Pensions are under attack
BOTH state and federal governments are becoming increasingly short of money with no realistic remedies in sight to rectify the situation.
Just last week South Australia talked about introducing a state income tax, but that may not be as simple as it sounds.
There have been two measures floated this week, both of which I find particularly concerning.
The first is to include the family home when eligibility for the age pension is being considered - the second is universal land tax to be levied on all properties.
It's easy to make the statement "why should a person living in a million-dollar house the on the pension?". But it ignores the plight of those who are asset rich and cash poor.
Think about a young couple who bought a house in an outlying area 40 years ago.
Certainly, it may be worth over $1 million today because of the general property rises in the area as the city expands, but these people could still be strapped for cash.
The fact that their house has increased in value does not put any more cash in their pocket.
Well, couldn't they take out a reverse mortgage.
That's not as simple as it sounds either, a reverse mortgage may be fine for people who are aged 75 or older but are totally impracticable for younger retired people because of the compounding effect.
If the interest rate was 6% the debt would double every 12 years.
The same applies for land tax. A basic principle of equitable tax treatment is that tax should be levied against income - once again those who are asset rich and cash poor would be the most heavily hit.
As the population ages pressure will grow on government budgets.
Expect many proposals to be put on the table in the next few years. These may include abolishing negative gearing, taking away the 50% discount for capital gains tax, or increasing the entry text on superannuation contributions.
Every measure has huge implications. I urge you to stay informed and join the debate.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: firstname.lastname@example.org