So the Prime Minister plans to pay over-55s a bonus of up to $500. The benefit looks a bit like a non-refundable earned income tax credit (meaning that the best you can do is pay zero tax, not actually come out ahead from your dealings with the ATO). Where other countries such as the US and UK target their EITCs at families with children, this looks like an EITC specifically designed to benefit families without children. A better way of boosting the participation of older workers would be to follow the US, and remove the compulsory retirement age altogether.
Ultimately, the policy isn’t good economics, it’s good politics. The Over-55 Tax Offset reflects the solid advantage that Howard enjoys among older voters. In a paper I’ll be presenting at the Conference of Economists in Sydney on September 27, I find that those aged 50-59 are 13 percentage points more supportive of the Coalition than those aged 18-29, while those aged 60 or over are a whopping 25 percentage points more supportive. Furthermore, the gap in party preferences between younger and older voters is substantially higher than it was in the 1960s (when the gaps were 5% and 8% respectively). If we assume voters preferences reflect parties’ policies, it looks like Howard is far more generous to older Australians than Menzies ever was.