A radical proposal has been put forward to save Australia almost $10 billion per year that involves a major change to the nation’s age pension scheme.
Policy Institute Australia has proposed further means testing the aged pension through better including the value of the family home when analysing a retiree’s wealth.
The think tank argues this could deliver almost $10 billion in annual budget savings for the government.
The report said a retired couple with a $5 million Sydney home can qualify for the full aged pension of almost $50,000 per year.
However, their neighbours who rent a home and have $1.5 million in superannuation will receive zero aged pension.
It is understood that Treasurer Jim Chalmers will not be adjusting the aged pension requirements, regardless of this push.
Meanwhile, Social Services Minister Tanya Plibersek has previously ruled out changing the rules for assessing the family home for pension.
A home is not counted as an asset when calculating Age Pension eligibility, but it does lower asset value limit.
The report argues means testing major public funding programs is crucial for tackling intergenerational inequity – a central promise of Labor’s 2026 budget.
Australia’s top 20 per cent of households in terms of wealth received about 20 per cent of program expenditure across aged care, the age pension, child care subsidies and parental leave pay.
“Over the past decade, social transfers have grown by over $6,000 per Australian household in real terms,” the report says.
“A substantial share of this has flowed to Australia’s most well-off households.”
It argues that means testing rules have not kept pace with a wealthier and older Australia.
The shift in how government support is delivered reflects “means testing rules that are no longer fit for purpose”.
“They are inconsistent, unevenly applied and ignore housing as a primary generator of wealth,” Policy Institute Australia’s report reads.
“Our choices are leaving taxpayers with a rising bill to fund services for relatively well-off Australians, and to disproportionately support Australians who own their home relative to others.
“This is a concern for the fairness of our social safety net today, and for its sustainability in the years to come.”
The aged pension proposal comes alongside Policy Institute Australia calling for better-targeted public spending, which it says could save about $21 billion per year.
It says better means testing aged care services could save the budget $6.3 billion per year, including about $5.2 billion saved from spending on the top 20 per cent.
Meanwhile, reforms to childcare subsidies and parental leave pay could save $3.2 billion and $1.5 billion per year respectively.
The budget saving approach comes as government spending as a proportion of GDP sits at around 26.9 per cent – the highest level outside the pandemic in about 40 years.
Treasury expects public spending as a share of GDP to hit 27.1 per cent in 2027-28.
RBA Governor Michele Bullock said high levels of public spending contributed to the central bank’s decision to lift rates for a third time in a row in May.
“We have a situation in Australia prior to the (Iran) war, where we had demand above supply,” she told reporters two weeks ago.
“The ability of the economy to supply the goods and services that were being demanded in total, including by government and by the private sector, was… outstripping the ability of the economy to supply it.”
She continued: “The extent to which government make up the shortfalls for households by giving them more money, it makes it harder to dampen demand.”