Fair’s fair. The Baby Boomers (born 1946 to 1960) have always moved through the economy and society taking the best of everything – education, health care, opportunities, housing, jobs, income, prestige and tax perks. It is now time to recognise a new big debt.
Because of COVID-19, the economy has been trashed in order that the infection curve be flattened so the health system would be able to cope and not have to triage older people out of treatment.
In short, the economy, in which younger people have a greater interest, has been sacrificed to improve the chances of older people getting through this health crisis alive and well. It was the right decision. When faced with the question, “Your money or your life”, life comes first.
But that should not be forgotten when the crisis subsides. Fairness should demand that some of the perks given to the ageing Boomers, especially by the Howard Government, be wound back. It should demand that some of the imposts put upon the younger generation be removed and some of the tax breaks be transferred from older people to younger people.
The crisis has resulted in several stand-out issues: the insecurity caused by the casualisation of the workforce; the pitifully low allowance given to job-seekers; and the massive child-care barriers erected against mainly women seeking to re-enter the workforce.
All three were recognised by the Government in its crisis response. A lot of casuals were included in the payment to companies to keep people in work; Newstart was in effect doubled; and childcare was made free.
After the crisis all three of these should be kept, at least in part. At the very least childcare should be tax deductible. Surely childcare, like mining equipment, is a necessary expenditure in earning an income. But why not go further? If the state helps look after children from school age by providing free education, why not free child care for the under-5s?
Incidentally, once you remove the initial hurdle for women re-entering the workforce, they soon move up the pay scales and generate tax revenue which would otherwise be lost.
Casuals should automatically become permanents after a qualifying time, with holidays and sick pay.
Newstart should be substantially increased.
How is all this to be paid for? Not by increasing taxes but by merely removing tax perks nearly all of which benefit the older and wealthier.
It should be done gradually, just as their draining effect on the budget after their introduction was gradual.
For example, negative gearing – where you can deduct losses on your rental property from your wage and salary and other income – has always been around. But after capital gains tax was introduced in 1985 it became a tax-avoidance weapon. In 1999 the Howard Government almost halved the capital gains tax, making the conversion of income to capital a sport which now costs the Budget $10 billion. Negative gearing costs $5 billion.
Franking credits meant people got a deduction on their share dividend income equivalent to any tax paid by the company. It prevented double taxation. Fair enough. But in 2000 the Howard Government said you did not have an income to deduct against, the Government would give you the equivalent in cash. The modest-income, high-wealth people lined up for this one. Within nine years it was costing the Budget $6 billion a year.
Superannuation tax concessions (particularly the 15% concessional tax rate on all earnings) cost $36 billion a year.
These perks, plus all the concessions for the principal residence cost the Budget more than $135 billion a year. Whereas the cost of the four biggest welfare items is only about $124 billion a year. No-one is talking about raising income tax on the wealthy or increasing the corporate tax rate to give the younger generation a fair go – just getting rid of the richly undeserved perks.
If you add in the absence of death duties, there is plenty of money for the Baby Boomers to repay a substantial monetary and moral debt to the younger generation. You could even add free tertiary education. And you could get rid of the penalties young people cop with health insurance.
Further, the money that would be spent on the younger generation would not be for cruises (which are not needed and now not wanted) but for things that will improve our economic well-being: childcare, health and education.
You could do it slowly, say, 10 percentage point of benefits over 10 years on most of them until they are gone.
The concessional tax on superannuation and the zero capital-gains tax on the principal residence need not be abolished, but they should be capped with the cap indexed.
Why should there be any tax concession on superannuation fund earnings once the fund reaches a point where it is enough for a comfortable retirement? Beyond that there is no social utility or need to encourage savings. It is just a tax rort. The precise line of “comfortable retirement” is up for discussion. But the fact that there should be one is obvious.
An exemption from capital gains tax on the principal residence is fine for a reasonable size and value residence, but why should someone pay no capital gains tax when they sell a principal residence for $50 million and why shouldn’t a significant part of that $50 million residence be included in the assets test for the pension? The precise line of “reasonable size and value” is up for discussion, but, again, the fact that there should be a line is obvious.
The same principle should apply to estate duty. Very large estates are usually amassed not only on the hard work and skill of the testator but also the things society provides to underpin that wealth generation: the education of the workforce; police; roads and so on. Why should there not be some payment back in the form of death duties? The precise kick-in value is debateable, but there should be one.
Labor messed up many of these things and lost the last election all on their own, as former Prime Minister Malcolm Turnbull pointed out this week.
But with an incremental approach that does not scare the horses, maybe both sides of politics could see the importance of tackling this intergenerational unfairness, particularly as it is now overlaid with a large moral debt to younger generations who have been forced to make large economic sacrifices to, literally, save older people’s lives.
(Figures from Anglicare based on Treasury data, ABS figures and the University of Melbourne’s HILDA survey).
This article first appeared in The Canberra Times and other Australian media on 18 April 2020.