Means Tests: an evaluation of
the justice of imposing high
rates of clawback on those of
modest means
Anthony Asher
Means tests:
• An administrative atrocity
• Unnecessary and Unfair
They are meant to make pensions more
affordable by targeting the needy …
but they are an intrusive tax, at high rates,
on lower middle income groups.
This presentation
●
South African background
●
Evaluated against justice
●
What can be done?
South Africa
●
●
Committee of Inquiry into a Comprehensive
Social Security System for South Africa
(Taylor Committee)
State Old Age Pension of R780 monthly
(AU$200)
●
Income test at 50%, plus asset test
●
70% currently get full pension …
●
But paper also applies to Australia and UK
Justice
•
•
•
•
•
Liberty
Needs
Equality
Efficiency
Just deserts
• Importance of process
Justice
●
●
Personal?
−
Stages of moral development
−
Agreement on procedures particularly
Relevance?
−
Strongly linked to both positive and negative
behaviour
Liberty
●
●
●
Freedom from interference
But means tests apply to wider range of
incomes and assets – by size and type
Too complex to understand
Needs
●
Pensions are above the minimum standard
●
The issue is relative not absolute
●
Not targeting but redistribution
●
Need can be addressed by benefits in kind e.g. lifeline tariffs
Equality
What is repulsive…is that some classes should
be excluded from the heritage of civilization
which others enjoy, and that the fact of human
fellowship, which is ultimate and profound,
should be obscured by economic contrasts,
which are trivial and superficial. RH Tawney
R 2,000
R 1,000
No taxes and benefits
Increasing marginal tax only
Means tests and tax
R0
Net income
R 3,000
Effects of redistribution
R0
R 1,000
R 2,000
R 3,000
Earned incom e
R 4,000
R 5,000
R 2,000
R 1,000
R e d is trib utio n within re tire d c o ho rt
R e d is trib utio n away f ro m re tire d
c o ho rt:
- re d uc e p e ns io n
- inc re as e re tire m e nt ag e
R0
Net income
R 3,000
E ffe c ts o f re d is trib u tio n
R 0
R 1,000
R 2,000
R 3,000
E arne d inc o m e
R 4,000
R 5,000
Unemployment or disability benefits?
●
Moral hazards
– limit benefits and marginal “tax”
●
Psychological, social and economic benefits
●
Depend on objective factors other than age
Efficiency
●
●
Administration
−
76% of identity files wrong …
−
10 times cost of non-means tests
Unenforceable law is unjust
−
Falls unevenly
−
Creates uncertainty
−
Harassment
TAB LE 1
(9 % ta x o n
in c o m e )
M a rg in a l ra te o f
d e d u c tio n fo r
c o n trib u tio n s
S a m e ta x ra te s
1 8 .0 %
1 8 .0 %
4 0 .0 %
4 0 .0 %
1 8 .0 %
1 8 .0 %
3 0 .0 %
3 0 .0 %
3 0 .0 %
3 0 .0 %
4 0 .0 %
4 0 .0 %
4 0 .0 %
4 0 .0 %
0 .0 %
0 .0 %
1 8 .0 %
1 8 .0 %
3 0 .0 %
3 0 .0 %
R e d u c in g ta x ra te s
In c re a s in g ra te s
Y e a rs o f
in v e s tm e n t
in c o m e ta x
c o n c e s s io n s
10
40
10
40
10
40
10
40
10
40
10
40
10
40
10
40
10
40
10
40
M a rg in a l ta x o r
c la w b a c k ra te o n
b e n e fits
1 8 .0 %
1 8 .0 %
4 0 .0 %
4 0 .0 %
0 .0 %
0 .0 %
0 .0 %
0 .0 %
2 5 .0 %
2 5 .0 %
0 .0 %
0 .0 %
3 0 .0 %
3 0 .0 %
5 0 .0 %
5 0 .0 %
5 0 .0 %
5 0 .0 %
5 0 .0 %
5 0 .0 %
B e n e fit:
c o n trib u tio n
ra tio
104%
128%
116%
227%
127%
156%
158%
251%
118%
188%
193%
379%
135%
265%
48%
39%
64%
78%
79%
125%
T AB L E 2
(3 0 % ta x o n
in c o m e )
M a rg in a l ra te o f
d e d u ctio n fo r
co n trib u tio n s
S a m e ta x ra te s
1 8 .0 %
1 8 .0 %
4 0 .0 %
4 0 .0 %
1 8 .0 %
1 8 .0 %
3 0 .0 %
3 0 .0 %
3 0 .0 %
3 0 .0 %
4 0 .0 %
4 0 .0 %
4 0 .0 %
4 0 .0 %
0 .0 %
0 .0 %
1 8 .0 %
1 8 .0 %
R e d u cin g ta x ra te s
In cre a sin g ra te s
Y e a rs o f
in ve stm e n t
in co m e ta x
co n ce ssio n s
10
40
10
40
10
40
10
40
10
40
10
40
10
40
10
40
10
40
M a rgin a l ta x o r
cla w b a ck ra te o n
b e n e fits
1 8 .0 %
1 8 .0 %
4 0 .0 %
4 0 .0 %
0 .0 %
0 .0 %
0 .0 %
0 .0 %
2 5 .0 %
2 5 .0 %
0 .0 %
0 .0 %
3 0 .0 %
3 0 .0 %
0 .0 %
0 .0 %
1 8 .0 %
1 8 .0 %
B e n e fit:
co n trib u tio n
ra tio
94%
72%
105%
131%
115%
88%
143%
143%
107%
107%
175%
218%
122%
153%
87%
44%
94%
72%
Just deserts
●
Based on contributions / residence
●
Grandfathering (UK abolishes)
Reform
●
Perspectives: Welfare vs Finance
●
Lobby groups
–
The gerontocracy
–
The industry
–
Those subject to means tests
Means tests:
• An administrative atrocity
• Unnecessary and Unfair
“Speak up for those who cannot speak for
themselves, for the rights of all who are
destitute.
Speak up and judge fairly; defend the
rights of the poor and needy.” Proverbs 31
Means Tests: an evaluation of
the justice of imposing high
rates of clawback on those of
modest means
Anthony Asher