Focus on fiscal reform’s losers fuels politics of intergenerational envy

Robert Hughes in 1993 published Culture of Complaint. The phrase still nails what is wrong with modern democratic politics.

Robert Hughes, the late US-based Australian art critic, in 1993 published Culture of Complaint. Nearly 25 years later the phrase still nails what is wrong with modern democratic politics and much modern media.

It is too easy for journalists to focus on publicising the plight of any losers from any public policy initiative, no matter how beneficial the change for the wider society. This focus on the losers of reform is at the core of an issue playing out in the lead-up to the next federal election.

Personal and corporate tax cuts are needed to stimulate economic growth that the Coalition feels will eventually help repair the budget deficit. Yet vastly increased government spending driven by the National Disability Insurance Scheme, the Gonski school funding reforms and the cost of providing new treatments in our heavily socialised healthcare system are politically impossible to resist but worsening the deficit.

Since the Howard years and the revenue surge of the first part of the mining boom, resolving such differences has been made harder by the rise in the number of families that pay no net tax after benefits and the generous concessions made to retirees who were paying no tax on uncapped superannuation until last year.

No side of politics has clean hands on these issues. Labor prime ministers Kevin Rudd and Julia Gillard were unable to rein in public spending and reduce the deficit after the global financial crisis. Neither could Liberal PMs Tony Abbott and Malcolm Turnbull. Gillard and her treasurer, Wayne Swan, left the NDIS and Gonski largely unfunded as a kind of fiscal booby trap for future conservative governments. John Howard before them bought off various voter demographics for political advantage with what would prove to be unsustainable fiscal and welfare pork-barrelling.

Now we have a Shorten Labor opposition, almost certain to win the next election, prepared to renege on the great economic reforms of the Hawke, Keating and Howard governments by playing the politics of intergenerational envy. Many in the superannuation industry believe Labor is even prepared to destroy the compulsory super system it once considered its proudest legacy.

Young people, who will never get the scale of superannuation tax breaks their parents did, feel they will never be able to afford their own homes and that older Australians have the market sewn up. Retirees feel they played by the rules when investing their own money — their superannuation savings — and those rules are changing without warning.

Many parents also face a social trend squeezing them as they near retirement. More children are living at home into their late 20s and more grandparents are living longer and often with support of their 50-something children. These beneficiaries of the housing boom never received childcare support, Family Tax Benefits parts A and B, never had gap years after school and never had the luxury of multiple degrees and a career start at 30. Mind you, they never had HECS debt either.

While Fairfax Media and the ABC have supported the idea of eliminating negative gearing for property investors and removing the capital gains tax discount to alleviate housing costs, such an approach misses the main issues driving up house prices: state government policies restricting the supply of new cheap land and low interest rates.

State land release policies are fixable, as are urban density issues. The interest rate effect not so. Baby boomer homeowners, many of whom battled through 18 per cent mortgage rates in the 1980s when they were raising young families, have benefited from historically low interest rates that have blown out house prices. This paper’s Bernard Salt says the “smashed avocado generation” has given up trying to save for a deposit as prices have risen faster than incomes. Many have chosen consumption today over saving. Their parents should urge them to reconsider. Home ownership is the most reliable predictor of wealth.

The Grattan Institute in 2016 said low interest rates were only part of the housing affordability story for young people. The pain of mortgage repayments also “depends on how much you paid for the home and how fast the loan gets eroded by inflation and rising wages”. Typical homes today cost four times household incomes compared with only 2.5 times 20 years ago. Since 1986, ownership among 25 to 34-year-olds has fallen from 58 per cent to 45 per cent.

What of the elderly? Are they being fleeced to pay for government spending? Former treasurer Joe Hockey made himself unpopular with his “lifters and leaners” budget in 2014, but he was right that many of the benefits to families and retirees from the Howard years were no longer affordable. Turnbull and his Treasurer, Scott Morrison, alienated the conservative base by capping untaxed super payments at $1.6 million.

Hockey and Morrison had a point. Hockey told me in 2014 of individuals who had tens of millions of dollars locked up in tax-free super and one owner in Vaucluse who had a $30m home in his fund. Yet the number of people involved is small and the amount that could be clawed back is not large relative to total super tax concessions.

The aim of compulsory super was to provide a decent retirement income, especially in the face of the retirement of the biggest demographic bubble in history, baby boomers. Former PM Paul Keating reckoned the impost on government of boomer retirements would be unsustainable. He devised a social wage bargain with business and the ACTU. Workers would rein in wage claims and business would contribute a percentage of salaries towards compulsory superannuation. The problem 25 years later, highlighted by the ABC’s Four Corners on March 26, is many lower-income earners and women are retiring with insufficient super.

I sympathise with people (like me) who are facing changes to a system after retirement that they were forced into by law. Yet I cannot see why young people facing low wages growth and very high housing costs should face the burden of budget repair while families with children and people with multi-million-dollar super balances escape net tax.

Pensions should be tightened up and seniors cards should not be available to people not on a pension. While there is an argument $1.6m may not be enough to provide a decent long-term income in retirement in an era of very low rates of investment return, I see no reason not to cap total superannuation investments. Earnings on money moved out of the pension phase back into the accumulation phase after last year’s change are still generously treated at a concessional 15 per cent tax rate.

On young Australians and housing, there should be a limit on the number of negatively geared investment properties an individual or family trust can own. Why are some surgeons and lawyers paying no tax but supporting dozens of negatively geared investment loans? Tax deductibility for legitimate business expenses is a correct principal but people who arrange their affairs to avoid tax are abusing that principal.

The biggest contributions to fixing intergenerational issues (including leaving deficits to future generations) should come from reform of state land use policies and cutting federal spending, especially health and education spending by a tier of government that builds and runs no public hospitals and no public schools.

The last thing our country needs is more politics of envy.