Hands off the family home!

The family home is under attack from a new proposal to means-test the Age Pension and Aged Care eligibility for owners of properties worth $500,000 or more. 

The proposal, which could reduce or wipe out payments to many older Australians, is contained in a document from a relatively new think-tank, the Policy Institute Australia, titled Home truths: The case for rebalancing toward better means testing. 

The Policy Institute argues that high-value family homes should count more fully in means tests for the Age Pension and Aged Care, rather than being exempt or capped. 

It claims that “better targeted means testing” could free up around $21 billion a year, which could fund extra support for “the households that need it most” through income tax cuts, larger JobSeeker and Rent Assistance payments, and a significant reduction in the fiscal deficit. 

It argues that if the family home was included in the means test, older people would be encouraged to unlock the wealth in their home to fund their retirement.  

For those pensioners who are “asset rich but cash poor”, it proposes a Retirement Contribution Scheme where the Federal Government would provide a loan secured against your assets, payable on the sale of the home or from the estate after the homeowner’s death. 

Given that the average price of homes in capital cities is well above $1 million, and over $700,000 in regional centres, such a move would have a significant impact on a large number of older Australians. 

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Not a great idea 

The idea would likely undermine financial security and wellbeing in retirement for people who have worked hard to secure their future. 

National Seniors Australia (NSA) CEO, Chris Grice, said this proposal might be framed as achieving “intergenerational fairness”, but it was manifestly unfair to retirees who had worked hard all their lives to pay off the family home. 

Mr Grice noted that both the Prime Minister, Anthony Albanese, and Treasurer, Jim Chalmers, have said on many occasions that taxing the family home is completely off the table. 

However, as we saw recently with the changes to capital gains tax rules, promises in politics are not set in stone. 

“When the prize is another $20 billion and the decision will be sold as creating more intergenerational fairness, there may be temptation to entertain this idea,” Mr Grice said. 

Peter Harris, the former chair of the Productivity Commission and now a director at the Policy Institute, has told the ABC that means-testing wealth, including the family home, for welfare “could fix the Budget blackhole”. 

This raises the question: is it fair to include the value of the family home in means testing rules?