Intergenerational inequality to rise as tax and welfare perks target older voters, experts warn By business reporter Daniel Ziffer Posted Yesterday at 4:17am River Pearson says it is "definitely harder to get ahead with the way things are".(ABC News: Peter Drought) Younger people are stuck in a tax system that some economists warn is stacked against them, as election promises that give advantages to wealthy, retired baby boomers over wage earners mount. Key points: An explosion in asset prices has created wealth for landlords and stock owners Wage growth has remained low, while inflation is soaring Young people lack access to many tax advantages enjoyed by older Australians "We've had a tax and transfer system that's radically benefited current older Australians throughout their lifetimes," Steven Hamilton of George Washington University says. "We're seeing further giveaways to older Australians, often quite wealthy, older Australians," Brendan Coates of the Grattan Institute adds. "Essentially the intergenerational bargain is starting to fray." "We've reduced social mobility," Emma Dawson of think-tank Per Capita concludes. "Australia prided itself on that sense of the 'fair go', of being an egalitarian nation, more so than just about anywhere else in the world … we've destroyed that in the space of a generation." No shock to youth Things don't feel fair to River Pearson, a 28-year-old living on Victoria's Mornington Peninsula. River Pearson sees a major difference between the experience of her generation and that of her parents.(ABC News: Peter Drought ) "It is definitely harder to get ahead with the way things are," she says, having just unpacked her car after a long shift of cleaning. fastest-growing group of homeless people. But a diverse group of experts agree that a storm of global factors and policy choices has generally seen older Australians benefit, as young people's futures suffer. A long, astonishing rise in house prices in a time of record-low interest rates has led to a massive growth in wealth for people who got in before the boom. The stock market, too, has powered ahead. Wage growth has been stubbornly low. Combined with rising inflation, that means people's purchasing power, what they can buy with their money, is becoming weaker. Workers are shouldering a growing share of the tax burden, and tax cuts set to arrive will give the most back to those at the top of the income tree. Meanwhile, older and wealthier Australians are benefiting from decisions that cost taxpayers billions: Superannuation concessions: You pay less tax on money you put into your fund and, once you've retired, the money you take out Capital gains tax (CGT) discount: You only pay tax on half of the profit made from buying and selling real estate and other assets Franking credits: a tax rebate to shareholders who receive dividends that have already incurred company tax. Since 2001, retirees have been entitled to cash refunds of the tax already paid, even if they do not pay tax Expansion of the Commonwealth Seniors Health Card: An election promise means people who own their own home and earn $90,000 annually from super will get access to bulk-billed medical appointments and cheap medicines Some super concessions and the CGT discount are available to people of any age, but researchers suggest the bulk of the benefits go to older and wealthier Australians. A super system Superannuation concessions reduce the tax paid on funds in what is meant to be a retirement nest egg but is also used for intergenerational wealth transfer. You can earn up to $250,000 a year and contributions into your super are taxed at 15 per cent, as opposed to the top tax rate, which is currently 45 per cent. Once you retire, you can have $1.7 million in a super account — $3.4 million for couples – and not pay any tax on your earnings. The money was taxed once — when it was earned. But this concession means current wage earners are subsidising some of the richest people in the country to not pay tax on their investment income. Generational cost Treasury produces an intergenerational report about every five years, projecting what Australia will look like. It suggests that by 2040 the cost of the concessions will dwarf what we spend on the age pension. The cost is already far more than double what Australia spends on unemployment benefits. "That looks like being unsustainable," says Steven Hamilton, a tax economist at George Washington University and a visiting fellow at the Tax and Transfer Policy Institute at the ANU. Steven Hamilton predicts "an explosion of wealth inequality among people who are currently 50 to 60 years old".(Supplied: Twitter) One of the issues with intergenerational inequalities is that most people are lucky enough to get old. Until recently, Mr Hamilton was the chief economist at the Blueprint Institute think tank, which has several prominent Liberals and a former NSW Nationals MP on its strategic council. He sees the issue being that changes in policy settings "so that one generation wins, and the next generation loses" are distorting the overall picture. "Well, I don't have a lot of hair," he laughs, "but I'm a young person. And I would very much like to see a greater level of equality within each generation. "I think we've got to fix these problems." Property prosperity For Emma Dawson, executive director of left-leaning think-tank Per Capita, the "real culprits" are tax concessions that go to people who already have a lot of wealth, primarily around property. Emma Dawson says almost half of Australians under 35 are now in some form of insecure work.(Four Corners) At the 2019 election, the concept of negative gearing — allowing property investors to deduct losses from being a landlord against their tax — was much debated. Less discussed is the impact of a discount to capital gains tax (CGT) on property investment — something that exploded at the turn of the century. "At that point, we saw the price of property, of land, in Australia take off compared to the rate of wage growth," Ms Dawson says. "People were encouraged to chase a capital gain, knowing the money they were making from the income in that investment was going to be taxed more lightly than the income from their work." Research conducted for the Australia Institute found the concession cost $9.3 billion (super tax concessions topped $41 billion). The amount of CGT discount claimed by high-income households was 87 per cent of that. Middle-income households used 11 per cent, and low-income households just 1 per cent. "We don't tax wealth, we are over-reliant on taxing incomes, which stifles innovation and it also stifles people's ability to get ahead," says Ms Dawson, who withdrew from a Labor preselection process after the Coalition proposed tax cuts for wealthy people and the opposition did not oppose it. "So we have a lot of older people that are extremely 'asset rich' — they're not paying a lot of tax on that wealth, on the income from their investments — and younger people, who only have income from work, being taxed relatively highly compared to the rest of the world, and [are] unable to get into the market to accumulate some assets." Health boost Another election promise sees the expansion of eligibility for the Commonwealth Seniors Health Card (CSHC). More than 400,000 people aged over 67 who do not qualify for the aged pension get the card, giving them access to cheaper Medicare services and prescription medicines. With Labor matching the promise, it means a person earning up to $90,000 a year ($144,000 for couples) will get what used to be restricted to singles earning up to $58,000 annually ($92,000 for couples). "What we're doing is we're giving cheaper medicines, cheaper doctor appointments to people who are essentially earning amongst the wealthiest 5 per cent of older Australians," says Brendan Coates of the Grattan Institute. Brendan Coates says: "What we're seeing is further giveaways to older Australians, often quite wealthy, older Australians."(Scott Jewell, ABC News.) "They have average wealth, outside of their home, of $1.5 million. "So we are talking about extending these benefits to some of the wealthiest in our society, while at the same time we're struggling to find the money to pay for support for people who are vulnerable, who are on low incomes and who are really struggling." In Australia, savings are taxed relatively lightly, giving bigger benefits to older people who have accumulated more over the course of their working lives. That is leading to problems, Mr Coates says. "These are policies that see someone who's older, over the age of 65, paying the same tax if they earn $100,000 as a younger person who earns $50,000. You know, that is not equitable." Inheritances As the large baby boomer cohort gets older, there is likely to be a growing wave of wealth transfer through inheritances. But far from ending inequality, some experts are concerned it will cement it. "It'll turbocharge inequality," Ms Dawson warns. "Because what we'll see is those families that already have some capital passing it down to their own children, and those that don't have any capital will be even less able to get into the market. "So we'll be creating effectively a two-tier society again." More than $120 billion was passed on in 2018, before the pandemic (the entire health budget that year was $80 billion). Mr Hamilton says that, while inheritance may address some inequality between young and old, it "doesn't address inequality within a generation between the haves and the have nots". Where to now? River Pearson isn't angry about older generations. She lives with her grandfather, who she describes as "my best friend", and appreciates that people who've worked a lifetime deserve a good retirement. But as she considers buying property, she feels the cards are stacked against her. "It's daunting, it's actually very daunting to think of because it's such a hard thing to achieve these days in my age bracket with the cost of living going up and wages staying the same," she says. "And it's only going to get worse if it continues to rise." John Feehan worked in the dairy industry and never reset his body clock. Rising about quarter to three in the morning, he hits the gym for several hours before most people are awake. Self-funded retiree John Feehan says it was a lot easier for his generation.(ABC News: Peter Drought) He thinks about the lives of his children, and those of his partner's. "I think it's harder for them," he says. "I just walked into a factory, looking for a job, and 20 years later I was still there. We were the lucky generation." "I just think we're so greedy, we don't like to share. "Maybe [dealing with] climate change might impinge on our portfolio, or it might cost us a little bit more to address it, but we just avoid those things. We don't … want anything to change that might hurt us." The years ahead The big problem, Emma Dawson says, is that when you make structural changes to any system — like the way we tax or give benefits — there are winners and losers. When you're trying to win the most votes in an election, that's tough. "No-one wants there to be any losers, but there has to be in this in this game," she says. "They may lose a little bit of wealth in order to allow other people to build some security. And I think that's a trade-off most Australians would be willing to make." Mr Coates calls it a "unity ticket" from the Coalition and Labor: "pushing more benefits towards older Australians, often wealthier, older Australians". He argues that taking the intergenerational challenge seriously would involve increased rent assistance for young people and a winding back of concessions so that older people don't pay so much less tax than younger people on the same incomes. "We're not seeing those kinds of policies this election campaign, essentially, because both major parties are worried about pissing off older Australians," he says.
Coalition’s super-for-housing policy could cost all fund holders: industry By Rachel Clun Updated May 19, 2022 https://www.smh.com.au/politics/fed...ll-fund-holders-industry-20220519-p5amm7.html Every superannuation holder could end up worse off in retirement under the Coalition’s super-for-housing policy, industry funds have warned, saying the plan would force the sector to carry lower-performing assets. Less than two days out from election day, the cost of living remains a hot-button issue after data on Wednesday showed a record gap between wages growth and inflation. The superannuation industry says all fund holders would be worse off under the Coalition’s super-for-housing plan.Creditominic Lorrimer Both major parties have vowed to help more people get a foothold in the property market, with Labor announcing its home equity scheme earlier in the campaign, and the Coalition on Sunday unveiling its plan to allow first home buyers to withdraw up to $50,000 of their super to help with a house deposit. Analysis of the impact of the Coalition policy from Industry Super Australia found funds would have to carry more cash, which would lead to less investment in long-term growth assets, leaving every super fund holder worse off in retirement. Industry Super’s modelling found a 30-year-old who had $20,000 in super could end up $14,700 to $29,100 worse-off at retirement regardless of whether they used the Coalition’s housing scheme. The need for more cash meant annual returns across investment portfolios could fall by up to 0.2 percentage points, depending on how different funds invested their assets, it said. Industry Super chief executive Bernie Dean said Australians could be left tens of thousands of dollars worse off because of the scheme. “Not only will throwing super into the housing market jack up prices and make houses less affordable, but all Australian workers will also be worse off because of lower investment returns,” he said. “Super is meant to be for people’s retirement, not supercharging house prices and pushing the home-ownership dream further away.”
Only brain dead politicians would come up with this stunt. One week prior to a federal election to pander to buying votes from brain dead electors.
If housing keeps rising then it makes sense to use your superannuation as a deposit. I get the impression Australia, NZ, Canada, US, etc. don't want to build enough housing for the populace so I don't know that you will do worse investing in housing vs. the share markets. Plus you don't have to worry about a place to live. But this does create a two tiered system of have and have nots which won't end well. Of course if there is a massive interest spike and you are holding adjustable rate mortgage you will be in trouble (this is what happened in the 2005-2008 collapse in the US).
One problem, currently house prices at all time highs, interest rates all time lows. House prices may stagnate for some years, interest (dead money to banks) goes up for some years, stock market & superannuation will rise for some years. If your super is depleted, then your house, although it provides shelter, comes at a high cost. Upon retirement you have a house you've been a slave to with no super money. Bottom line imo, politicians have to address housing to prevent 1 person owning multiple dwellings as their business income. Rental housing should be run by some sort of taxpayers co-opperative, where dividends go into buying more rental housing, not into buying super yachts and fast cars and fancy watches. That way, rents stay cheap, people can save, housing stays low priced. Also, stop foreigners buying houses if they are not going to live in them. The problem is not difficult, just that too many people, Fed, states, councils, planners, developers, realestate agents, investors are not governed like supermarkets, ie they price gouge and have incentives to do that.
I believe Singapore has a similar scenario as you painted due to the lack of physical space. I remember visiting my old college friend who works in Singapore as a Chemist in the government. He told me you have to apply for a license to get a second home, second automobile, etc. That may be the solution especially for Australia & Canada.
National, Australia votes, Opinion Do we even want to solve housing affordability? Waleed Aly Columnist, May 20, 2022 https://www.smh.com.au/national/do-we-even-want-to-solve-housing-affordability-20220518-p5amig.html Every few years, Australian politics gets around to not solving the housing affordability crisis. This election sees both major parties offering policies that are unlikely to work for the common reason that they are not designed to reduce (or even stall) house prices. Instead, they aim to let potential first home buyers borrow more than they otherwise could, so they can place higher bids than they otherwise would. That, by definition, drives prices up, especially at the entry-level of the market. Both major parties are offering housing policies that won’t actually reduce the cost of buying a home. Credit:Louise Kennerley Both parties deny this, of course, and Labor’s denial is somewhat credible, but only because Labor’s scheme is so limited in its availability. If it avoids driving up house prices further, it’s only because it helps a very small number of people. It doesn’t solve the underlying problem. It can’t because our politics is now built on assumptions that make this problem nearly impossible to solve. The Coalition’s plan probably illustrates this most usefully. This would allow first home buyers to draw on their superannuation, within limits, to buy a home. That’s anathema to the superannuation industry, of course, since the whole point of superannuation is for it to be out of your reach until retirement on the very sound basis that most human beings won’t restrain their spending today to ensure a good retirement many tomorrows away. But perhaps what’s most interesting about the Coalition’s policy is that it will make so much intuitive sense to so many people. Why is that? The most powerful argument for the Coalition’s policy is that when you buy a house, you’re really making an investment. It’s just that where superannuation funds invest your money in the stock market, this lets you choose to invest some of it in property instead. And if you sell that property, you have to put the relevant amount back into superannuation, plus the relevant proportion of the capital gain. The Coalition’s policy will make sense to many people.Crediteter Rae Viewed this way, there’s no conceptual difference, other than the fact that if you invest in a house, you get to enjoy your investment in a way you don’t enjoy shares. Why not let people do that? It’s as safe as houses. Once you frame it that way, buying a house isn’t a form of spending at all: it’s actually a form of saving. A house is a bank account in which you can live; it just holds your money in an illiquid form, and gives you a very high (if illiquid) return. What’s telling is that there’s nothing remotely controversial about describing housing this way. After decades of skyrocketing housing prices, we all intuit it. That’s one reason we share a desperation to get into the market, and why so many are prepared to stretch themselves so thin, taking on severe amounts of debt to do it. But the more property becomes about investment and even saving, the less it becomes about actual housing. If it were primarily about shelter, homeowners would be less determined to see the value of their homes rise. They’d recognise that the primary benefit – shelter – is still being delivered whatever prices are doing, and that as long as they have their mortgage under control, there’s no real risk. Buying a house isn’t about spending, it’s like creating a savings account in which you can live.Credit:Rhett Wyman Even if they were to sell their property for a lower price, that would likely mean other properties are cheaper, too, so they’ll have roughly the same ability to buy their next house. But almost no one sees it that way. That is the philosophical root of all our problems. The moment housing became significantly about wealth accumulation, we created a political imperative that house prices must always go up. So, we constructed tax arrangements to encourage more investors, creating the perverse situation that you might be taxed more for working than for what you make in a passive, non-productive way by owning property. And when house prices inevitably galloped away from those trying to enter the market, our politics has inevitably shrugged and pressed on for a very simple reason: in this environment, housing affordability is widely received as a euphemism for destroying peoples’ investments. The result is a system that encourages people to take out loans they can barely afford, further inflating the market so that other people have to take out loans they can afford even less. More than 40 per cent of borrowers are now experiencing mortgage stress, and this is a time of extremely low interest rates. Imagine now interest rates rise and property prices fall. A chunk of those people would default on their mortgages and be unable even to pay back the bank after selling the house. They would be financially ruined. Put simply, falling house prices now mean carnage. And frankly, the political cost of that greatly outweighs the cost of letting those who are locked out stay there. So, our politics dreams up policies to deal with housing affordability on the condition that they don’t actually make houses more affordable. Even our attempts at building more houses don’t really do the trick because they’re either the wrong types of houses, or the rules still favour investors to snap them up over first home buyers. Labor’s 2019 negative gearing policy might have addressed this since it removed this tax loophole for new dwellings, making them less attractive to investors. But, true to form, Labor got whacked for that policy. The legacy of 2019 is that the policy options are now severely limited. Maybe it’s poetic that we should finally arrive at sacrificing superannuation as a way of serving this unsustainable system. Superannuation was the logical extension of a philosophy that sees every worker as a shareholder; it made us all part of the investor class. So perhaps we shouldn’t be surprised if we begin to see the world as a series of potential investments, even in markets that should more primarily be about need. But once we lose the primacy of need in something like housing, we lose the ability to see how my accumulated investments might be depriving you of something essential. We instead demand to be left to our investments. So, politics now cannot take a dollar off anyone, or even look vaguely like it will. It’s tempting to call this a “no losers” brand of politics, but of course, that’s not quite accurate. There are losers. It’s just that they’re the people who are already losing. We take nothing away from them except their prospects.
This guy makes a lot of sense! Governments imo have turned housing markets into a giant circus, complete fiasco.
Maybe it's good to reflect back..... Societal collapse https://en.m.wikipedia.org/wiki/Societal_collapse ......Cognitive decline and loss of creativity The anthropologist Joseph Tainter theorized that collapsed societies essentially exhausted their own designs and were unable to adapt to natural diminishing returns for what they knew as their method of survival. The philosopher Oswald Spengler argued that a civilization in its "winter" would see a disinclination for abstract thinking. The psychologists David Rand and Jonathan Cohen theorized that people switch between two broad modes of thinking. The first is fast and automatic but rigid, and the second is slow and analytical but more flexible. Rand and Cohen believe that explains why people continue with self-destructive behaviors when logical reasoning would have alerted them of the dangers ahead. People switch from the second to the first mode of thinking after the introduction of an invention that dramatically increases the standards of living. Rand and Cohen pointed to the recent examples of the antibiotic overuse leading to resistant bacteria and failure to save for retirement. Tainter noted that according to behavioral economics, the human decision-making process tends to be more irrational than rational and that as the rate of innovation declines, as measured by the number of inventions relative to the amount of money spent on research and development, it becomes progressively harder for there to be a technological solution to the problem of societal collapse. What produces modern sedentary life, unlike nomadic hunter-gatherers, is extraordinary modern economic productivity. Tainter argues that exceptional productivity is actually more the sign of hidden weakness because of a society's dependence on it and its potential to undermine its own basis for success by not being self limiting, as demonstrated in Western culture's ideal of perpetual growth. As a population grows and technology makes it easier to exploit depleting resources, the environment's diminishing returns are hidden from view. Societal complexity is then potentially threatened if it develops beyond what is actually sustainable, and a disorderly reorganization were to follow. The scissors model of Malthusian collapse, in which the population grows without limit but not resources, is the idea of great opposing environmental forces cutting into each other. The complete breakdown of economic, cultural, and social institutions with ecological relationships is perhaps the most common feature of collapse. In his book Collapse: How Societies Choose to Fail or Succeed, Jared Diamond proposes five interconnected causes of collapse that may reinforce each other: non-sustainable exploitation of resources, climate changes, diminishing support from friendly societies, hostile neighbors, and inappropriate attitudes for change.....