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A guaranteed minimum pension has been adopted in several countries, and advocated by a number of economists, as a means of dealing with the tricky issue of how to integrate a private pension system with a minimum income guaranteed by governments. In the country the means test is the instrument for this integration. In the GMP proposal, the age pension would become an explicit top-up for those whose private pensions were insufficient to guarantee an adequate retirement income. In the 'classical' form of the GMP, several changes would be involved. First, benefits from the compulsory superannuation tier would have to be taken in income (life annuity) form. Second, the pension means test might be tightened. Third, the new means test would be restricted in its application to income from the compulsory superannuation tier. The concept of a lifetime income test underlying the GMP proposal appears to have considerable merit as opposed to the current annual basis for the pensions means test. The GMP, once the SG system is fully phased in and has been operating for some time, confines redistributions to the lifetime poor and avoids giving assistance to the lifetime rich virtually irrespective of their savings/investment, consumption and tax planning decisions. However there are a number of tricky issues which would need to be resolved in moving to a GMP. The GMP, in its "classic' form, would work best in a context where there was a substantial compulsory superannuation tier quite separate to any top-up superannuation schemes, and where all benefits from the SG tier were payed as indexed life annuities. Benefits from this tier would become the sole basis for assessing GMP entitlements. Where there is a mixed system such as Australia's, and many superannuants have entitlements derived from a mixture of SG and additional contributions, the conceptual basis of the GMP becomes watered down. A compromise proposal is to base it on the whole of the superannuation payout. A further problem is that if annuity take-up is not compulsory, the GMP payment might, over time, not prove adequate for those who through poor planning or bad luck dissipate their superannuation lump sums. On the other hand compelling annuity take-up raises a number of difficult issues. Because of these problems, in this country the GMP is probably most interesting in the "purchased pension" form, which is itself a form of the "minimum necessary annuity" proposal. In this, a specific part of the total superannuation payout would be given up in payment for receipt of a full pension. Appropriately modified, this "purchased pension" system might have the potential to entirely supplant the current system of superannuation taxation and means testing.

A guaranteed minimum pension has been adopted in several countries, and advocated by a number of economists, as a means of dealing with the tricky issue of how to integrate a private pension system with a minimum income guaranteed by governments. In the country the means test is the instrument for this integration. In the GMP proposal, the age pension would become an explicit top-up for those whose private pensions were insufficient to guarantee an adequate retirement income. In the 'classical' form of the GMP, several changes would be involved. First, benefits from the compulsory superannuation tier would have to be taken in income (life annuity) form. Second, the pension means test might be tightened. Third, the new means test would be restricted in its application to income from the compulsory superannuation tier. The concept of a lifetime income test underlying the GMP proposal appears to have considerable merit as opposed to the current annual basis for the pensions means test. The GMP, once the SG system is fully phased in and has been operating for some time, confines redistributions to the lifetime poor and avoids giving assistance to the lifetime rich virtually irrespective of their savings/investment, consumption and tax planning decisions. However there are a number of tricky issues which would need to be resolved in moving to a GMP. The GMP, in its "classic' form, would work best in a context where there was a substantial compulsory superannuation tier quite separate to any top-up superannuation schemes, and where all benefits from the SG tier were payed as indexed life annuities. Benefits from this tier would become the sole basis for assessing GMP entitlements. Where there is a mixed system such as Australia's, and many superannuants have entitlements derived from a mixture of SG and additional contributions, the conceptual basis of the GMP becomes watered down. A compromise proposal is to base it on the whole of the superannuation payout. A further problem is that if annuity take-up is not compulsory, the GMP payment might, over time, not prove adequate for those who through poor planning or bad luck dissipate their superannuation lump sums. On the other hand compelling annuity take-up raises a number of difficult issues. Because of these problems, in this country the GMP is probably most interesting in the "purchased pension" form, which is itself a form of the "minimum necessary annuity" proposal. In this, a specific part of the total superannuation payout would be given up in payment for receipt of a full pension. Appropriately modified, this "purchased pension" system might have the potential to entirely supplant the current system of superannuation taxation and means testing.

The Australian system has managed to provide remarkably high real returns to many contributors which is, after all, the bottom line in assessing the results of such a system. It has done this despite imposing administrative costs which appear to be rather high, even by the standards of other countries imposing mandatory private superannuation savings. To this extent, the system must be assessed as a resounding success. Nonetheless, feasible reductions in administrative and investment costs, currently running at about 1.3% of total assets under management, could see final benefits for many members raised by as much as a quarter or even one-third. This paper outlines several options for reform ranging from the relatively small to full government organisation through a new Office of Superannuation. In all case however it is envisaged that opting out of the SG tier will continue to be possible for schemes paying superior benefits. The option of full government organisation of the system would require much consideration as to governance provisions which would minimise political interference in the running of the fund. Those who do not believe that such interference is avoidable will not, of course, support such a plan, although they might support some of the less drastic options considered. By the same token that scheme holds out the potential to maximise the cost savings potentially available.

The government's tax package (hereafter referred to as "NTS": a New Tax System for Australia) addresses a number of issues for families raised in Ingles' 1997 CEPR Discussion Paper "Low Income Traps for Working Families", but leaves others unresolved and falls short of full-scale structural reform. For example, it reduces family payment tapers, but the new taper continue to overlap with those under the Youth Allowance Scheme. It reduces the many different family payments to two (three counting childcare), but allows these payments to abate simultaneously in some situations, which will particularly impact on the work decisions of a spouse. This paper proposes measures that address these specific problem areas. However another approach is a full-scale structural reform. The measures herein are all forms of harmonisation of the tax and social security systems; but ultimately more radical options ( integration or full separation ) might yield a system that is more rational and can produce a designed structure of effective tax rates. These options – along with the option of a Negative Income Tax – are canvassed in a separate paper – Part II (Discussion Paper 424).

Earned income tax credits (EITCs) have been used mainly in the United States. The Australian tax–transfer system is already very complicated and the aims of the EITC—notably reductions in effective tax rates for low income earners—might be achievable through reforms to existing components of the system. Such tax rates can be lowered either through reductions in social security tapers, or reductions in income tax payable. Action to reduce tapers affecting families is already proceeding through the social security component of the Government's tax reform package. To go further, by reducing tapers on the main allowances, like Newstart Allowance and Parenting Payment, would accelerate developments for such allowances to become forms of wage supplementation for the low paid. If it were not desired to go further down this path (and it does have problems), then relief of income tax burdens could be implemented through changes to the rate structure. While the EITC may make sense in the US context, a country with a well‐developed welfare system like that of Australia has other options. In particular any EITC in this country is likely to be a supplement, not an alternative, to existing cash support for low income families.

This paper examines interactions between tax and social security which produce high effective tax rates, and suggests alternative approaches for rationalising such effects.

AbstractAustralia's retirement income system combines private and public provision for old age. Retirees rely on private (but highly regulated) superannuation saving that attracts large tax concessions; a public, means‐tested age pension; home ownership; and other private savings. Despite recent changes intended to make the system fairer and more fiscally sustainable, Australia's retirement income system still lacks coherence, produces inequitable outcomes and creates high effective tax rates on work and saving. This article proposes a more coherent approach to address fairness, reduce the effective tax rates on work and saving and provide adequate earnings replacement rates with greater fiscal sustainability than is delivered in the recent reforms.