Young shoulder the burden in war on coronavirus

Younger Australians will pay more than their fair share of the cost of fighting the coronavirus pandemic, the head of the ANU’s tax institute has said.

Younger Australians are paying the price of defending the elderly from the threat of the coronavirus pandemic and, thanks to a tax system skewed against them, will pay more than their fair share of the cost as well, the head of the ANU’s tax institute has said.

The death toll from the global health crisis has been primarily ­restricted to older people, and the Australian National University’s professor Bob Breunig said it was “important to recognise that the benefits of stopping the spread of the virus is mostly going to older people”. In contrast, “it’s younger people who get hit by the shutdown and bear the burden of the drop in economic activity”, Professor Breunig, who leads the university’s Tax and Transfer Policy Institute, said.

Professor Breunig said the epidemic was increasing intergenerational inequality and called for urgent policy fixes to make Australia’s tax system fairer.

“Our heavy reliance on direct taxation — activities by corporations or individuals — means that the tax burden to repay the debt will fall very heavily on the future incomes of young people, which will now be lower as a consequence of the pandemic,’’ he said.

“We don’t do a very good job of taxing asset growth, particularly when it comes to assets owned by older people.”

He proposed reforms, including an increase to GST, a switch from stamp duty on the transfer of properties to a land tax, a flat capital gains tax of 6 per cent across assets, and introducing an asset test for the age pension which included the family home. These reforms would have the benefit of increasing the economic efficiency of the country, helping it capitalise on the anticipated post-COVID rebound.

Industries which have been savaged by forced closures and ­social isolation measures tend to have a younger workforce.

For example, the median age for workers in the accommodation and food services industry — which has mostly ground to a halt — is 26 years old. That industry ­accounts for 7 per cent of the total labour force, according to the Australian Bureau of Statistics.

The retail trade sector employs close to 10 per cent of working Australians and has a median age of 34 years old, against the nationwide average of 39.

The $215bn in spending commitments to offset this economic blow “will have to be paid for by young people”.

 

Veteran economist Saul Eslake agreed that the tax system tended to favour older, wealthier Australians. But Mr Eslake also noted the heavy falls in asset prices springing from the coronavirus pandemic had been borne by older Australians. “The loss of jobs has fallen disproportionately on younger people, while the loss of wealth will fall disproportionately on older people,” Mr Eslake said.

History suggests those graduating high school and university in the midst of a recession take a decade to catch up to those who graduated in better times.

Professor Breunig said broadening the base of the GST and raising the rate was an “important reform” which would also make the tax system more economically efficient. He argued that instituting a flat, 6 per cent capital gains tax regardless of the asset or its owner would be tax revenue neutral and remove some of the incentives to invest in unproductive assets such as housing.

The government has explicitly ruled out changes to the GST, and at the last election campaigned hard against Labor’s proposed changes to the tax treatment of ­investment properties.

The professor acknowledged the politics of reforming the tax system was difficult, but also said these were extraordinary times in which the realm of the possible has already been stretched.

“A crisis does give you an ­opportunity to fix things, and it also creates an environment in which bipartisanship can flourish,” he said.