Gary Humphries (ACT, Liberal Party) Share this | Hansard source

I want to use this opportunity to comment on a report that was delivered recently by Mr Trevor Matthews. The report was entitled Review of pension indexation arrangements in Australian government civilian and military superannuation schemes. The report was actually delivered to the Rudd government in December 2008 but not released to the Australian public as a whole until September 2009. Senators might be aware that the report recommends that there should not be any substantive change to the indexation arrangements for those in Commonwealth civilian or military superannuation schemes—that the present arrangement, where the pensions are adjusted purely according to the CPI, should essentially remain.

This decision has brought out an understandable reaction on the part of many Commonwealth superannuants. These people were told before the 2007 election that a Labor government would review these arrangements and respond to the concerns that many of them had that their case for better indexation arrangements, particularly vis-a-vis the arrangements put in place for age pensioners, be addressed. Consequently, the Matthews report was commissioned and, almost two years after that election, we have on the table the outcome of that process. Of course, it is not merely this review which enlightens us as to the arguments in favour of or against an increase in superannuation indexation. We also have the benefit of at least three reports by Senate committees that have addressed this issue in the last decade.

I think it is true to say that most civilian and military superannuants see their superannuation arrangements as being partly reward for service and partly for accepting lower wages, particularly some years ago when there was an argument that that was certainly part of the way in which Commonwealth service was structured. In fact, CPI indexation was initiated by a review by Professor Pollard in relation to Commonwealth superannuation arrangements back in 1976.

The superannuants generally comment, and I think they have some basis for this claim, that the CPI does not reflect the totality of the rising cost of living for people in retirement in certain parts of Australia. They point out that others who are the beneficiaries of Commonwealth superannuation arrangements, particularly age pensioners and Commonwealth parliamentarians, have a different basis on which their pension is indexed. They argue that their case for an adjustment ought to be considered in the light of other experiences of Commonwealth generosity towards those other categories.

In his review, Mr Matthews made the point:

… the purpose of CPI indexation for civilian and military pensions has never been to ensure that those pensions keep pace with community standards. This would require productivity gains to be passed on to superannuants.

That is a reasonable point for Mr Matthews to make but it begs the question: on what basis is the decision made to index age pensions by arrangements which account for productivity gains elsewhere in the community, for which arguably age pensioners themselves have not contributed?

Until recently, age pensions were determined on the basis of the CPI or 25 per cent of male total average weekly earnings, whichever was the higher. This government is introducing a further component in that: an indexation test which takes into account the living expenses of those in retirement. The question again needs to be asked why at least that mechanism, that third arm of the test for age pensions, is not being considered for the indexation of Commonwealth civilian and military superannuants.

In his review, Mr Matthews went on to say ‘the current purpose of indexation is to maintain the purchasing power of pensions’. On one version of this argument the CPI might be said to do that. But it again raises the question: if the Commonwealth has seen fit to improve the living standards of those on age pensions and those who are retirees from parliament, why does it not see itself as having a role in improving the living standards of those on civilian or military pensions?

Mr Matthews does point to the costs of these arrangements and there is no denying that the costs are very considerable. In his assessment, the cost would be $42 million in 2010-11, $111 million by 2011-12 and $911 million for 2019-20. I gather that those are cash costs. It is worth recording that if those pensions were improved there would be a lower net cost. It is very likely that pensioners would be paying more tax, there would be more spending in the economy—which I gather is something that the federal government wants to see more of—and there would be a lower total cost. But there is no getting away from the fact that the costs would be very considerable.

I come back to the point that the Commonwealth has taken it upon itself in recent years to address the improvement of living standards of those in retirement, as it has—at least during the period of the previous government—addressed and improved the standard of living of people in the workforce. I note that the cost of medical imaging, for example, to the federal government each year is something like $8 billion. The federal government at the present time is spending, as we know, incredibly large amounts of money. One wonders whether a priority such as this could not have been considered in that process.

It is also worth recording that, on average, Commonwealth superannuants do not, on average, fall into the category of being very generously provided for by their pensions. Commonwealth superannuants can claim a part age pension if their income is below $40,500 for a single person or $67,653 for a couple, subject to an assets test. A very substantial proportion of Commonwealth superannuants in fact do access part age pensions because their pension is so low. It is worth recording, though, that with the fall in the share market and the other hazards of the global financial crisis many of these people face the prospect of a very serious decline in their standard of living. Again, I do not believe the Commonwealth can be ignorant of those issues.

I mentioned that there had been a number of previous reviews before the Matthews review. There was one initiated as far back as 1970 by the McMahon government and a review by Professor Pollard and Mr Melville initiated by the Whitlam government. Those reviews have tended not to recommend higher levels of indexation. But we need to contrast those reviews with those conducted by the Senate. Reviews initiated by governments have tended to be very cautious and conservative. Reviews initiated by the parliament have tended to take a different view.

There was a Senate Select Committee on Superannuation and Financial Services in 2001 which recommended that the government consider adopting an indexation method other than CPI in order to more accurately reflect actual increases in the cost of living, relative to community standards. Again, a Senate select committee in 2002 recommended that the government consider indexing benefits to the higher of CPI or MTAWE, in order to allow recipients to share in the increasing living standards enjoyed by the wider community. I think we will recall that our erstwhile colleague Senator John Watson was involved in both of those inquiries. And in its report in 2008, A decent quality of life: inquiry into the cost of living pressures on older Australians, the Senate Standing Committee on Community Affairs specifically and unanimously recommended that the government take some steps to immediately increase indexation—before the report from the Matthews inquiry was available—to address the real issue of falling living standards for those people who were dependent on Commonwealth superannuation arrangements.

We have had a succession of reviews by the Senate which, on each occasion, unanimously have said that we need to address this issue. But, as a result of the Matthews review, the issue is clearly not going to be addressed. I wonder why it took so long to respond to the Matthews report. It was given to the government in December 2008 and not provided to the Senate and the rest of the community until September 2009. I think many Commonwealth superannuants were given the impression that the government was working its way through this issue. Apparently that was not the case. I also need to put on the record very candidly that, although I am very disappointed with the performance of this government with respect to this issue, my own party in government took no better position on this matter. It is a matter of regret to me that we failed to grasp the opportunity, in a growing economy, with strong increases in government revenues, to deal with this longstanding and serious issue. This is unfinished business.

Successive governments have moved to improve the living standards of Australians generally. Age pensioners, those in the workforce, those on low incomes, people with disabilities, people who are carers—all sorts of individuals within the Australian community have had their standard of living issues addressed by Commonwealth government decisions. Those who are in receipt of Commonwealth civilian or military superannuation pensions have not. That is, in my view, reprehensible. The service of these people to the Australian community needs to be taken into account. These are people who served the Commonwealth government, very often in circumstances that were very difficult indeed. Living in Canberra in the 1950s and 1960s was not quite as comfortable an experience as living in Canberra in the early part of the 21st century is. Many superannuants have, as I said, very low levels of pension and their dependence on other forms of income has made them very vulnerable to changing arrangements in the marketplace.

I urge the federal government not to close the book on this issue. I urge my own party not to close the book on this issue. I hope that we can acknowledge that, in a world where we are seeing greater levels of wealth created, where it is possible to make a decision as a matter of policy to improve the living standards of whole classes of people in our society, we should not overlook one very important group who have provided such enormous service to the Australian community and whose record of achievement is visible to all of us, particularly in a place such as this. I hope for that reason that this issue will remain on the agenda of this and successive governments.