Albo and His Merry Old Millionaires
How Labour Steals from the Young to Give to the Old
The capital gains tax mess (perhaps better referred to as an Aspiration Tax) created by the Federal Government is largely a diversion. A moronic diversion to be sure, but a diversion nonetheless. Tax policy melded with culture wars aimed at penalising ambitious Gen Zers in the name of intergenerational equity. The real issue has been ignored by everyone – who should pay for the rapidly increasing costs of Australia’s aging population?
Let’s start breaking this down into real numbers.
The Government has total expenditure of $833b – of this around $25,000 is paid via income tax for every taxpaying household (albeit a lot of revenue also comes from GST, company tax and excises).
Now let’s get more specific – around 7% of Australia’s population is older than 75 (this number is also increasing so the problem is worsening). As people get older they understandably become more costly to the economy – roughly $115b is spent annually on people aged over 75. This is just for the aged pension, aged care services and a proportion of indirect health costs for hospitals, the pharmaceutical benefits scheme and Medicare. In short, the cost for the 75+ cohort is 15% of total government expenditure spent for around 7% of the population (and this doesn’t include infrastructure everyone uses).
This article doesn’t seek to blame older people for these costs but simply to state facts. We live a lot longer than we used to. The 75+ cohort costs an extra $50b a year relative to younger people.
Now, this is where it gets tricky. Instead of raising more revenue from this costly segment of the community, the Government is doing the exact opposite. It’s choosing to tax younger people more.
Consider the recent controversial budget:
Capital Gains Tax – If you already own an asset, any capital gain up to 30 June 2027 is grandfathered, that is, you will only pay 23% tax on the gain up to that time. If you’re too young to have accumulated assets, you will be charged between 30-47% of your gain in tax. To be sure, this is a monstrously bad policy and means Australian innovators and job creators are paying the highest tax rates anywhere in the world, but it’s even more bizarre that the old and rich get such a benefit.
Primary Residence – If you own a primary residence you never pay any capital gains tax on that property. You could make a $50m profit on the house sale and still, zero tax. Only 20% of Australians under 30 own a house, they don’t benefit from this almighty tax holiday. 83% of people aged 75 own a house. Even worse, the Government completely ignores the value of a primary residence when determining eligibility for the aged pension. So you could live in a $3m house and receive a weekly pension partially paid for by a 25 year old renter on minimum wage.
Negative Gearing – Allows a taxpayer to reduce their taxable income by any losses made on assets (usually investment property). The Labor Government is removing this unusual benefit (which is almost unique to Australia) – with a catch. If you already own a negatively geared property you can continue to claim the tax deduction indefinitely. But if you’re a young aspirational investment property buyer, you can’t access the benefit.
Superannuation – Arguably the greatest rort of them all. Superannuation allows you to pay only 15% tax on earnings (versus 47% for anyone earning $190,000 or more) and only 10% on capital gains. Incredibly, the tax rate drops to 0% (up to $2.1m) in the retirement phase (around the time people start getting really expensive). Perversely, the Government makes you pay less tax as you become a larger cost to the Government.
Medicare – Senior couples pay a $0 Medicare levy below $60,000 in income – young people pay 2% of their income to Medicare. This is as close as you get to theft from the young towards the old.
The Labor Government correctly diagnosed intergenerational inequity – but instead of fixing it, they made it worse.
There are a swathe of obvious changes that would be largely uncontroversial which would rapidly fix the inequity. Most older Australians are happy to pay their fair share and aren’t to blame for the grotesque policy settings. For example:
Increase tax on superannuation earnings to 25% (still below non superannuation levels) – this would raise $12 billion, more than double the revenue being raised by the CGT changes
Remove the Medicare concessions for older Australians – this would raise another $2 billion
Impose a 10% tax on gains on primary residence sales – this would raise around $10b annually
Remove Grandfathering of Negative Gearing on Existing Properties – This would raise another $5b annually
Without removing the incredible waste and fraud in the NDIS and public service (that’s another talk show) those really easy and controversial changes would raise $29b annually.
With that money you could drop CGT to 15% (making Australia broadly globally competitive with most countries, albeit still higher than New Zealand, Singapore and Dubai at 0%) which would cost only around $12b a year and index personal income tax brackets which would cost around $3b in year one and reduce the deficit by $14b annually so we don’t leave younger people with a mountain of annual interest to repay.
The Government is gaslighting younger Australians into thinking this is a budget which fixes intergenerational theft. In reality, Jim Chalmers is a reverse Robin Hood – stealing from the poor and giving to the rich.