The problem of growing older with a tax target on your back

Wealthier, older Australians will rightly contribute more to better aged care, but have self-funded retirees got a bigger tax target on their backs?

Wealthier, older Australians are becoming a consistent tax target.

At a conservative estimate, I’ve handed over more than half of everything I’ve ever earned to governments. I’ve paid my full whack in state and federal taxes, one-off levies, council rates, taxes posing as fines, excise duty for drinking and other sins, taxes and tolls for driving, flying – basically a levy on living and dying (final reckoning TBA).

I’ve been pinged for probably more than 100 taxes, some of which no doubt cost more to administer than they raise in revenue. Despite severe temptation, I’ve resisted tax dodges, tax havens or questionable family trusts and instead endured a lifetime of PAYG penance.

On top of that, everyone I’ve worked for has been taxed just for employing me and taxed again if they offered me any kind of perk. Thankfully, those employers tipped in for super. All in all, governments have done very well out of my generation for more than 50 years and, to cite Kerry Packer, not all that money has been spent that well.

Now if you think I’m complaining about my lot – as a largely self-funded retired baby boomer – you’d be wrong. Boomers are a lucky generation and I for one support a mostly fair and equitable system where those who are able to pay higher taxes, and are less dependent on the state, do so for the broader benefit of all. And on the whole, it works – or at least it has up until now.

However, like many families today, governments around the world are struggling to make ends meet and generational wealth inequality is increasingly identified as not just a chief cause, but a potential solution. The boomer bank’s billions in savings are in their sights – and good luck getting between a treasurer and a very large bucket of (taxable) money.

Again, don’t get me wrong. The bank of mum and dad – one of the top 10 home lenders in the country – is a sensible solution given that around 70 per cent of household wealth is tied to the value of the home. It’s a great comfort to know that your children can get on to the property ladder, albeit with a leg-up on to the first rung. It’s been a driving force during all those taxing years of toil. Highly taxed years.

What worries me is that government – which is generally pretty useless at thinking long-term let alone developing solutions beyond the next election cycle – is showing every sign of a desperate knee-jerk reaction by coming after those who have already paid their dues. Over and over again.

At its cruellest, they’re coming after pensioners. Take the UK, where the newly minted Labour government has cut off the winter fuel allowance for all but the very poorest of pensioners, many of whom must make the daily choice between heating or eating. More than a million UK pensioners have been forced to sell their homes to fund aged care in the last five years.

In Canberra, a bipartisan deal will result in older Australians justifiably contributing more to

their aged care, depending on their means.

But therein is the warning sign. Don’t think for a minute that the income and assets test applied to this scheme is locked in for life and don’t bet on the value of the family home being excluded forever from a raft of asset tests.

Self-funded retirees need to prepare for more means testing by these (gen X) mean testers, and should brace for a Byzantine tax structure that will no doubt creep into other areas. For example, the case for a higher contribution to aged care could logically be extended to health care; the older we get, the more health services we need.

As the tax base shrinks, governments will be sorely tempted to target wealthier older Australians, mainly baby boomers, and it would be naive to assume they won’t eventually come after property assets and nest eggs. Boomers – or bust.

You can’t take it with you, and through a combination of short-termism, lack of reform zeal and pure panic, governments in the future will probably ensure you don’t. We might want our children to inherit a home and assets, but before gen X and millennials get too excited about the anticipated big transfer of wealth, they might want to make sure governments don’t take the lot first.

Alan Oakley is a writer, former editor and retiree.