January 02, 2015

Horse 1813 - The Commonwealth Seniors Health Card - The Sky Is Falling

Isn't this amusing? A detail which was tabled in the Federal Budget handed down by Treasurer Joe Hockey almost 9 months ago¹ suddenly became headline news front and centre when the changes actually came into effect. Channels 9 and 7 ran their usual emotive bleeding heart stories and SBS² ran a matter of fact story about the changes.
Before we start running from side to side like brainless sheep and like Chicken Licken³ yelling "The sky is falling!", maybe it's a good idea to actually read what the changes to the The Commonwealth Seniors Health Card actually are.

To wit:
The Commonwealth Seniors Health Card is subject to an income test that includes:
adjusted taxable income, which is indexed on 20 September each year, and
a deemed amount from account based income streams
There is no assets test.

You should have an annual income of less than:
- $51,500 for singles
- $82,400 for couples combined, or
- $103,000 for couples combined, couples separated by illness or respite care, or where one partner is in prison
The income limit is increased by $639.60 for each dependent child you care for.
- Dept of Human Services, Commonwealth Seniors Health Card, as at 2nd Jan 2015

I should point out here that if the rate of return on capital over the long run is roughly 5% and you have more than about $1m in capital that isn't the family home, then that should generate roughly $50000 a year in income. If you can't survive on that as a retired person who presumably doesn't have the extra expenses that come with a daily commute, then quite frankly, you are a wastrel.
To generate $82,400 a year (if you are a couple) requires a pool of capital of $1,648,000. Now this isn't means tested and obviously can not include the family home anyway because no-one's own house generates an income.
I would like someone to show me how a couple with a free $1,648,000 in capital is doing badly.

Including superannuation assets in SMSFs as part of means tested assets might sound unfair until you realise that the reason why people set up SMSFs is to reduce taxation expenses. The truth is that they don't even begin to make sense until the capital quarantined in them is at least $250,000 because at that point, the expense of getting an SMSF audited starts to be become more efficient that the management expenses of retail and wholesale super funds.
Again, with an SMSF which only had $250,000 in it, then at 5% it would only be generating $12,500 which is well under the means test for singles, let alone a couple.
If one partner happens to be separated by illness or respite care or is in prison, then the amount of capital required to hit the limit for the means test is $2.06 million. Again I ask how a couple with a free $2,060,000 in capital is doing badly.

I know I'm going to sound callous and cruel here but the point remains that means testing benefits is in principle a good idea. The very poor needn't worry because they'll always fall within most means tests and the very rich needn't worry because their capital should be able to provide a fairly decent income in retirement (that is after all the very point of superannuation). It is really only those people who fall on the cusps of the means tests who begin to get worried and those sorts of people who either feel a sense of entitlement or those who are actively trying to game the system who feel slighted.
This is quite apart from the fact that in the year 2053 when I retire, I think that this sort of thing will be academic anyway because I think that there's only a 50:50 chance at best that there'll even be a government pension or senior's card in existence. The days of what's left of the welfare state, I think are numbered - Mene Mene Tekel Upharsin.
In the meantime, the sky isn't falling and I think that this is a perfectly sensible piece of legislation.

¹ http://www.smh.com.au/business/federal-budget/tighter-rules-placed-on-health-card-20140513-388d5.html - Sydney Morning Herald, 14th May 2014. The budget was handed down on 13th May.
³Chicken Licken, Henny Penny, Chicken Little, Goosey Loosey, Ducky Lucky and Foxy Woxy all thought that the sky was falling.

No comments: