on that front - and I know that we will, we are here to achieve some results but I want to kick off the session by reminding us we are a low taxing nation. As Peter has said, despite some of I guess the media popularisation of the fact we have a welfare crisis in Australia, the reality is, over the last decade we have had a number drop in the number of people proportionate to the overall population who are relying on income support to working age.

The down side of some of this good story is the reality that for many people who are relying on income support, they are facing particular challenges about now being able to find paid work.  That, for many people being unemployed, is not a short-term experience but it is a long and difficult experience of poverty, of anxiety and depression.

Right now, as Peter said, there are many strengths to the system but we also have to face the reality that we have a system now which still divides us into two main groups which does not reflect the lived experience of many people. The system is divided into those that are deemed unable to be in paid work and those who are deemed able to be in paid work. The former group receives higher pension payments. We know that those are hard to live on but they are higher than the other payment for people who are expected to be in paid work and who want to be doing that.

In contrary, for the people who are living on the unemployment payment, there are many obligations on you to be looking for paid work. So I want to underline that as well. You are required to look for up to 10 jobs per fortnight. You are not sitting on the couch while you are on income support trying to find paid work. As Peter highlighted, there is a growing gap between the payment levels for people on pensions and on an allowance, and I will come back to that in a moment.

I want to highlight, the level of the social security payment if you are unemployed is now $35 a day. There is probably not many of us in the room today, and it is probably a mistake, who have had the experience of recently being unemployed. Probably not many of us have actually being recently into a Centrelink office. I know there are some exceptions but many of you will not know what that is like. I want to try and imagine what it would be like to live on $35 a day.

It does involve entrenched poverty and it does operate to make it extremely difficult for people to have the courage and the tenacity to continue to look for paid work. There are about 550,000 people who are living in Newstart and I do want to paint the human face, if I can, of the people who are falling into that group right now in Australia. Because despite the overall relative economic survival of Australia in the GFC, we do have a growing situation of longer term unemployment.

So the typical unemployed person now is not necessarily who we might think they are: 1 in 3 mature age people, so over 45 years of age; 1 in 15 people are sole parents, mostly women with dependent children who are struggling to find paid work that will ensure that they can continue to meet their first obligation, which is to care for their children. 60% of Newstart allowances are renting privately trying to find affordable rent. Half of the people who are unemployed have not finished as yet year 12 education, and 1 in 2 people who are living on that $35 a day have been doing so for more than 12 months.

It is no surprise, therefore, that people who are unemployed will have significant experience of financial stress. There is so much data about this I don't want to take up the time this morning to highlight it perhaps just to say that the Australian Council of Social Service every year does a survey - many of our members are around this table this morning - about the experience of who is relying on community services for help. In our last survey the most significant increase in demand for services was in the area of financial counselling and emergency relief. That is to try and get money to help you to not have your power cut off, facing eviction. There was a 50% increase in demand for those kinds of services in just a 12 month period.

The Henry report, in our view, as I said yesterday, provides a very sound basis from which we should be looking at the next stage of reform in this area. We should value our transfer system and we should see it as a strength of our economy, not a weakness. The reforms to social security should ensure, yes, as Peter said, that nobody in Australia is living in poverty. I want to remind people that the OECD, first of all, recommended that the Newstart payment was so low as to be inadequate to help people to find paid work, and secondly, it has found recently that two-thirds of the children living in households relying on social security are living in poverty. That is two-thirds of those children. This is not a situation that our country should be tolerating.

The Henry recommendations are strong. We support them: the increase to the Newstart payment of at least $50 a week; the introduction of a common indexation formula. The government has done some work in the area, for example, of easing the stringent allowances income tests to enable people with disability and others to be looking for paid work without affecting their payment levels, and the abolition of the liquid asset test waiting period. I know some others will talk about that this morning. This is where you are required to basically spend almost everything before you are eligible for income support.

But we also think that the Henry recommendations should go further because we also are very committed to ensuring that the social security system supports people to be in paid work. We believe that there is much more that needs to be done to ensure that we are providing the kind of skills, training and education and that it is not just a question of you filling out application after application. We know there are barriers - people with disability, single parents - there is work to be done there and there is not enough support in the system to help people to meet the Prime Minister's vision of everybody who does want to be in paid work being able to get a job. Obviously business has an important part to play on that front.

Just to close, I know some of these recommendations will cost money. We estimate it will be in the order of a billion dollars to get Newstart immediately to where it needs to be tomorrow, but ACOSS always comes to the table proposing where savings can be made. If we tackle some of the tax shelters we can find two billion. If we tackle some of the tax breaks available for golden handshakes, again which benefit high income earners in this country, we believe we can find at least in the order of half a billion or upwards. There are savings to be found and we need to spend money where it needs to be.

We look forward to the discussion today. I know there are many other people around the table who also want to talk about the experience of what it is like to be relying on social security. Thank you.

MICHAEL PASCOE:

So we have a tax system which puts us in the bottom third of the OECD in terms of the amount of tax paid but a successful transfer system that on most scores puts us in the top third in terms of the outcomes but it needs to do more because needs and wants are probably both unlimited. Everald Compton, it is your birthday, you get to make the first comment.

EVERALD COMPTON:

Thank you very much. Thank you Wayne for your gracious words. I am going to have to work hard to live up to the description you have made of me but I have enjoyed the work we have done in various ways in the community for the past 20 years or more and I look forward to many more years of doing that. In fact, I have got a plan of what I am going to do for the next 10 years in public life in various ways and I am anticipating that you will still be the Treasurer on my 90th birthday and you will invite me to another tax forum.

MICHAEL PASCOE:

For that I think you will get a cake at morning tea.

EVERALD COMPTON:

I think it was, you mentioned yesterday a couple of times in good jest, when people have made outlandish statements you said "We will all be old and dribbling before that happens". I wanted you to know that I sat next to my friend Susan Ryan all day yesterday and she will certify that I didn't dribble once.

The other thing that is important is that I am six months younger than Rupert Murdoch. I wanted you to know that. The difference between me and him is that I pay my taxes and I'm not sure that Rupert does.

One of the things that I would like to comment on, first of all, before I comment on the transfer payment system is that yesterday all the speakers were stating the things that their organisation who sent them here wanted to be said and if they hadn't said those things their organisation would boil them in oil when they got back home. But I hope that today we might say "Look, let's not just push the things that our organisation feels are important for our members" but that the conversation might get around to saying 'How can we all do something positive for Australia rather than the constituency that we happen to represent?" I hope the Australian vision comes up during the day.

Wayne has appointed me to a panel, which I chair, the Economic Potential of Senior Australians, with Gill Lewin and Brian Howe and the other two members of the panel. We have to report any discussion to Wayne on eight matters in which the ageing population is going to impact on Australia's society and its economics in various ways. There are eight issues. I'm not going to go through them today, I am only going to talk about mature age employment, but I was impressed that Wayne wanted to look ahead to the year 2050 and how does Australia get organised now for the impact that will hit it in 2050. I was pleased to work on it looking about 20 elections beyond to get where we are. Everything we say today has to take into account that the demographics of Australia in 2050 will be staggeringly different to what they are now.

There are 3,700 Australians now who are 100 years of age. In 2050 there will be 50,000 Australians who are 100 years of age and 5,000 of them will be 110.  The largest age segment of the population will be the age group between 85 and 100 and it will be the fastest segment of the population. We need to take that into account. The cost of the nation could be enormous unless we do a number of things.

I have been pleased to report to Wayne all the age issues that could cripple Australia financially. My belief is that every one of them can be turned into a positive, in fact an expense saver or income earner for Australia, if we approach it positively and say this is not a crisis but an opportunity.

The point I want to make is there are many Australian seniors who want to stay in the workforce. There is enormous discrimination against them staying in the work force. It takes them five times as long to get a job as a younger person. Now, they need to be given every opportunity to do that and we need to have incentives for business to take them on. In other words, instead of giving business a tax cut, to say to them "Every time you employ an older person, we are going to give you some sort of tax bonus or benefit for the fact that you do that". So we make sure that older people aren't going to get back on the pension at some time. Most Australians on superannuation now can look to the fact that by 85 their superannuation will have run out and they will go back on the pension unless we change the qualification.

I believe we need to be looking at the incentives to bring older people back into the workforce. They are reliable, they are experienced, they turn up, they don't take sick leave. They are not looking for a better paid job the following week and taking off. They want to contribute something to Australia. They don't want to be a burden on Australia and we can reduce the pension system if we do something about that now and I hope that we will.

MICHAEL PASCOE:

Thank you very much. Greg Evans, is business so stupid that you have got to be paid super, you need to be part of the transfer system before you realise the value in senior Australians?  

GREG EVANS:

Thanks Michael. Look, I think there is an increasing awareness amongst business of the value of mature workers and I think the various business organisations are embracing those programs which recognise the skills of older workers. Sure, I think there is a long way to go but I think business on the whole is beginning to recognise that older workers, mature workers, bring certain skills to the workplace that the younger workers may not, but I think the circumstances in which business can employ older workers also reflect the overall circumstances facing the economy. So we still need to have a strong economy and the overall conditions in which business can employ people. But look, as a general point, business is becoming increasingly aware of the importance of older workers. We understand changing demographics and I think as time goes on this is something that business will increasingly focus on.

MICHAEL PASCOE:

Something they will need to focus on but is it something that is more in theory than in practice? Certainly the experience of the numbers on unemployment among mature workers says that when someone 55 and someone 25 is going for the same job - your members of the Business Council of Australia, Jennifer Westacott, are they full of rhetoric or is it only the chairman who gets to be a mature worker?

JENNIFER WESTACOTT:

I think business is up for this. It is up for how we get older workers to stay in the workforce and come back to the workforce. I think the point is, how you actually create the flexible working conditions with people to do it and how we actually provide health services and more flexible working arrangements. I think we are up for it and we are up for long-time unemployed people to get back into the workforce, but again it is what happens on the ground to bridge the gap between people who are not working and who need to get back into the workforce. That is just the role of business or does government have a role to play there.

MICHAEL PASCOE:

But does business need a hand-out to employ an older person?

JENNIFER WESTACOTT:

I think it is a question of incentives. I agree, there may be tax incentives to bring people back into the workforce but you have to remember that most businesses in Australia have a labour shortage and people are looking for skilled workers. We also need to make our training and skills packages more about people's long-term careers rather than their first jobs. So how do you retrain people? How do you encourage labour mobility in sectors that are growing? So we do need a corroboration between government and business to try and get both older people to stay and return to the workforce as well as long-term unemployed people to return to the work force.

MICHAEL PASCOE:

From the other side of the room, Sue Richardson from Flinders University.

SUE RICHARDSON:

I am interested in labour markets. This issue about getting older people to stay and give them opportunities in employment, I think, is one of extraordinary significance, both of economic and social significance, but I think one of the impediments is a culture that we are allowed to not just creep on, it has swept across the Australian society that comes from very long hours of work particularly amongst people who are employed full-time. This is hostile, I think, to the way in which older people want to and in some cases come to work and it is also hostile to the care of children and to the care of elders that the workforce has to be responsible for older people earning their own incomes.

I would like to encourage us to think not that working a 50 hour week is a sign of one heroic commitment and desirability as an employee. We should not be thinking "What's wrong? Can't you do your job in 38 hours? You are not very efficient". We have to approach this collectively. As the Japanese did, we can do it too.

MICHAEL PASCOE:

In the context of a tax forum, are you suggesting higher tax rates for overtime?

SUE RICHARDSON:

I think that is actually a very splendid idea.

MICHAEL PASCOE:

Pat Powell, Catholic Social Services.

PAT POWELL:

I was going to speak on a more general level. When I arrived yesterday I was asked by the awaiting media "What does it feel like to be going into a talk fest?" My response to that was I felt it was really important that we are all prepared to listen and part of I think this session's strength is the fact that there are so many community representatives here today and I would hope that we have listened to our constituents, who are really probably the poorest section of our society.

One of the things that I was pleased about coming into this forum was the fact that the GST was not to be part of the discussion. I was pleased with the assurances the Treasurer had given us on that. I believe it is important, in the fact that it has been raised so often now, to say the reasons why many of the community groups have got a lot of concern about it, I represent Catholic Social Services Australia and its (inaudible), Catholic Welfare Commission, in an earlier light very much opposed the GST because of the regressive nature of it and the impact it had on the poorest section of our community. So certainly we would be opposed to any increase in the rate, but also, too, we would be opposed to including food or health and education in the equation as well, again because of the impact it will have on the poorest section of the community.

We would support very much what Cassandra spoke about today in terms of the minimum standard of living and real concern about the plight of the unemployed. I'm not sure what the formula is for deciding on the Newstart level but I would agree that that $35 a day, it is really quite impossible to live on.

One of the things that Catholic Social Services Australia has suggested is the appointment of an Independent Entitlements Commission that would set the levels of allowances and in that way it would take it out of the political arena in the way that the Remuneration Tribunal takes out of the political debate the payment for parliamentarians and judges. I think then it becomes less of a political football and less something that is liable to change with change of government.

Before I finish, I would like to also say a word on behalf of the working poor. One of the things I have tried to do over the last five years here in Canberra is to support the cleaners. By and large they are an unseen group of people, they are largely women and they are largely migrant women, and very often they are caught up in a whole lot of practices that really lock them further into poverty and get them working hours that are quite detrimental to their personal living and family life.

The final thing I would like to say in terms of the lowest income people is that we have often heard this said, Sir William Deane said it: "The society is best judged by the way in which it treats its most vulnerable members". I would hope that all of us today would be really heartfelt for those people who are worse off in our society.

MICHAEL PASCOE:

Perhaps we will get the Remuneration Tribunal to do most jobs. They would be more fully employed. After the election there is to be a crossover by the two areas of Newstart and whatever. We have a specific area we have just dealt with the question of aged workers, but in the context of a taxation forum and transfer payments there is that question of whether the payments, the social security safety net, is adequate. Obviously we had a couple of speakers mention Newstart in particular. Is it just Newstart that people feel is inadequate? Are there other transfer payments? Are there other parts of the safety net that are failing or it is wrong? Is there any rational reason to compare Newstart, which has one job, with the old Age Pension, which clearly has a very different job? I put that question up. Judith Sloan, National Seniors Australia, among other things.

JUDITH SLOAN:

Yes. It is interesting on that point to actually celebrate the fact that the most rapidly growing segments of the population are actually older workers, older women. Older women have traditionally participated in the paid workforce at very low rates and that increase has been dramatic. There is actually a lot to celebrate. There is very low employment, actually, Sue, in the older age brackets. That is to say, it might be an issue but not for older workers.

I hear what you say and I know we have a few developments in this room on different matters, but I think that issue about the gap between the Newstart allowance and the other pensions is an enormous one. When you look at older people who are unemployed, they remain unemployed for a longer time. I think it is actually about three times, not five times, on average. We have to understand that the dole, unemployment benefits, Newstart, it was there as a short-term transitional payment and in that sense a low payment makes some sense, but if people are unemployed for a long period of time the issue of adequacy really becomes important and indeed their ability to successfully find employment becomes important.

I am absolutely with Peter. What seemed like a good idea of having different indexation systems back in 1970, it has led to this enormous gap and there is going to have to be something done. I just don't think people can sign on to that kind of -

MICHAEL PASCOE:

Are you suggesting another level of payment, an unemployable pension?

JUDITH SLOAN:

No, definitely not, but I mean, it is not going to become any easier. The government, I think quite rightly through Jenny, is making qualifying for DSP more difficult. Probably what will happen is you get more people on Newstart. It seems to me this is a policy issue that has to be confronted at some point. It is difficult because (a) it costs money, and (b) you don't want to create disincentives for people to look for work. The thing is, once you start to look at the figures you think something has to be done.

MICHAEL PASCOE:

Debra Cobb-Clark, University of Melbourne.

DEBRA COBB-CLARK:

I basically support what Peter and Judith have been saying. We are starting from a position of strength so we don't need to be making a reaction. The growing gap between the Newstart allowance and the disability pensions is providing incentives, particularly amongst older workers where the distinction between being unemployed and the distinction between being disabled is fuzzy. It becomes harder and harder to sort of follow in those disability roles. What we know is once you get on Disability it is very difficult to get off and so the trick is to prevent people from moving on to disability payments in the first place and then to attempt, once people are there, to think about things like vocational training or some sort of part-time work arrangements and generous income allowances which allow people to design some amount of work with receiving some amount of the pension. But that becomes very difficult the more the gap between being truly unemployed and on the Newstart allowances versus disability, the bigger that gets.

MICHAEL PASCOE:

Can I just have a couple of lights off because I want to hear from Leah Hobson from the Australian Federation of Disability Organisations.

LEAH HOBSON:

We would share the concerns already raised about people with disability being shifted to Newstart. In fact, 1 in 7 of the people who are on Newstart has a partial work capacity so that means that they are a person with a disability. In general, we don't mind the trend for people with disability to be encouraged to work to be shifted into a model where they are encouraged to participate in looking for work. People with disability want to work. They are very desperate to be part of the workforce. They are keen to be participating in society and to be increasing their standing in life as we older people, people with disability, are often more reliable, they are safer workers, they have fewer workplace accidents and they are more loyal, they stay in their jobs longer, they have lower rates of absenteeism. Unfortunately, it seems as though the focus has been on shifting people from Disability Support Pension to Newstart and encouraging them to participate in that way. For us, that's a little bit like planning a trip to London and then just only focusing on very carefully working out what the taxis are going to be like in London. It is the end of the journey with people with disability. We need to look at how we spend money smartly in other areas to ensure that people with disability don't face inequality in the first instance.

For younger people with disability, they leave the education system earlier, earlier than with people without a disability, and often their education is of a poorer standard. People who come onto DSP, as we have just heard, who are older who may have acquired a disability, aren't encouraged necessarily to retain their job or to focus on job redesign and rehabilitation rather than going onto DSP.

When we pull people into the income support system and expect them to then find work, we need to think about the fact that disability support systems are unfair, underfunded and broken so that if you are a person with a disability and you want to work, for instance if you have a physical disability - at the moment just getting the support for somebody to come into your house and get you out of bed before 9 o'clock in the morning and then having someone to come and take you to the toilet while you are at work is an impossible situation for some people with disability in Australia. Then when you want to pull people from the income support system into employment, the disability employment services that we have at the moment have a 20% success rate, or just under that, and that success rate is mostly with people who have already had some form of employment. So we need to be doing more across a whole range of areas to ensure that people with disability are treated more fairly.

MICHAEL PASCOE:

How much of this is a tax system question and how much is it a question of broader social welfare services and what governments of the day choose to devote to them?

LEAH HOBSON:

I think it is certainly a question of balance between the two and the issues surrounding disability have been left on the backburner for far too long. We haven't been having conversations about "What else do we need to do to ensure that that entrenched disadvantage disappears for for people with disability". We need to think that things like a National Disability Insurance Scheme, which would improve the support system for people with disability, comes into being. We need to be having national conversations about what happens to people with disability and why they are disadvantaged.

MICHAEL PASCOE:

Thank you. Adam Farrar, Community Housing Federation of Australia.

ADAM FARRAR:

You asked, in framing this question, whether there were any other areas where adequacy is a major problem. One which is clear is the rate for rent assistant. Peter Whiteford began today by talking about the interaction between Newstart and Rent Assistance and what was left, once you take housing costs into account, for very vulnerable households and individuals and the answer was staggering. We heard also, throughout yesterday, that across the whole tax system and tax transfer system housing affordability is one of those areas which ultimately plays across a whole lot of factors into whether or not the tax transfer system will observe the objectives that have been set for it and for our discussions. Housing affordable is central. The adequacy of Rent Assistance is central.

Rent Assistance has a ceiling and it was put there for a fairly understandable reason. We don't want to provide assistance if people are going to go off and live in a luxury house. But if you look at where that ceiling new sits, for a single person you could not rent a house and still get any assistance if you are paying more than $186 a week in rent. If you are a couple with one or two children, $286 a week in rent. Most of you, if you are out in the rental market, will know that that is not the real world we are living in. So the raising of the ceiling for Rent Assistance is an urgent part of achieving adequacy.

There are a couple of things which I think I might just say about that as well, having made that basic point. Of course, this goes to the point that Ken Henry made: that what we say about the tax transfer system has to be seen in a wider context. It is all well and good to increase the rate of Rent Assistance because the supply of affordable housing isn't out there, but unless we take measures to increase the affordable supply of affordable housing itself we are not going to achieve the outcome we want.

Just one other point that I guess goes back to the Henry report. One of the major reasons that we need to make changes in the rent assistance system goes back to the way in which we subsidise another part of our affordable housing. That's social housing generally. We have a situation where rents are set at a level which is a proportion of household income in order to make them affordable. Of course, if you are running a housing business, as State housing authorities have been trying to do for many years, and you have got a rationed supply and you are targeting to those most in need, the income falls to the bank in which they are bankrupt and that's the situation they are facing.

The Henry report also recommended getting rid of income-related rent in social housing and replacing them with a much more broader and adequate application of rent assistance and that is critical and I guess it goes to indicate, as I began by saying across the whole range of our discussion today, the issue of housing affordability, how it is driven by various tax inefficiencies and how it can be better assisted by tax incentives like the National Rental Affordability Scheme, which could be better done and made much more effective; how it could be funded by more getting rid of some inefficient subsidies like the First Home Owners Grant, but I will leave it to people to talk about more who know more about it. But I think we need to pull out of some of these housing affordability issues that are emerging across the discussion into a better package.

MICHAEL PASCOE:

I think we saw yesterday in taxation how housing affordable - there is a job summit tomorrow. I don't know if we can fit in a housing summit the day after but clearly that is something affecting a lot of people and cuts across a tax system, social welfare system. The Reserve Bank has been going on about this for half a dozen years, the urgency of getting more supply into the system, which tends to be a local government/State government issue. Let's stick with housing a little bit longer because it leads into the area of effective marginal tax rates. When you earn that little bit more money, among other things you can lose your housing rental assistant and end up worse off than not having a job.

Adrian Pisarski from National Shelter.

ADRIAN PISARSKI:

I support what Adam has said. He has talked about the general problems we had. I will reiterate that Ken Henry reminded us this morning that we need to look at the tax and transfer system as a whole. There are other areas of the tax system which are iniquitous in the extreme and I refer to the over generous tax regime we have. I am not suggesting we can fix those overnight and I think the Henry report lays down a process for addressing that but I think the really important thing that Adam went to is the issue of supply. We cannot address the affordable housing problems we have only by relying on Rent Assistance or other subsidies that boost demand. We actually have to address supply.

If we look at a couple of programs that the Federal and State governments have been involved in recently - and I refer to the Stimulus around public housing boost and the National Rental Affordability Scheme - we could, within the National Rental Affordability Scheme, much better use some of that tax expenditure or foregone tax revenue we have to boost supply directly, and if we do that we have benefits right across the board from the lowest incomes to low income workers who are also in the mix of people who miss out on housing at a great rate. So I just want to reiterate that the whole purpose of the tax transfer system should be refocusing on boosting supply rather than boosting demand.

MICHAEL PASCOE:

Which is part of another bigger issue as well. Jenny Macklin, Minister for Housing, Community Services and Indigenous Affairs, the really tough ones.

JENNY MACKLIN:

Thanks very much. I thought it might be timely to come in at this point and respond to a number of the issues that have been raised. I think maybe if I start with the general question of the adequacy of the social security system.

I think Peter did set the scene in a way that really does demonstrate that in the main our system is working well and having a highly targeted system is an effective way of running a good social security system, but I do want to acknowledge that of course we understand the issues around adequacy. We do come to this forum today, we come to the parliament understanding the importance of addressing poverty where we find it, and as many of you would know, the issues of adequacy were right at the fore of our considerations of the pension changes. We did make the decision to increase the maximum single rate of the Age Pension because we did understand that it was for those people, particularly those who are renting, who were having the hardest time and living in the greatest poverty over a long period of their lives, and I think that's the important thing to remember with people on the Age Pension. Many of these people could be facing living in serious poverty for a long, long time. So we were determined to address what we considered to be the most critical issue of adequacy and the Harmer Review did, in fact, look at the various benchmarks around adequacy.

So I do want to say to all of you today, we do understand how important it is. Of course, you will also understand the budget issues we face. I do want to also highlight the significant things that are being done to support people, single parents, those people who are on the Disability Pension to do some work and keep more of what they earn and, of course, to do the same for those who are on the old Age Pension. One of the surprising figures to me is how low the number is of the number of people on the Age Pension who are working on employment. It is around 3%. So it is very, very low.

If I can just say to our employer colleagues who are here today, I think this demonstrates that there are massive leaps that have to be taken to support and encourage people who are over 65 and who do want to do some work. We have done our bit, we have introduced a new work bonus, we have got a whole lot of incentives in place. We have got lots of supports, mature age training supports that Senator Evans has been responsible for. So there is a lot of training support available. There is now an income test support. We really want to see those people in business give older Australians a chance to do work in a flexible way and I think Sue's point is very, very important in that regard. People don't want to necessarily work full-time.

On the disability front, I do want to really pick up the points around the need for support and one of the questions that has not been raised in this discussion this morning, you would all be aware, and the Prime Minister raised it again yesterday, the government is committed to the introduction of a new National Disability Insurance Scheme. This is a massive change that we are proposing, a massive change. I am very sorry that we haven't had the opportunity to discuss this further. It will have to be paid for. The Productivity Commission has recommended that this new approach be adopted, that we take an insurance approach to the way in which we support people with disability over their lifetime to help them to participate in work, in life in a way that we all expect people to be able to but it will cost a lot of money. The Productivity Commission's estimate is around an increase of $6 billion per annum. That recommends a number of tax swaps. So my challenge to all of you is, yes, we want to see people with disability working, we want to provide more support for people to live with a more active life. We have the road map in front of us, we want to do it, it has to be paid for.

The productivity Commission's recommended a range of different options. One was tax swaps with the States. They don't seem to be getting too much airing. I would encourage people to air them.  They need to be aired. It has to be paid for. Each of these big initiatives that people are putting on the table today are very, very important. The government does want to take this next big, big step in the area of social support, which is the Disability Insurance Scheme, but a debate around how it will be paid for is absolutely imperative.

MICHAEL PASCOE:

Thank you, Minister. This panel is very much the panel of the good. There is only one tax professional on it. They are all coming out in force to the government session, the last one today. But to perhaps provide a bit of guidance on the hazards here before we get into other areas, particularly the effective marginal tax rates and maybe means testing, Robert Carling, Centre for Independent Studies, what are you hearing?

ROBERT CARLING:

I want to pick up on a couple of things that Ken Henry and Peter Whiteford have said this morning. Ken Henry said that the tax and transfer system, or the equity effects of the tax and transfer system should be judged by the system as a whole and not tax by tax or benefit by benefit and I want to support that wholeheartedly. Peter Whiteford's work has shown that when you look at the system as a whole, the Australian system is as redistributive as the Scandinanian system. We are not exactly the same but we are up there in that bracket. So when I hear people here saying that tax should be made more progressive or that benefit should be made more progressive or whatever, I think they are overlooking this point.

Of course, we are in this situation because, as Peter Whiteford said, we have this system of generous but highly targeted benefits, which I support the strong targeting but we have to accept that a consequence of that is high effective marginal tax rates and there is a certain inevitability about that if you are going to have a heavily targeted benefit system. It is not a problem that can be sold on the tax side of the equation. EMTRs are some of the tax rate and the withdrawal rate. Usually the EMTR is high, not so much because of the tax rate but because of the withdrawal rate. This then links into the next session about personal income tax and the structure of the scale and the level of the tax-free threshold. You can make the tax rate zero by pushing the tax-free threshold up high enough and the Henry committee talked about $25,000 for illustrative purposes, but then we have to accept that another cost of that is that the marginal rates above that have to be higher, which have another economic cost. So none of this is easy to solve.

Just a quick comment on the National Disability Insurance Scheme. I think that is relatively easy to support in concept. The Minister referred to the financing problem. I would just make the comment that governments are introducing new programs and enhancing programs all the time every year. This is supposed to be phased in over the next eight or nine years. Surely, over that period a cost of $6 billion could be accommodated without discretionary income tax increases. It could be accommodated in the way that a program enhancement and introduction of new programs has been handled in the past through the natural growth of revenue and the capacity for the government to do some new things.

MICHAEL PASCOE:

Thank you. We only have 45 minutes left. A lot of voices we haven't heard and several important issues that we haven't even got to yet. Can I just concentrate for a minute on the effective marginal tax rates, the appalling scenario set out in the discussion paper of 75% effective marginal tax rates and it can be worse again in some instances. Ruth Medd, Equality Rights Alliance.

RUTH MEDD:

Thank you and good morning. I was part of a study recently where we went around Australia talking to women about the barriers to work and we thought that effective marginal tax rates were the things that they were going to talk about, because after all, some of the circumstances one can find one's self in, you end up paying horrendous effective marginal tax rates. That is a consequence of a targeted system but it seems to be something that should be looked at and, in fact, improved. However, when we chatted to women and we said "What are your biggest barriers to work?", we discovered that there is huge numbers of women who can't get enough work partly because they can't get access to suitable child care, partly because of the barriers to getting affordable accommodation, and as a consequence of that women find themselves in circumstances where they are in poorly paid jobs, they don't get access to superannuation and they are really becoming an underclass. So it is not the effective marginal tax rates that you need to focus on too much because that is far too much for most people to understand. It is actually tinkering with the child care arrangements to provide a greater ability for women to take on more full-time work.

MICHAEL PASCOE:

Jeff Lawrence, ACTU.

JEFF LAWRENCE:

The first thing I should say is I didn't think I would ever agree with Judith Sloan about anything. However, I think her comments about the question of Newstart and the question of its relevance for workforce participation were correct and certainly the ACTU supports all the ideas that ACOSS has had to put these issues about workforce participation on the agenda, and one of those is marginal tax rates.

We do have a targeted system, and we support that, but the net result is, you could have situations where a person could lose 60 cents of their payment for every extra dollar that they earn. They may also pay 15 cents tax on that dollar. This means they would only keep 25 cents out of that dollar they earn, so clearly work doesn't pay for those people. And we have situations where this issue of the withdrawal of benefits and the intersection between the tax system and social wage payments really creates situations where people are paying a higher effective marginal tax rate than faced by the highest income earners. I think this does go to the question that again will be addressed in the next section of the effective marginal tax rates that people have. I think again this is a degree of equity but it is also a question of workforce participation.

Finally, I will have to disappoint Dr Henry that there will be any consensus about his proposal; that issues of equity be confined to the personal tax system and consideration of that for reasons we will explain in the next session.

MICHAEL PASCOE:

And that is the next session. Greg Smith.

GREG SMITH:

I'm sorry to inject a sad note to the discussion but my prediction for the next 10-15 years is that the issue will not be stop the taxes or stop the boats, it will be stop the welfare system. Because what we are facing in this country is that at the moment we are spending 35% of consumption spending in Australia every year, which is either government spending or the transfer system, and that will become 45% over the next few decades. That requires shifting from an average marginal tax rate, which is currently 45-50% because of the income that we don't tax, that is the spending that we don't take. The average is 45-50% now. That will have to go to 55 to 60%. Contrary to the myth that Australia is a low-taxing country, 90% of the world's population live in countries where the tax burden is lower than in Australia and the majority of the OECD population live in countries where the tax burden is lower than in Australia because the five largest OECD countries are the five below us in tax burden.

The reality is, that we are already running a government and transfer system which requires high marginal tax rates and we are facing on current policy an increase, a significant increase in that burden and effective tax rate. I agree, we can't just wait for the fiscal road to generate the revenue to pay for the additions to that. The Henry Review didn't sit down and look at the transfer system alone and fail to come up with suggestions for actually increasing, whether it is disability care, whether it is housing, whether it is the adequacy of work time payments or the family payments. You just cannot sit down and have a discussion about the transfer system without finding gaps, without wanting to do more, and we all did.

We did want to do more but we confront this fundamental tax transfer crisis, if you like. It is a crisis that Australia has to basically become much, much smarter with the way we do government spending and the way we do the transfer system if we are going to make this a sustainable policy. I'm afraid we have that as our primary task. We cannot just talk about increases. We are going to have to find ways to ensure that Australia doesn't have to increase its marginal tax rates from just below 50% to well above 50% over the next two decades.

MICHAEL PASCOE:

The Treasurer.

WAYNE SWAN:

Look, I agree with Greg Smith, that we need to be much smarter in what we do, which was very much the emphasis of recent budgets. The whole emphasis about lifting workforce participation, about reforming our welfare system, about doing something about the withdrawal rates for, say, single parents in getting them back into the workforce, having affordable child care, I accept the fact that as a nation we have to be smarter in how we lift our workforce participation in what we do to break chronic welfare dependency in a whole host of our communities. The government very much has that as the central focus of what we are doing in terms of welfare reform.

There are a series of questions that Greg was referring to as well. It is not just a question of reforming our welfare system and long-term welfare dependency, it is also all of the other things we want to do to enhance our social safety net, the things that Minister Macklin was talking about before in terms of disability reform, the grave injustice that is done to tens of thousands of Australians with disabilities. We know we have to do better and I think Greg's point is one that we should ponder because there comes a point where you can't lift the tax burden too high without having disincentive effects right across your tax system as well and I think that's the point that Greg was making.

We in Australia have always done a good job at putting in place a judicious mix of taxation, of social safety nets and incentives. And we are going to have to continue to do that, particularly given the fact that we are located in a region which is a long way away from the OECD and all of those countries. There are 23 million people located in Australia. We have got to make sure on the one hand we can fund first-class services in our economy, a first-class social safety net whilst we compete in a region where many of those services are not provided. That's why today is so important. There is not some magic pudding out there that means we can fund every enhancement to our social security system and our social safety net but what we know from what we have done over the past 100 years is we have done that pretty smartly and what the Henry Review and today is about is how we do it much more smartly into the future but it doesn't involve just continually jacking up the tax to GDP ratio in our economy. It makes a smart combination of incentive, investment in services and real appreciation of what our comparative advantage is in the region.

MICHAEL PASCOE:

Judy Yates from University of Sydney.

JUDY YATES:

I will take up the challenge on funding and return the debate to housing affordable. I think if we don't address the housing affordability problem we are going to put more pressure our the social welfare system in the future. At the moment we have massive declines in home ownership rates amongst the young who, in 20 year's time, are going to be of pension age and they are not going to be in home ownership, which has been a pillar of our retirement income system. They are going to be in a private rental market and that is going to put increased demand and pressure on Commonwealth rent assistance. So we have to consider the housing system as a whole.

You have got to reduce demand and increase supply. Reducing demand, CRA is essential, but we have first home owner grants that go to people on well above average weekly earnings buying existing houses. That's crazy. We have got an income tax system that doesn't deem it income on houses, doesn't tax capital gains. We have a land tax system. We have got a whole lot of exemptions there, all of which add to demand and which provide a tax space. We could move to a land tax base. That would partly reduce demand but also have effects on the supply side. It will encourage better use of our very limited supply of well-located land. It will encourage urban consolidation, which is what we need to have. Then we need to move beyond that and have infrastructure in place. We don't want people on a pension paying for it because that is counterproductive. Then, probably most importantly, in the immediate short-term we really have to address the problem of supply of affordable rental housing in the private rental market because that's where the pressures are being felt. It is important that it is continued. We probably need more than that. We need to use some of the tax revenue that can be raised by some of those other bases to support, for example, encourage our institutional investors into the private rental market so we can expand the supply there.

MICHAEL PASCOE:

Thank you. That gets us into the sharp end of means testing as well. Does it make sense to anyone that taxpayers are paying pensions to millionaires, people living in multimillion dollar properties? Can anyone defend the family home being exempt from the pension test? No-one? No-one except the Electorate, who is outside this room. Pressure. We fund the one man who wants to give pensions to millionaires.

SPEAKER:

I wanted to make the sensible point that we do exempt the family home and there is a very good reason for it. The family home is so much which goes very much to the core of what I see is the Australian way, which I was talking about before. I don't think we are paying that many pensions to millionaires living in million dollar homes. I think I could talk to the social security minister here and I don't think there are that many.

MICHAEL PASCOE:

We are quickly running out of time. I want to hear from the people we haven't heard from yet. I would ask you to keep your comments fast and punchy, please. Louise from United Voice.

LOUISE TARRANT:

I would like to pick up on the child care issue which was raised previously. In the Henry tax review there are certainly recommendations to merge two of the benefits that are paid at the moment, the Child Care Benefit and the Child Care Rebate. I think what we are finding in Australia at the moment, we do have a massive labour shortage in a range of areas and that is only going to grow. So for workforce participation reasons alone, the availability, accessibility and affordability of child care is really critical but also in terms of equity and educational outcomes.

What this government has done has been pretty fantastic. It has not only doubled the funding to the sector but it has recognised the importance of quality in the sector. So it has got to be available to every child in this country if we really want to have real equity outcomes because we recognise that a good educational start in life really does make for life-long outcomes.

The other dimension of this, though, is not only are we going to have pressure for increasing access to this service and its affordability needs to be available to everybody, but we also have a workforce issue. We have the Productivity Commission inquiry into the workforce in the sector and it acknowledges that pay is insufficient to retain the workforce required. So this is a really big emerging - I guess it is a red flag issue for the government.  There is already a lot of work being done but what it means is there is going to need to be a lot more thinking about how to introduce equity measures that target supporting the community, but it is a broad issue that impacts not only women but everybody in the community, particularly the employers as well. So we do need to look at how to increase for funding accessibility and workers in the sector.

MICHAEL PASCOE:

Kasey Chambers from Anglicare.

KASEY CHAMBERS:

I have a couple of points to make. One of them was to come back to housing, in particular private rental housing and the tenure of that housing. We met one lady who was enrolling her seven-year-old son in his seventh school, the 13th house in their life because the landlord was requiring her to move on. We would like to see some of those issues matched with looking at negative gearing, looking at some good to come back. That's a massive outpouring of tax concessions to people who are better off, and we would like ideas where people have spent longer in rental.

The second point I wanted to make very quickly was that a good outcome around a lot of these benefits from unemployment disability support, all those areas, would be to increase the poorness of those boundaries and there are a number of small changes that could happen in order that people don't worry about coming off DSP for a certain amount of time in order to increase incentives for people to get into long-term employment, whether that is casual, part-time or indeed long-term.

The other point I wanted to make was that there are some real reforms that are happening. There is the NDIS and there is the Age Care Reform but we do need to look at being able to fund. So pulling back some of those areas of taxation that are tax concessions that are going out to the better paid would be well matched by putting them into those.

MICHAEL PASCOE:

Thank you. John Wicks.

JOHN WICKS:

Thank you. I wanted to say a lot about poverty but I won't because we are restricted for time. I will keep myself to a specific low cost proposal.

Basically, you look at Australia at the moment. 3 million or more Australians are living in poverty, a very serious disadvantage, and we have to focus on that issue. Government measures that one has talked about in the next year, couple of years, sure, they are audible, but I don't think they are going to make any major impact on that level of poverty and disadvantage. They are not regular enough. On the other hand, we have had the government say that they can't afford major expenditures in these areas. What I propose is that the government set an interim specific target on the number of Australians living in poverty and disadvantage and that that target be around 7%. It is quite a fall on what is existing at the moment, depending on your criteria, but it is not the best in the world. Let's face it, some of them can achieve 5%, so I'm not asking to match.

The other thing is that the Australian Bureau of Statistics be given by the government 10 million a year to specifically monitor all aspects of that target. Now, the benefits of that are, of the huge number of measures - and we have heard a large number of them today that could assist people in poverty and disadvantage - that target and that monitoring will focus attention monthly, yearly on the priority measures that best meet it because there are 101 measures you can take but that will focus you on those it can.

Let me say, I think that doing that is one of the most basic functions for the existence of government. Because surely, isn't one of the main reasons for government to exist is to improve the wellbeing of the public, and that is what this low cost measure seeks to do. Thank you.

MICHAEL PASCOE:

Thank you, John. Ian Yates, Council on the Aging.

IAN YATES:

Thanks, Council on the Aging Australia represents more than 1,000 senior organisations throughout the country. We think it is important that we recognise achievements as well and one of those, of course, was the government's significant changes to the pension system in 2009, which does demonstrate what can be done. Firstly, it lifted a large number of single pensioners out of poverty. Secondly, it did a really important thing; it intrenched the importance of the pension as a key pillar of our retirement income policy by designing a system that is sustainable. So I think it met the Treasurer's criteria of being smart moved.

It didn't do two things. One, it didn't address the housing issue we have heard a lot about here. I won't go on about that but just to underline there is a looming affordable housing crisis in this country which affects all age groups but which is increasingly affecting older people.

The second area it didn't touch on was, in fact, State and territory government concessions, particularly on things like energy and social essential services. These are an important component of low income people's wellbeing but they are, in fact, inefficient, they distort markets and they are expensive to run. They are inequitable. They are very inconsistent around Australia. They are very badly designed by and large. In fact, they are appallingly bad public policy instruments and we need to start to address those and be smarter about how we do that in this country.

The other thing to say is we think that the gap between the pensions and other benefits has got too large and we need to do something about that. There are challenges in this country about public funding but we are the strongest economy in the world and we certainly can't end up with the situation that was illustrated earlier.

Two other quick points. We support strongly the Productivity Commission's disability proposals, and also, I think again falling into the Treasurer's category of smart proposals, the Productivity Commission's proposals around age care are indeed some of the smartest public policy proposals we have seen in a long time.

MICHAEL PASCOE:

Marie, National Welfare Rights Network.

MARIE O'HALLORAN:

We would like to bring the issue back again to the question of the people who are unemployed. The people who walk through our doors who are unemployed are often people who are working casually, irregular shifts, sometimes two or three jobs using the social security safety net but actually trying to work, and also older workers, often women we see who have lost their jobs in their mid 50s. We think the government has done a great job about raising the single age pension and we applaud them for that and also the NDIS, which is a great scheme to come.

We think as a measured reform over time the government should look at a support package for people who are unemployed. The reason we don't do this is not just because people seem to be on short-term unemployment benefits but there is also the notion of people who are deserving and undeserving. We can see, with the onset of the Global Financial Crisis, that people who are single adults who are on the unemployment benefit did not get one of the bonuses, it came to nearly everybody else, and they were the people who probably would have used it for the purpose they needed.

We think it is important to not just think of the reasons why we can't move on the question of the unemployment payments. We think there is a package to be looked at to come in over time. In fact, the $50 per week increase in the Newstart allowance, which would not bring it up to a pension but would make a huge difference, it would be expensive but on terms of funding, a number of people have raised here the tax concessions and other issues that could be looked at to look at that.

The liquid asset tests waiting period is something that needs to be looked at. $3,000 in the bank and if you are a single person you can't get onto the unemployment. Often people need those savings.

The income-free area for someone who is unemployed is $31 per week. It hasn't been lifted for a long time. It needs to be lifted to help casual workers. Yes, it will push up the effective marginal rate of tax but it will alleviate poverty and allow people to get more from the work they do.

The indexation rate for the unemployment Newstart allowance needs to be harmonised. The question of people with debts, there is 2.2 million social security debts out there. The withdrawal rates actually affect people who are working casually and using the unemployment benefits.

I will stop there but to say I hope a consensus can come out of this forum around a package over time to help people who are unemployed.

MICHAEL PASCOE:

John, University of Melbourne.

JOHN FREEBAIRN:

I would just like to make sure that a lot of the proposals in the Henry Review do simplify and rationalise the social security system offered advantages. We think of Family Tax Benefit A, B, Baby Bonus, an allowance for this, that and that. Somebody said to me this morning "You need a PhD to access stuff". If you simplify it in one payment per category, as Henry suggested, you can help reduce some of the high effective marginal tax rates and you can make it understandable and I suspect you would simplify administration costs.

MICHAEL PASCOE:

Ross.

ROSS GREENWOOD:

I would endorse those comments fully. It is no doubt a great disincentive for people to re-enter the work force, the fact that Family Tax Benefit A effectively is a hand break. Some studies have suggested it is not the only hand break. When families sit down and do their budgets, it is clearly one of those things that says "Is it worth me going back to work?"

One issue is long-term. Where we started this whole session yesterday is to bear in mind the demographics of Australia. The fact is, in 2050 half the Australians will be working for every retired person over the age of 65. This means that we are going to have more people in poverty, we are going to have more people on welfare and, as a result, we have got fewer people actually working.

So issues that need to be addressed are levels of immigration over the long-term of a young sustainable taxable workforce to make certain there are people who can pay the future taxes of the many retired and indeed many people in poverty in Australia. But the second point is what we know from history, it shows when your population ages rapidly that your economic growth is also diminished equally rapidly as well, Japan being a good example of this.

Australia's rapidly ageing workforce could be a hand break to many of the natural resource, if you like riches that we have in this country, and so it is worth thinking about as we try and work out ways to actually compensate, to actually give support to Australians, and we are a generous supportive nation, and that we do also recognise the demographics and that we do understand there are going to be genuine impediments for our children and grandchildren.

MICHAEL PASCOE:

Eleri Morgan-Thomas from Mission Australia.

ELERI MORGAN-THOMAS:

I will follow on from that and talk about long-term unemployed people. We prefer to work with people when they are first unemployed, and of course we do, but before they become long-term unemployed. The longer somebody is out of work and disengaged from the workforce, we find the number of challenges they are facing increase as well, particularly around issues relating to mental health, the things you need to actually turn up to work and the wardrobe you need to turn up to work with. We find we are working with groups of people, whereas if we had been able to frontload some of that assistance earlier on when they had first become unemployed we would probably get better outcomes.

There is some stuff we can do on the demand side for people who are unemployed. Effective marginal tax rates and their impact are part of the problem. It is certainly something they look at. They look at whether they will be better or worse off but other things are actually impacting on them as much or more.

A big part of our problem is actually finding jobs for those people and that's because those jobs don't necessarily exist, low skill jobs, or jobs that people can transition into. The longer you are out of work, the harder it is to actually engage in a workforce in a way where you behave how employers expect you to do. There is some things we can do outside the tax and transfer system to ease people back into jobs, things like supported labour market programs, some of the social enterprise-type things that we in fact run ourselves with some difficulty, because it is hard to run an enterprise, as it turns out, but we also think that government can model a way of creating jobs, the sorts of jobs that the Public Service always had that were relatively easy low-entry jobs that are no longer there. In fact, we as employers can do the same thing. The challenge for us sitting around a table is how we are part of that submission as well.

MICHAEL PASCOE:

Prue Power from the Australian Health Care and Hospitals Association.

PRUE POWER:

Yesterday I spoke a bit about Medicare as being an efficient framework for delivering health care as it is across the whole community but there are three areas or gaps that I would just like to mention pretty quickly. One of them is out-of-pocket costs. These are increasing quite markedly. The real growth in funding by individuals over the last 10 years was about 5.2% per annum. It could be remedied in part by reviewing the rebates. The government does that quite regularly but it could also be remedied by taking on overcharging by specialists. I know this is a controversial area, one that would mean a big discussion with the Australian Medical Association, but if one looks at the overcharging by medical specialists one might be alarmed.

The second point is oral health. I mentioned it briefly yesterday but there is a crisis in oral health. We would want to see oral and dental health included in Medicare in a phased-in period over the next 10 years or so, but in the meantime, perhaps if there could be some tax benefits for children, pensioners, card holders to at least receive a check-up every two years. A basic check-up and treatment every two years would be sufficient to start to turn around the crisis.

The third area is rural and remote access. We have a declining workforce of dentists, allied health professionals, nurses and a declining age in rural and remote areas. This creates an access problem for people living in these areas. We would suggest target the incentives to individuals to actually go out and work in these areas and possibly to take on extra relevant training.

Savings measures would be means testing the 30% tax concession on private health insurance rebates. This is part of the government's proposal or policy at the moment and we would support that as an equitable proposal and a way of achieving some savings which could be used in health.

MICHAEL PASCOE:

Thank you. Rod Little from the National Congress of Australia's First Peoples. Obviously indigenous Australians, many of them have another level of interaction with the transfer system. The complexities of it, the marginal costs of it, has that been addressed here today?

ROD LITTLE:

I'm not sure it has for indigenous Australians but it certainly has created an opportunity for indigenous Australians to become more involved and participate in the Tax Reform and hopefully we will have that over the few years coming to participate in that.

The last few comments about unemployment, for me, and population growth, indigenous Australians is a fast-growing population, a young population. There is an opportunity to respond to those questions about growing workforce. Indigenous Australians want to participate in the workforce. A lot of the things that were discussed today I think perhaps could be disincentives for entering the workforce, housing affordability and all those other things. That's where Congress sits at the moment, where it is not sure about its position and it is not really being involved in participating in the tax conversation, but the higher marginal tax issues are the issues that Congress is interested in and interested in having a conversation around.

One of the other points of discussion that Congress has also talked about is about tax impacts around native title. I believe that there was something that was done back in 1998 which I don't believe has been pursued any further but issues around tax relating to native title could be an opportunity during this tax reform to explore and discuss with the first people of this country.

MICHAEL PASCOE:

We are very quickly running out of time and there are a whole pile of people I want to hear from. Simon Schrapel from UnitingCare Wesley.

SIMON SCHRAPEL:

I will be quick. There has been a host of excellent ideas presented around the table this morning addressing issues to do with housing affordability and what we might do around supply, what we might do in relation to assisting just in terms of providing housing assistance and rent assistance. NDIS has been discussed and a lot of this is in government policy but I want to return to the core issue we started with, and that's about the adequacy of payments.

We have been told we have a system that is generous. I think that it's pretty hard to actually maintain a reliable and generous system of payment when people have to live on $35 a day. That is the heart of the issue. We can do something about that issue quickly by actually putting in place a system whereby we lift those rates, particularly the proposal at the moment is to look at a $50 a week increase for those minimum payments on Newstart. It is not a generous system at the moment and people are in poverty as a result of the payment levels that we have for certain allowances.

The other thing I want to add just as a final point is we have a very inefficient way of managing people who get inadequate levels of payment because we have a secondary system of emergency relief payments and concession payments which are poorly applied. Therefore, we have got a very inefficient way of actually managing that safety net. So if we do nothing else, if there is a take home message for today, it is lift those rates.

DAVID THOMPSON:

Just to back up Simon's point, we, with support from the Australian Research Council, have funded a major study, a three-year study of 150 Australians on low incomes and I think it is important not just to be talking about the poor people but to gain some insight into the lives of the people that are struggling to live, not on $35 a day after they have paid their rent, on an amount that is significantly lower than that and which is lowered again by the cost of job search requirements and so on. I think the assumption or the presumption is that for unemployment people that is a short-term experience but we know the reality is, for a lot of people it is a long-term experience and it is damaging, debilitating and demeaning. I would also argue that it is going to be a significant disincentive for those people who are on DSP and who face the risk of going to a lower payment if they dabble their toes in the world of work.

Just a couple of other things. This next thing is probably something for tomorrow but it strikes me, and I know some of my colleagues will agree with me, that we need a brand new national plan on the issue of workforce participation.

On another note altogether, some remarks were made yesterday about tax reform in the not-for-profit sector. I think the government deserves some considerable credit for the 410 year leap we are about to make for the adaption of the statutory definition of "charity" to be replaced, for that is based on the 1601 present preamble (inaudible).

ARA CRESSWELL:

Very quickly, 23.6 million unpaid carers in this country, replacement value of that care would be around $40 billion a year. That will only increase. Effective marginal tax rates are a huge issue for our group. Flexible working conditions are incredibly important because people need to come and go, but the big issue for us is the 25 hour rule where people can't engage in education, employment or training for 25 hours or more. That includes travel time. If we want a workforce for a future, if we want to participate, you have to allow people to be trained out in the workforce.

NICOLA BALLENDEN:

We have had a bit of talk over the two days about Australia's ageing population and I wanted to talk about Australia's younger population, in particular the very powerful tool of early childhood education and good quality child care in terms of alleviating poverty over the longer term. The Henry Review did recognise this but I think it had as its first priority child care as a way of encouraging women's workforce participation, which is something we would very much support. The data is so powerful in terms of showing that investment in good quality early education and child care can alleviate poverty for children who participate over the long-term. It can lead to higher education levels, higher income, people have lower rates of substance abuse and evidence suggests that quality early childhood programs can generate benefits of $8 to $15 for every $1 invested.

So as a positive alleviation tool, investing in early childhood education and high quality child care is really important, particularly for the most disadvantaged in our community. In the short-term, we would agree with the Henry Review; that priority should be given to making sure that child care is affordable for low income parents, particularly those undertaking casual, part-time or temporary work, as these families may miss out on special subsidies, but in the longer term we would like to see a much more ambitious agenda around early childhood education and child-care.

We applaud the investment the government has already made around 15 hours of free pre-school for four-year-olds. We think that should be offer to three-year-old and we would like to see a goal of three days of universal pre-school and wrap-around child care for three-year-olds.

MICHAEL PASCOE:

Peter Strong, Council of Small Business of Australia. There has been a lot of talk about employment, what is the reality.

PETER STRONG:

The reality is, there is older people coming into shops and small businesses around Australia every day saying "I would love to work for you but I don't want to affect my pension". "I will pay cash". That sets them up for vulnerability and a whole range of other things. I think we could look at that. What doesn't come out here as an outcome of older worker's pension is people with disability starting their own business. I have met plenty of older people who would love to run their own business. We can focus on them. 10% of any given group I have ever met want to run their own business and with people with disability, there are some with major mobility problems. Running a business off the Internet is a great outcome for them and they start to contribute back into the society.

I think there are opportunities here we haven't mentioned and opportunities people want and the discrimination against women in business, with child care, is something you have to address if you have a big business with a creche in it. If you are a small business and you are paying child care for your employee, you have to pay FTB. If you are a woman in business and you put kids in child care, you can't claim it. There are a few areas we can look at there through the tax system that create equity and create people contributing to society again.

MICHAEL PASCOE:

As we begin to run out of time even quicker, Sandra Goldie(?), we have heard a lot of needs. We haven't heard that much about how to pay for it.

CASSANDRA GOLDIE:

Which is why we certainly said we think the Henry recommendations were a good thing but they certainly didn't go far enough. In my final comments on this session, I want to focus first of all on what we think needs to happen next in this debate about whether or not we have got the crisis. I want to be very clear. When we referred to the fact that we don't have an increase of people, it is about people who are on working age payments. We know there has been an increase on pressure into the disability support system and certainly on the future of our age pension. It is an important payment. It is why I want to put this challenge today to the government and to the opposition as well.

If we are going to move towards an increase in our superannuation guarantees from 9% to 12%, we need to address the serious inequities in the way the tax concessions work about superannuation contribution. I said it yesterday and I want to repeat it today. 50% of the tax concessions going to superannuation go to the top 12% of income earners and we need to flip that around and do it urgently because every dollar that we don't put in there now is going to affect us into the future.

My other comment is again in terms of this absolute commitment that we have to supporting as many people as possible in Australia to be in paid work. We are absolutely at one with the government on this, which is why we see this complexity in our social security system around working age payments. We also agree we want to see that tackled and removed. We are pushing to move for a basic payment for everybody who is of working age and to have some supplementary arrangements around that to top you up where you need it. We want to have that discussion with the government but also with businesses and with unions because we want to have it as part of how does this system actually support everybody who wants to be in paid work to do so?

Business has to play its part. We know discrimination is alive and well but I know there is real enthusiasm to do that from the participants here today. Again, I say to the government, create that process for us and we will really work with you on it.

MICHAEL PASCOE:

Ben Phillips, you have left your run late.

BEN PHILLIPS:

Very quickly, on the NTR front, that has increased, probably doubled in the last 15 years. Only 2% to 3% of individuals actually pay high NTR. Allowances have sat behind pensioners. We know you can look at pensioners, about 20% are in the bottom 2% of the income, whereas youth allowance, 80% are in the bottom 20%.

Rent stress is a serious issue. I would like to stress that rent stress is more serious in regional areas as opposed to capital cities, which is sometimes ignored. So it is a real area of policy work that needs to be looked at.

Means testing within the transfer system: there is probably not a lot of work that can be done. First Home Buyers Grant potentially, FTB Part B, baby Bonus. I think the heavy lifting has to be done outside the family payment system.

MICHAEL PASCOE:

Thank you. We are out of time. I have tried to give everyone at least one go. Could I please come back to Peter Whiteford? You set an opening stance. How do you think it has gone?

PETER WHITEFORD:

I think there is obviously a very common range of issues that have been identified and I think what we have to get right is the balance between immediate priorities and the long-term agenda that was set out by the Henry Review. I think the long-term agenda is important, the sort of reforms to the family payment system that is outlined moving towards the more rational system of payment to people of workforce age. That is something that I think a lot of people here have supported, but also, there are some urgent priorities that need to be acted on within the near future.

MICHAEL PASCOE:

Ladies and gentlemen, we are out of time. My apologies that we didn't get all the discussing done but this was, of course, an unlimited discussion and remains so in many ways. The discussion obviously continues. I think it is fair to say there was a fairly clear call for an immediate lift in Newstart. We didn't get much done, really, on the paying for it. A few suggestions but no consensus. Maybe the next session on personal tax we will get into some of that. In the meantime, I feel so much better about helping those millionaire pensioners.

Ladies and gentlemen, thank you very much for working with me on this session. This is the session of the good. The tax professionals are back in charge after this. It is time for morning tea. Play gets underway again at 11 o'clock. Thank you.

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