Senior Australians would be able to work more hours before getting their pensions docked under new proposed legislation being introduced by independent MP Rebekha Sharkie on Monday.

The private members bill – designed to alleviate critical workforce shortages – will attempt to increase the income test threshold for pensioners and has the backing of major stakeholders including the National Farmers Federation, Council of Small Business Organisations Australia, National Seniors Australia and Gina Rinehart.

Under the current Work Bonus program, pensioners can earn up to $480 a fortnight before their payments are reduced at an effective marginal tax rate of at least 50 per cent.

The collapse in migration and booming pandemic jobs market has left the nation severely short-staffed, as it has in other advanced economies.

Unemployment is at a near 50-year low of 3.5 per cent, and there were 423,000 job vacancies in February, according to ABS data.

Ms Sharkie, whose electorate of Mayo includes a high number of senior Australians, said businesses in regional Australia were “crying out” for more staff.

“In our seniors, we have an experienced workforce that, like many Australians, is facing cost of living pressures and wants the opportunity to earn a wage without being unfairly penalised,” Ms Sharkie said.

“This is a single solution to two major issues that just makes sense.”

The Australian Chamber of Commerce and Industry Andrew McKellar has estimated that changes to increase the amount a pensioner could earn could attract at least 400,000 over-65s back into the workforce, and will promote the idea at this year’s national employment summit.

The government has also indicated it is open to the proposal, with Jim Chalmers confirming in June it would be discussed at this year’s summit, but that changes would need to be weighed up against the nation’s budget constraints.

National Seniors Australia chief advocate Ian Henschke said older Australians should be able to work more without losing their benefits, calling to overhaul the current system which he argued “punishes” seniors.

“We need to change this so the system rewards, not punishes them. It will then be a win for the whole economy when we do,” Mr Henschke said.

“Deloitte Access Economics estimates if we increase older worker participation by just three per cent we will add $36bn to the nation‘s GDP.”

The proportion of over-65s in the workforce has increased dramatically, from 6.3 per cent in 1980 to 14.4 per cent in February 2020, according to the National Skills Commission.

The jump has coincided with the climbing average retirement age, as well as people enjoying longer and healthier lives, more flexible working options and a rise in less physically demanding jobs.