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Get early retirees off the golf course and back to work – why early retirement isn't good for UK plc
Get early retirees off the golf course and back to work – why early retirement isn't good for UK plc

The Guardian

time4 days ago

  • Business
  • The Guardian

Get early retirees off the golf course and back to work – why early retirement isn't good for UK plc

Early retirement is a wealthy indulgence that needs to be discouraged. As a minimum, ministers should strip away any inducement offered by the tax system for people who want to retire in their 50s. Every western country needs their more mature workers to keep going, if not full time, then part time. And if not paid work, then unpaid voluntary work that acknowledges the luck that flows from being a 21st-century baby boomer in good health. Communities, regions and countries cannot afford for older people to pack up and head for the golf course, or worse, book a permanent cruise and spend their cash in international waters. Last week, the government convened a pensions commission to consider a narrow question: how to boost the incomes of lower-paid workers in retirement. It is understandable that the government is worried about the increasing numbers of low-income workers who will soon spend a long retirement struggling to make ends meet. This is a genuine concern and a subject worthy of a commission. Yet there is a need to address a far wider question, which is how society will thrive when the age pyramid is inverted, with only a smattering of young people holding up a mountain of retirees. Retirement has its origins in the Industrial Revolution and the need to prevent older people from ending their years in abject poverty, not to fulfil a bucket list of expensive desires. The commission should ask why anyone in the 21st century should think they can put their feet up seven days a week when they are fit and well, and able to participate in economic life. Yet a prosperous retirement is the aim of so many – and not only when they are approaching their 60s. If you look at the strike record of full-time university lecturers you would think they obsess about their pensions every day. Council staff spend precious hours scrolling through WhatsApp groups discussing the most mundane changes to their retirement plans with a degree of attentiveness that, to give them credit, is in line with the generosity of their benefits. Company boardrooms are no different. Executives will set aside huge amounts of time to manage their complex and stunningly generous pensions. Having a financial consultant ready and available on the phone to talk about their retirement plans has become a must-have demand in the corporate world. Maybe its the lure of sailing on the Adriatic or cruising the Caribbean that captivates so many, or less positively, the frustration and anxiety from working near, with or for incompetent or venal managers in a succession of modestly paid jobs. Still, whatever the reason, too many people want to cash out of the economy, trading their pension and property gains for a long period of rest, with only the stress of remembering what day it is to bump their heart rate. Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion Some economists have argued that this moment – when boomers are no longer participating in the workplace – will trigger a profound shift in the economy. Those workers still in the labour market will bid up their wages, pushing up prices and making high inflation a permanent feature. Governments will find it harder to borrow money, in part because pension funds, after decades of growth, will have a declining need to buy their bonds. There are also extra bills to pay. In its latest report on the UK, the International Monetary Fund says the effects of population ageing on health and pension costs will account for a further 8% of GDP by 2050 compared with an extra 5.5% of GDP, on average, in other advanced European economies. These are important issues connected with the nation's finances. So, too, are the ways better-off baby boomers insulate themselves. First, they take most of the pension money and invest it abroad where the gains are much higher, either because their workforces are young, dynamic and more productive or because the companies are American and enjoy monopolistic strangleholds in their respective markets. Investing abroad gives the boomer a ring-fenced income no matter how clapped out the economy they call home. The second track is to import young workers from abroad, boosting the labour supply as boomers make their exit. Financial insulation is understandable when government finances are under strain. Yet one of the reasons the wheels are coming off the modern liberal state is because baby boomers, who by sheer force of numbers and their better education spurred the postwar recovery, are causing the downturn by bailing out. Worse, they are cashing out, too. Without a debate about what it means to be old and the responsibilities that come with receiving a pension, the government's commission will be left to merely tinker. We are only a few years away from the baby boomer generation all reaching retirement age. Everyone born in the years up to 1964 will be eligible to collect the state pension in 2031. It's a turning point that everyone should be preparing for, especially when all the Pimm's-drinking early retirees are added to the list. The commission's remit should be wider.

The biggest voices need to admit Australia is a low-taxing nation before joining the economic reform conversation
The biggest voices need to admit Australia is a low-taxing nation before joining the economic reform conversation

The Guardian

time23-07-2025

  • Business
  • The Guardian

The biggest voices need to admit Australia is a low-taxing nation before joining the economic reform conversation

Treasurer Jim Chalmers has reinvigorated the economic policy debate with all the talk now about his economic reform roundtable. Unfortunately, the biggest voices invariably are those who desire to help themselves. The other problem is the debate remains bounded in purposeful obfuscation. That is why it is very pleasing to read Acoss's new report 'Taxing income less and consumption more: The case against', which factchecks some myths about Australia's tax system. Acoss provides three points that need to be the basis of any discussion of tax. If you can't admit Australia is a low-taxing nation, then you should not get entry into any roundtable discussion on the topic. As Acoss notes, Australia is the ninth lowest taxing nation across all the advanced economies in the world. We raise less tax than every nation in the G7 except for the US. We raise less tax than South Korea, Canada, Japan, or the UK. In 2022 (the latest OECD-wide figures) the average level of tax across the OECD was 34% of GDP, while in Australia it was just 29.4% of GDP. If the graph does not display click here That's the equivalent of an extra $128bn. And sure, you might say, 'that's how it is, we can't change that'. But we change things all the time in our tax system. Paul Keating introduced capital gains tax, John Howard introduced a 50% capital gains tax discount and the GST. We used to have inheritance taxes, and then Joh Bjelke-Petersen got rid of them in 1977: If the graph does not display click here We also change our spending – we haven't always had Medicare or the NDIS. Nothing needs to only be the way it is or was. In 1970, total government tax revenue was 20.5% of GDP; within 15 years it was 27.5% of GDP – that's a bigger shift than to go from where we are now to the OECD average. Nothing is fixed. If the graph does not display click here The myth that we are a big income-taxing nation refuses to die. Independent MP Allegra Spender, for example, likes to say in her social media videos and tax 'green paper' that 'we need to lower the tax burden on working people through lowering income taxes' because we need to rebalance 'tax revenue from income taxes on labour towards other sources of tax' to ensure 'sustainability'. Except, as Acoss details, we are the seventh lowest taxer of personal income in the OECD, and the 11th lowest when you include corporate income: If the graph does not display click here As the Acoss report notes, Australia's 'share of personal income and social security taxes is 40%, below the OECD average of 50%': If the graph does not display click here Australia is less dependent on personal income taxes than every country in the G7 and yet apparently, we need to reduce our dependency even more. Even compared to our own history we're not all that dependent on private income tax: If the graph does not display click here Often talk about needing to reduce our dependency on income tax is followed by a call to increase the GST. Conservative economists like to argue a GST is the most efficient tax. Caring more about tax efficiency rather than equity is rather revealing, but even still, as Acoss notes, the GST is not actually much more efficient than income tax. They note that previous Treasury research found increasing the GST to 15% and reducing income tax to compensate 'would deliver negligible GDP gains'. The difference in efficiency of income tax and GST is so small that it would barely register in the overall economy. So, the only reason you would do it is if it was fairer. But, as Acoss finds, it is decidedly not so. Around the bottom 60% of households would be worse off from an increase in the GST to 15% combined with a 5% income tax cut. If the graph does not display click here The government could instead increase low-income benefits, but as Acoss argues, these are notoriously temporary. They note, for example, that the GST support package included '$3 per week per child family payments … together with an increase of up to $7 per week per family for sole parent families'. That was great until 'seven years later, income support for sole parents with school age children was cut by $25 per week'. So where does this leave us? The problem is not dependency on income taxes, but that we have overly generous income tax breaks for those who do not need them other than for reasons that have little economic basis. As Acoss argues, 'tax concessions for superannuation are excessively generous for people who don't need support to save for retirement' and similarly 'capital gains tax and negative gearing concessions encourage speculation in land, undermine housing affordability and divert investment from more productive purposes'. We don't need to increase the GST, but we could broaden it to include things like private health insurance and private school fees which would actually be progressive. Some in the private school sector are already getting antsy about this (as they should). And here's the thing – we don't need to only fund things with more GST – we could tax wealth and better tax gas companies and all the proceeds could go into the GST bucket that the states get. There are a lot of ways to improve the tax system, but if you can't admit the three points above, you really should admit you don't belong in the conversation. Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work

Read the mind-boggling list of taxes Jim Chalmers could HIKE in the wake of explosive leak as the country's disturbing financial reality finally becomes clear: PETER VAN ONSELEN
Read the mind-boggling list of taxes Jim Chalmers could HIKE in the wake of explosive leak as the country's disturbing financial reality finally becomes clear: PETER VAN ONSELEN

Daily Mail​

time15-07-2025

  • Business
  • Daily Mail​

Read the mind-boggling list of taxes Jim Chalmers could HIKE in the wake of explosive leak as the country's disturbing financial reality finally becomes clear: PETER VAN ONSELEN

For two years Jim Chalmers sold Australia the line that the budget was on a sustainable trajectory. Despite mounting evidence to the contrary, Labor's first-term treasurer clung to a narrative that painted himself as a steady hand delivering back-to-back surpluses without needing to resort to deep structural reform. But the leak this week of a secret government briefing document makes clear that even Chalmers has had to admit what should have been obvious from the start. Australia's fiscal outlook is deteriorating, productivity is flatlining and the country's tax system remains fundamentally unfit for purpose. The spin is wearing thin and the second-term Treasurer knows it. So all that remains to be seen is ... what happens next? The Treasurer is planning to host a three day economic talkfest later this year, but in its aftermath Chalmers will be forced to finally spell out how he plans to raise taxes and cut spending. That's unless he once again puts serious reform in the too hard basket and does nothing, leaving the budget in the red as debt balloons. That can't be an option. The upcoming roundtable in August is pitched as a carefully curated gathering of economic stakeholders, not a showy talkfest. But it's also proof positive that the government can't keep going as it has been, racking up debt on the national credit card. Ever-growing expenditure needs to be reined in, and new ways of taxing are necessary to make the Australian economy fit for purpose in 2025. What Chalmers once sought to avoid - a full-throated debate about structural tax reform and spending restraint - is now the very thing he's inviting. Quietly, Labor seems to be shifting ground. It is suddenly open to everything from GST changes to wealth taxes, alongside curtailing capital gains tax (CGT) concessions. We'll soon see if the ALP has the courage to follow through on any of these, or if it can find other ways to modernise the system to encourage investment rather than discourage it. The days of congratulating themselves for one-off windfall-driven surpluses are giving way to sober warnings about intergenerational pressures and a productivity malaise. Those old enough to remember the 1985 Tax Summit might recognise what Chalmers is up to. Back then, Paul Keating used the event not to clinch deals on the day but to signal his intent: To foreshadow major structural reforms and lay the political groundwork. Chalmers is drawing from the same playbook, albeit more cautiously, remembering that his PhD was actually a study of Keating's leadership style. At the heart of the problem in need of fixing is a structural budget deficit that won't go away by itself. Treasury's long-term projections are grim. An ageing population, rising health costs, ballooning NDIS spending, defence upgrades and the expensive net-zero energy transition are all bearing down on a budget built on a 20th-century tax model. The Treasurer has finally stopped pretending otherwise, which is why everything is suddenly 'on the table'. That includes corporate tax rates, personal income tax thresholds, superannuation concessions and even the GST - although there have been enough signals already that GST changes might be a bridge too far. That's a crying shame. The same government that spent its first term umming and ahhing over the Stage Three tax cuts before breaking its promise and changing them anyway, all the while insisting the budget was back in the black and 'isn't that great', is now openly flirting with pulling some of the most politically difficult levers in the tax policy playbook. Those who watch politics closely worry that the modern Labor Party will mistake raising new taxes as proper tax reform, which it has done before. Inheritance taxes and taxing the family home remain political killers, but just maybe they too will get a look in given the perilous state of the budget, and given the growing pressures on housing affordability and rising inequality. But tax reform alone (including higher taxes) won't fix the budget, and Chalmers knows it. Spending restraint will have to play a key role in whatever happens next. That's where things become trickier. Labor is still heavily invested in programs with long-term outlays and patchy performance metrics, the NDIS being a prime example. Curbing growth in these areas is politically fraught for Labor internally, including when dealing with a Senate in which the Greens now hold the balance of power. That means the opposition has an important role to play, despite its diminished post election status. Again those old enough would remember the Coalition in opposition in the 1980s lent a hand when Keating and Bob Hawke reformed Australia's macro and microeconomic settings, setting up decades worth of prosperity. It is far from clear that the modern Coalition will back Labor's attempt to reform the tax system, even if Labor steps up to the plate. More likely it will play oppositionist politics and shoot down what Labor proposes, hoping to use ensuing political chaos to fight back electorally. The danger therefore is that the roundtable becomes a soft launching pad for ideas without political follow-through. We've seen it before. Endless reviews, summits and white papers, all fine in theory but meaningless without the courage to act. Chalmers wants to position himself as a reforming Treasurer, no doubt with one eye on the prime ministership as his destiny. But the window for meaningful structural change is already narrowing. If Labor doesn't move decisively the next electoral cycle will again become a contest of small-target tactics and bidding wars. Anthony Albanese needs to use his thumping majority the same way Hawke did in the 1980s and John Howard did after his 1996 win to campaign on introducing the GST. The economic environment of today is forcing Labor's hand. Productivity growth is stagnating, business investment is sluggish. And for years now the political centre has kept splintering as the major parties primary vote continues to erode. Chalmers is now asking business and unions to come to the table, drop their rehearsed talking points and engage in something resembling genuine dialogue. But is he serious in doing so? The first term jobs summit left business feeling mistreated - asked to smile for the cameras before being completely ignored - so it may be about to entering this debate without the trust necessary to get on board. Equally there are few tangible signs that Labor is ready to do anything other than reward its base with more one sided policy developments. That said, Chalmers deserves some credit for getting the debate started , belated though it may be. But recognition of a problem is only the beginning, and he could hardly keep denying the economic problem staring him in the face. Let's wait and see if he comes up with anything meaningful. The risk is that taxes go up and spending gets cut, but nothing innovative by way of restructuring the system is embraced to lift productivity.

Winter fuel payment changes to unleash ‘chaos' on HMRC
Winter fuel payment changes to unleash ‘chaos' on HMRC

Telegraph

time11-06-2025

  • Business
  • Telegraph

Winter fuel payment changes to unleash ‘chaos' on HMRC

Rachel Reeves's winter fuel payment about-turn could unleash 'chaos' on pensioners and the tax office, experts have warned. Under the new rules, the majority of pensioners will receive the winter fuel allowance but those earning more than £35,000 will have their payment clawed back through the tax system. Experts have said the policy, which will save an estimated £450m a year and cost around £1.25bn, could have unintended consequences such as: The £450m in savings could be wiped out due to the costs of administering the complex system. HMRC could claw back 'the wrong amounts' from pensioners due to out-of-date records. Customer service could suffer and tax dodgers could get off scot-free as HMRC's staff are moved away from regular work. Rachel Vahey, of stockbroker AJ Bell, said claiming back the payment from 25pc of pensioners was 'the most convoluted and difficult' route the Government could have chosen. She added: 'Given the chaos it could cause and the relatively tiny taxpayer savings on offer, it may have made sense for the Government to take the political embarrassment of a U-turn on the chin and make the payment to all pensioners.' Around two million pensioners earn more than £35,000 and will have the winter fuel payment claimed back through the tax system. For pensioners who file a tax return, this will be done via self-assessment. However, most pensioners are taxed through PAYE, which means the payment will be recovered through their tax code. Robert Salter, of accountancy firm Blick Rothenberg, said this could result in pensioners losing the winter fuel payment unfairly due to HMRC's 'out-of-date' records. 'Given that many people subject to the winter fuel payment won't be doing tax returns, there is a real risk that HMRC might be claiming back the wrong amounts – at least in some cases – as they have used the wrong underlying data,' he said. Former pensions minister Ros Altmann said she was also concerned about pensioners getting hit with incorrect bills relating to the winter fuel allowance. 'HMRC often makes mistakes and they warn that everyone needs to check the figures carefully to ensure the tax codes are correct. 'For many of the oldest pensioners, this is likely to be a massive challenge and, especially for those who are not digitally enabled, it could cause significant worry.' The Government's previous experience with means-testing does not bode well for the success of the winter fuel allowance system. Under the high-income child benefit system, which is also means-tested, the benefit is partially withdrawn once a parent earns more than £60,000. This means the parent must either opt out of receiving child benefit or file a tax return and pay it back. Over the years, many parents have been hit with unexpected tax bills because they do not know the rules or do not realise they have earned over the threshold. This has led to HMRC spending valuable time and resources policing the complicated system in order to claw back a relatively small amount of tax. Jon Greer, of wealth manager Quilter, said: 'The Government should learn lessons from the child benefit system and ensure it doesn't bake in unfairness from the outset. Getting that balance right is critical to avoiding the kind of unintended consequences that have plagued other means-tested benefits.' The Department for Work and Pensions has said it will set up a simple system so pensioners over the threshold can opt out of winter fuel payments. But even once this is up and running, there will be some pensioners who do not opt out because they do not realise they have earned more than £35,000 in one year. HMRC said taxpayers could check taxable income quickly and easily in the app or online via their personal tax account. Chancellor Rachel Reeves said the decision to reinstate winter fuel payments meant 'no pensioner on a lower income will miss out'. The about-turn comes as Sir Keir Starmer tries to shore up support from MPs and the public following losses to Reform at the local elections last month. A spokesman for HMRC said: 'No one will need to file a tax return just to pay back a winter fuel payment, and the vast majority will have the charge collected automatically through their tax code. 'HMRC has previous experience of introducing new processes at pace and doing so very successfully.'

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