The Australia Fantasy: Why Comparing Their Pension System to U.S. Social Security is Economic Malpractice
My Dad, Rev. Phil Thrailkill (SC), has written more in his life than I ever will… He was a Methodist Minister, turned Anglican Minister later in life, and has published several books along with countless sermons, services, etc. Following Jesus: Discipleship in the Gospel of Luke and Beyond (2022), Resurrection A Pastor’s Reading of the Major New Testament Resurrection Passages (2014), and Mary: Lessons in Discipleship from Jesus’ Earthly Family (2007) are the names of his published work. He started reading my blog a few weeks ago, sent me an article he read recently, and asked for my option. So I decided to write about it…
Prior to reading this post, you will want to read the same article from the American Enterprise Institute (AEI) that my dad sent me.
Here is the link: We’re Going About Social Security Reform the Wrong Way
When I initially read this article, my bull$hi! radar went off. The author makes some valid points about how U.S. policymakers obsess over Social Security solvency while ignoring whether the program actually serves its intended purpose. Fair enough. But then he holds up Australia’s 2020 Retirement Income Review as some sort of enlightened policy framework that America should emulate, and that’s where this thing goes completely off the rails.
Let me be clear about something from the start: Australia and the United States are fundamentally different economies operating under entirely different demographic, cultural, and fiscal realities. Holding up Australia as a model for American Social Security reform is like comparing apples to kangaroos—it’s not just imperfect, it’s intellectually dishonest.
THE ARTICLE
The author, who I’ll note comes from a predominantly Keynesian economics background, spends the first half of his piece rightfully criticizing how American policymakers treat Social Security reform like a solvency game rather than a policy question. He’s not wrong about that. Congress does obsess over trust fund depletion dates while ignoring basic questions like “How much income does someone actually need in retirement?” and “Are current retirees doing okay?”
But then comes the pivot to Australia:
Consider this passage from the Australian government’s 2020 Retirement Income Review stating what pension policy should look like... This summary is clear; it considers both government-paid pensions and policies to encourage private saving... I can’t imagine a U.S. administration of either political party publishing anything approaching Australia’s review in rigor, evenhandedness or clarity.
The author is essentially saying, “Look how smart the Australians are! They think about retirement policy holistically!” as if the only thing stopping America from adopting similar reforms is a lack of intellectual rigor rather than, you know, completely different economic and demographic realities.
For whatever reason, policy literalists love to cherry-pick examples from other countries without doing the hard work of understanding why those policies might not transfer. Australia’s retirement system works in Australia for very specific reasons that have nothing to do with the supposed superiority of their policy thinking and everything to do with their unique circumstances.
Let me explain…
THE TAX REALITY: AUSTRALIA vs. UNITED STATES
First, let’s talk about taxes. You cannot have a generous, well-functioning social safety net without the tax revenue to support it. Australia has that tax revenue. The United States... not so much, at least not in the same way. Plus the US has a LOT more debt.
Australian Tax Rates:
Progressive income tax system ranging from 19% to 45%
A 10% Goods and Services Tax (GST) on most goods and services
Mandatory superannuation (retirement) contributions of 11.5% of salary
Higher overall tax burden across the board
United States Tax Rates:
Federal income tax ranging from 10% to 37%
State and local taxes vary wildly (some states have zero income tax)
Social Security tax of 6.2% (up to $168,600 in 2024) plus 1.45% Medicare
No national consumption tax like Australia’s GST
According to Organization for Economic Co-operation and Development (OECD) data, Australians paid on average approximately $17,146 USD per capita in total tax revenue compared to about $14,000 for Americans—roughly $3,000 more per year. That $3,000 difference adds up fast when you’re funding a comprehensive social insurance system.
But here’s the kicker: Australians are generally okay with paying higher taxes because they see direct benefits—universal healthcare, better parental leave, more generous student loan repayment terms, and yes, a more comprehensive retirement income system. It’s a social contract that Australians have accepted. Americans? We’ve never accepted that contract, and for good reason that I’ll get to shortly.
The author of this AEI piece conveniently ignores that Australia’s retirement system is built on a foundation of much higher taxation. You can’t just copy their policy framework and paste it onto America’s lower-tax, more individualistic economic structure.
THE DEMOGRAPHIC DIFFERENCE: HOMOGENEITY MATTERS
Now let’s talk about the elephant in the room that policy analysts love to ignore: demographics and cultural homogeneity. Australia and the United States are vastly different countries when it comes to their population makeup, and this matters enormously when designing social programs.
Australia’s Demographics (2021 Census):
Population: ~26 million
Top ancestries: English (33%), Australian (29.9%), Irish (9.5%), Scottish (8.6%), Chinese (5.5%)
76% European ancestry as of 2016 (72% by 2021)
29.1% born overseas, but largely from similar cultural backgrounds
Despite claiming to be “multicultural,” Australia remains significantly more homogeneous than the U.S., particularly in terms of shared Anglo-Celtic cultural values
United States Demographics (2024):
Population: ~340 million
Diversity Index: 62.36 (high level of racial/ethnic diversity)
White alone: 57.5% (and declining)
Hispanic/Latino: 20%
Black/African American: 12.6%
Asian: 6.7%
Two or more races: 2.5%
Over 300 languages spoken
The United States has a Diversity Index of 62.36, which measures the probability that two randomly selected people will be from different racial or ethnic groups. This is one of the highest diversity indexes in the developed world. Australia’s diversity, while increasing, doesn’t come close to America’s level of ethnic, cultural, and linguistic heterogeneity.
Why does this matter for Social Security policy? Because social insurance programs work best when there’s a high degree of social trust and shared cultural values. When people believe they’re all “in it together” and share similar life experiences and expectations, they’re more willing to support redistributive programs. This is basic social capital theory, and it’s been demonstrated repeatedly across different countries and contexts.
Australia, despite its claims of multiculturalism, still operates with a largely shared Anglo-Celtic cultural framework. The social consensus needed to support higher taxes and more generous government programs is easier to achieve when the population shares common values about work, retirement, individual vs. collective responsibility, and the role of government. Australian culture is also very racist. If you are not “white,” you likely face direct or indirect racism daily. We have a friend who lived there for many years, and she would tell us stories about what she experienced as a black female American living in Australia.
The United States? We can’t even agree on what pronouns to use, let alone establish a national consensus on retirement policy. Our diversity is our strength in many ways, but it absolutely makes achieving broad social consensus on redistributive programs exponentially more difficult. Anyone who tells you otherwise is selling you something or doesn’t understand basic human psychology and group dynamics.
THE KEYNESIAN PROBLEM
For those unfamiliar, Keynesian economics emphasizes government intervention, aggregate demand management, and the idea that government spending can stimulate economic growth, especially during downturns.
Here’s the thing about Keynesians: they tend to view government programs through rose-colored glasses, assuming that if we just get the policy design right, everything will work out. They focus on what should happen in their theoretical models rather than what actually happens when government gets involved in managing people’s retirement savings and income.
The Keynesian approach to Social Security reform typically involves some combination of:
Raising the payroll tax cap or eliminating it entirely
Increasing benefit generosity for lower-income retirees
Means-testing benefits for higher earners
Expanding government’s role in retirement income planning
All of this assumes that government can efficiently manage these programs better than individuals managing their own affairs. This fundamentally contradicts the principle of Inalienable Responsibility—the idea that individuals are ultimately responsible for their own lives, decisions, and retirement planning.
When you start from a Keynesian perspective that government intervention is generally good and efficient, you naturally gravitate toward examples like Australia that seem to “do it right.” But you ignore the massive differences in context that make those policies work (or not work) and you gloss over the loss of individual responsibility and economic freedom that comes with more government involvement.
WHAT THE AUTHOR GETS RIGHT (AND WRONG)
To be fair, the author makes several valid criticisms of how America approaches Social Security policy:
He’s Right About:
U.S. policymakers obsessing over solvency dates while ignoring actual retirement adequacy
The need to ask basic questions about retirement income needs
The lack of rigorous analysis about who’s falling short and why
The failure to consider alternative uses of resources currently going to Social Security
These are all legitimate critiques. The solvency game is ridiculous when you think about it. We’re arguing over trust fund accounting mechanisms while ignoring whether the program actually helps people retire with dignity.
But He’s Wrong About:
Australia being a “useful” model for U.S. reform
The idea that better policy “thinking” is what’s holding America back
Ignoring the tax and demographic differences that make Australia’s system possible
Assuming government-centric solutions are superior to individual responsibility
Here’s what really bothers me about articles like this: they implicitly assume that the problem with American social programs is that we’re just not smart enough or thoughtful enough to design them correctly. If we could just think more like the Australians or the Brits or the Scandinavians, everything would be better.
This is nonsense. The “problem” with American Social Security, if you want to call it that, isn’t a lack of intellectual rigor. It’s that we’re a fundamentally different country with different values, different demographics, and different economic structures. We value individual liberty and personal responsibility more than collective security. We’re more diverse and less trusting of central authority. We have lower taxes and expect more economic freedom in return.
These aren’t bugs in the American system. They’re features.
THE REAL QUESTION: WHAT SHOULD SOCIAL SECURITY DO?
If we’re going to have an honest conversation about Social Security reform, we need to start with first principles rather than looking for foreign models to copy. Here are the questions we should actually be asking:
1. What is the purpose of Social Security in 2025 and beyond?
When Social Security was created in 1935, most Americans didn’t have access to capital markets, financial literacy was limited, and retirement was genuinely an insurable event (nearly half of people didn’t live from age 21 to 65). None of that is true today.
Today, Americans have access to 401(k)s, IRAs, HSAs, and countless other savings vehicles. Financial education is widely available (even if not widely utilized). And approximately 80% of people born in 1960 survived from age 21 to 65. Retirement is now a savings event, not an insurance event.
So what should Social Security do in this new reality? Should it:
Provide a universal basic income floor for all retirees?
Function as anti-poverty insurance for only the poorest seniors?
Continue being the middle-class entitlement it has become?
Gradually phase out as people take more responsibility for their own retirement?
The author is right that we don’t ask these questions often enough. But his solution, looking to Australia for answers, misses the point entirely.
2. Who is actually responsible for retirement security?
This is at the heart of everything. Is retirement security primarily the individual’s responsibility, or primarily the government’s responsibility, or some combination?
My answer is clear: retirement security is your responsibility. Not your employer’s. Not the government’s. Yours. This doesn’t mean we can’t have a safety net for those who genuinely fall through the cracks, but it means the default assumption should be that adults are capable of planning for their own future. If they plan well, they should have the choice of forgoing Social Security.
The Keynesian worldview inverts this. It assumes that without government management, most people will fail to save adequately, so government must step in and essentially force people to save (through Social Security taxes) and manage those savings for them (through the Social Security system). This is profoundly paternalistic and undermines individual responsibility.
3. What are the trade-offs?
Every dollar that goes to Social Security is a dollar that could go somewhere else, either to individuals to save and invest as they see fit, or to other government priorities like infrastructure, defense, education, or paying down debt.
The author acknowledges this in his article, noting that “Retirees are richer and more financially secure, and there are alternate uses of that money that might be more pressing.” This is correct. If seniors are doing better than ever before (which the data shows they are), why are we still expanding Social Security benefits rather than redirecting those resources?
But here’s where the Keynesian bias shows up: the author never seriously considers the option of letting individuals keep more of their own money to manage their own retirement. The only “alternate uses” he mentions are other government programs. This reveals the fundamental bias, government spending good, individual choice and responsibility less considered.
4. What do we do about the demographic reality?
Social Security is a pay-as-you-go system where current workers fund current retirees. This worked great when there were 16 workers for every retiree (1950). It works less great when there are 2.8 workers per retiree (today). It will work even worse when there are projected to be 2.3 workers per retiree (2035).
You can solve this problem in exactly three ways:
Reduce benefits
Increase taxes
Increase the number of workers (immigration or higher birth rates)
The author criticizes U.S. policymakers for focusing on options 1 and 2 without considering broader retirement adequacy questions. Fair enough. But he doesn’t address option 3, which gets back to demographics and cultural homogeneity.
Australia can be more generous with its retirement system partially because it has more control over its immigration system and can select immigrants who are more likely to be net contributors to the tax system. Australia’s immigration is merit-based and selective in ways that America’s system hasn’t been for decades.
The United States has a much more complex immigration reality, with large-scale unauthorized immigration, family reunification priorities, and a more porous border. This affects the ratio of contributors to beneficiaries in our social insurance systems.
I’m not saying this to make an immigration argument one way or another. I’m saying it to point out that demographic realities matter tremendously for social insurance programs, and Australia’s demographic situation is very different from ours.
My unCommon Sense
If we’re going to reform Social Security, here’s what I think we should actually do:
#1. Means-test benefits aggressively.
The author mentions that “the richest 10% of seniors receive as much in Social Security benefits as the poorest third of retirees.” This is insane. If you have millions in retirement savings, you don’t need Social Security. Period.
I would means-test benefits such that anyone with more than, say, $3 million in retirement assets gets reduced or zero Social Security benefits. You paid in? Great. Consider it insurance that you didn’t need. Just like I pay for car insurance every year and hope I never need to use it.
This will be politically unpopular because Americans love their entitlements. But it’s the right policy from both a fiscal and moral perspective. Social Security should be a safety net, not a universal middle-class entitlement.
#2. Raise the retirement age to 70.
When Social Security started, the retirement age was 65 and life expectancy was approximately 62. Today, life expectancy is nearly 80 and we’re still retiring at 65-67. This makes no mathematical sense.
People are healthier and living longer. Many jobs are less physically demanding than they were in 1935. Raising the retirement age to 70 (gradually, over 20 years) would significantly improve the program’s finances while acknowledging demographic reality.
Will some people hate this? Yes. Is it still the right policy? Also yes.
#3. Allow younger workers to opt out partially.
Here’s a radical idea: let people under 40 redirect half of their Social Security taxes to private retirement accounts they control. They’d still pay half into the system to support current retirees (honoring our existing commitments), but they’d also build real wealth they actually own.
This would be a 30-year transition, but it would gradually shift from a government-managed system to an individual-responsibility system. It acknowledges that younger workers may never see the Social Security benefits they’re being promised, and it gives them more control over their own retirement security.
The Keynesian economists will scream that people can’t be trusted to manage their own retirement savings. To which I say: that’s their problem and their responsibility. Adults need to take ownership of their own financial futures. If they make poor choices, they live with the consequences. That’s called Inalienable Responsibility.
#4. Stop pretending we can have European-style benefits with American-style taxes.
This is the bottom line that politicians refuse to acknowledge: you cannot have generous, universal social programs without significantly higher taxes. Period. Australia can afford more generous retirement programs because Australians pay significantly higher taxes.
Americans need to make a choice: do we want to keep more of our own money and take more responsibility for our own retirement, or do we want government to manage more of our retirement and pay significantly higher taxes?
I know which option I prefer. But let’s at least be honest about the trade-offs rather than pretending we can have it both ways.
#5. Acknowledge that cultural homogeneity affects social programs.
This is the part that will get me in trouble, but it needs to be said: Australia’s retirement system works better partially because Australia is still a more culturally homogeneous country with higher levels of social trust. This makes redistributive programs easier to implement and sustain.
The United States is one of the most diverse countries on Earth. This diversity brings enormous benefits—innovation, cultural richness, different perspectives, and economic dynamism. But it also makes achieving consensus on large-scale social insurance programs incredibly difficult.
We need to design our social programs with this reality in mind, not wish we were a different country with different demographics. That means less emphasis on universal programs that require broad social consensus, and more emphasis on targeted programs for those who genuinely need help.
THE ECONOMICS OF RESPONSIBILITY
At the end of the day, this debate about Social Security reform comes down to a fundamental question about economics and responsibility: who is primarily responsible for your retirement security? AND are you ok with that?
The Keynesian answer, exemplified by the author’s admiration for Australia’s system, is that government must play “the” role or a large role in ensuring retirement security through mandatory contributions, managed benefits, and comprehensive policy frameworks. The individual’s role is secondary.
My answer is exactly the opposite. Individuals are primarily responsible for their own retirement security. Government’s role should be limited to:
Not making it illegal to save and invest (through reasonable tax treatment)
Providing basic economic stability and rule of law
Offering a true safety net for those who cannot provide for themselves
The Keynesian (aka big government) approach creates dependency and assumes incompetence. My approach creates independence and assumes competence.
The Keynesian approach requires ever-higher taxes to fund comprehensive government programs. My approach leaves more money in people’s pockets to save and invest as they see fit.
The Keynesian approach works better in culturally homogeneous societies with high social trust. My approach works better in diverse societies where achieving consensus is difficult.
Which approach is “better” depends entirely on your values and your view of human nature. But let’s stop pretending that one country’s approach can simply be copied to another country with fundamentally different demographics, culture, and values.
If we want to actually reform Social Security in a way that serves Americans, we need to:
Start with American values (individual responsibility, limited government, economic freedom)
Acknowledge American demographics (diverse, large, lower social trust in many areas)
Accept American fiscal reality (lower taxes, higher debt, competing priorities)
Design solutions that work for this country, not some idealized version of Australia
That means moving toward more individual responsibility, less government management, means-tested benefits, and honest conversations about trade-offs. It does not mean copying Australia’s policy framework and hoping for the best.
The author is right that we need to think more holistically about retirement security rather than just obsessing over Social Security solvency dates. But the solution isn’t to import another country’s model. The solution is to design an American approach that respects individual responsibility, acknowledges our unique challenges, and doesn’t assume that government knows better than individuals how to plan for retirement.
I’ve been a Type 1 diabetic for 37+ years. I manage my blood sugar every single day, multiple times a day, because no one else can do it for me. The government can’t check my blood glucose. My employer can’t inject my insulin. My parents can’t calculate my carbohydrate ratios. It’s my responsibility, and mine alone.
Retirement planning is the same thing. No one else can live your life for you. No one else can make your financial decisions. No one else will bear the consequences of your choices—good or bad.
Before we can fix Social Security, we need to stop fantasizing about being Australia and start dealing with the reality of being America.
If you want to have a constructive conversation about this or anything else, message me at dan@thrailkill.us, and let’s grab coffee or a beer.
Have a good one,
Dan
PS - Hope you enjoy the final version, Dad
SOURCES
Primary Article:
Biggs, Andrew G. “We’re Going About Social Security Reform the Wrong Way.” American Enterprise Institute, October 2024. https://www.aei.org/op-eds/were-going-about-social-security-reform-the-wrong-way/
Australian Tax and Economic Data:
Australian Taxation Office. “Individual Income Tax Rates.” Commonwealth of Australia, 2024. https://www.ato.gov.au/rates/individual-income-tax-rates/
Australian Government. “Goods and Services Tax (GST).” Australian Taxation Office, 2024.
Australian Government. “Superannuation Guarantee.” Australian Taxation Office, 2024. https://www.ato.gov.au/business/super-for-employers/paying-super-contributions/how-much-super-to-pay/
OECD. “Revenue Statistics 2024.” OECD Tax Database, 2024. https://www.oecd.org/tax/revenue-statistics/
Australian Demographics:
Australian Bureau of Statistics. “2021 Census of Population and Housing.” Commonwealth of Australia, 2022. https://www.abs.gov.au/census
Australian Bureau of Statistics. “Cultural Diversity in Australia, 2021.” Commonwealth of Australia, 2022.
U.S. Tax Data:
Internal Revenue Service. “IRS Provides Tax Inflation Adjustments for Tax Year 2024.” U.S. Department of the Treasury, 2023. https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024
Social Security Administration. “Contribution and Benefit Base.” SSA.gov, 2024. https://www.ssa.gov/oact/cola/cbb.html
U.S. Demographics:
U.S. Census Bureau. “QuickFacts: United States.” Census.gov, 2024. https://www.census.gov/quickfacts/fact/table/US
U.S. Census Bureau. “2020 Census: Detailed Demographic and Housing Characteristics File A (DHC-A).” Census.gov, 2023.
Parker, Kim, et al. “America’s Complex Racial and Ethnic Tapestry.” Pew Research Center, 2024.
Social Security Demographics and Worker-to-Retiree Ratios:
Social Security Administration. “Ratio of Covered Workers to Beneficiaries.” Social Security Bulletin, Vol. 85, No. 1, 2025. https://www.ssa.gov/policy/docs/ssb/
Social Security Administration. “The 2024 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds.” SSA.gov, 2024. https://www.ssa.gov/OACT/TR/2024/
Life Expectancy and Retirement Age Data:
Social Security Administration. “Actuarial Life Table.” Period Life Table, 2021. https://www.ssa.gov/oact/STATS/table4c6.html
Centers for Disease Control and Prevention. “Life Expectancy in the U.S.” National Center for Health Statistics, 2024. https://www.cdc.gov/nchs/fastats/life-expectancy.htm
Social Security Administration. “Historical Background and Development of Social Security.” SSA History Archives. https://www.ssa.gov/history/briefhistory3.html
Australian Retirement System:
Australian Government. “Retirement Income Review: Final Report 2020.” Commonwealth of Australia, 2020. https://treasury.gov.au/review/retirement-income-review
Australian Immigration Policy:
Australian Government Department of Home Affairs. “Australia’s Migration Program.” HomeAffairs.gov.au, 2024. https://immi.homeaffairs.gov.au/what-we-do/migration-program-planning-levels
Economic Theory and Social Capital:
Putnam, Robert D. “Bowling Alone: America’s Declining Social Capital.” Journal of Democracy, Vol. 6, No. 1, 1995, pp. 65-78.
Alesina, Alberto, and Eliana La Ferrara. “Ethnic Diversity and Economic Performance.” Journal of Economic Literature, Vol. 43, No. 3, 2005, pp. 762-800.
Additional Background:
Sowell, Thomas. Basic Economics: A Common Sense Guide to the Economy. 5th ed., Basic Books, 2015.
Friedman, Milton. Free to Choose: A Personal Statement. Harcourt, 1980.