Boomer envy is a dead-end road for younger investors: Editorial
Bashing the boomers may be music to the ears of the idealistic young. But lifting taxes on investment income and removing incentives to buy shares or save for retirement will have long-term consequences. Ultimately, playing politics to cut down tall poppies, or the financially self-secure, will hurt younger generations the most.
Jim Chalmers’ revised superannuation tax regime is a case in point. Failure to index the amount at which higher taxes take effect will see inflation soon catch less than spectacular superannuation balances in the higher tax net. It will be even sooner if the Greens get their way and reduce the “rich” limit to $1.7m.
The language being deployed that taxes not collected are somehow a hit to the budget is a slippery slope. The untaxed income should not be seen as taxes forgone. More correctly, it is the legally held property of those who have worked hard to get it. The same is true for franking credits, which recognise that it is shareholders who own an enterprise that pays tax on their behalf.
Changing the rules risks taxing profits twice, something that is as aspiration-sapping as the current plan to tax unrealised capital gains as part of the superannuation reforms. Government can get away with it because many voters don’t understand it. But as the Albanese government gets a taste for breaking its election promise not to lift taxes, voters are starting to get the picture that the small-target strategy deployed by Anthony Albanese during the election campaign last year was just a ruse. Young people must be careful what they wish for. Attacks deployed against the wealth of older generations will end up hitting the next generation of taxpayers the hardest.
Even the teal independents who captured wealthy seats from the Coalition are starting to part ways with their partners in climate action. Four teal independents voted with the Coalition against the government’s proposed $600m raid on franking credits. Goldstein MP Zoe Daniel, Wentworth MP Allegra Spender, Mackellar MP Sophie Scamps and North Sydney MP Kylea Tink voted with the Coalition during a division on the bill. Kooyong MP Monique Ryan and Warringah MP Zali Steggall abstained from voting. The vote followed our reports that internal Treasury documents conceded the franking credits crackdown could be deemed as a tax increase and a winding-back of the dividend imputation system. Treasury officials were aware of significant public concern about the new tax laws outlined in more than 2000 submissions from the public on the controversial legislation.
The concerns raised by Treasury last November, following the October budget, about the “sensitivities” of the changes were contained in talking points for Treasury officials appearing before Senate estimates hearings. Franking credits are now claimed by more than 3.1 million mum-and-dad investors and retirees, according to Treasury, at a cost to the budget of about $17bn in 2019-20. Most recipients are over 50. The bulk of the total $67bn in franking credits distributed by Australian companies in 2020 went to superannuation funds, other companies and charities.
The potential impact of the changes being proposed goes much further than pinching pennies from the retired. As we have editorialised previously, the franking credits system is good for shareholders and beneficial for businesses, both big and small, that want to raise capital without increasing debt. Rather than targeting the ability of shareholders to claim the tax benefit of franking credits, the new plan has the potential to discourage or restrict companies from paying them out in the first place. Against the modest amount of money the government says the proposed changes will raise is the danger of what it will do to business behaviour once capital raising becomes more expensive and the benefit of paying tax in Australia is lessened.
As Robert Gottliebsen wrote on Thursday, corporate history is littered with once mighty companies that lost sight of what they were doing and why they were successful. The same applies to nations. The danger is that the Albanese government is doing to superannuation and retirement savings what the once great AMP society did to itself.
Confidence is everything in investment and the message being sent by Labor is that the rules on superannuation and sharemarket investing are not as secure as they once were. The impacts of this will flow through to a generation being flattered by Labor with claims they are acting to restore generational equity. The likely outcome is we will all become poorer across time. That might be more equitable but it’s not fair.
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Frustrated millennials struggling to buy a home today will be the wealthy investors of tomorrow. That is how things work. Ask a baby boomer, it has never been easy to get a foothold on the property ladder and it takes a lifetime to accumulate material wealth. The sacrifices made by post-war savers would be unimaginable to many in these have-it-all-now times. But it can be much quicker to surrender accumulated wealth, particularly when faced with the sort of class-war envy politics being deployed by the Albanese government.