Tax on retirees: no winners in generation war

Our economy faces serious ­intergenerational issues. But too many of the economic policies of the major parties that may be superficially appealing to young voters will come back to bite them — and quite savagely.

Political parties like categorising voters into different groups, demographics and constituencies. Identifying the “right” groups on which to shower government largesse helps politicians build a voter base and secure re-election; finding groups to demonise helps justify redistributing the goodies in the first place.

There is no easier way to group people than by age. But there is ­little sense developing age-based economic policies, as the financial and economic circumstances of similarly aged people are often chalk and cheese.

A backpedaling Labor is discovering that its latest proposal to soak retirees — the plan to remove the refundability of franking credits — also ­adversely affects low-income aged pensioners.

Younger generations should be particularly wary of such policies; once bad taxes and entitlements are cemented in place, they are devilishly difficult to eliminate.

Labor’s proposed changes to negative gearing may benefit young first-home buyers as house prices fall but could seriously hurt young renters as rents rise.

Liberal and Labor changes to the superannuation system will also adversely affect millennials’ ability to save for their retirement. Introducing confiscatory bank taxes and demonising company tax cuts decreases private sector investment and economic growth, reducing future wage growth and employment.

The Liberals’ new bank tax is also likely to increase the cost of home mortgages, thus hurting first-home buyers. Ill-conceived policies that drive up ­energy prices ultimately will be felt by the younger generation as lower business investment affects the long-term availability of gainful employment.

The National Disability Insur­ance Scheme, Gonski’s education reforms, expanding childcare funding and paid maternity leave all look — at least superficially — quite attractive. But building in permanent entitlements such as ever-growing health, education, welfare and childcare expenditures guarantees that today’s younger workers will face increasingly higher taxes — and will enjoy an increasingly smaller portion of the rewards of their ­labour — than any previous ­generation.

Millennials and Generation Z do have an axe to grind. Australia’s economy is suffering real and serious problems that will disproportionately affect them. Persistent ­fiscal deficits, soaring house prices, slowing productivity growth, rising education and health costs — all these will ultimately create greater burdens on the young than on retiring baby boomers, as for many of them their time as significant workers and tax­payers has passed.

All of these problems are soluble but require economic reform based on balancing priorities ­between personal liberty, economic growth, environmental sustainability and equality of opportunity.

The limp, divisive and economic-lite policies proposed by both parties are hardly a recipe for increased prosperity, sustain­ability and social cohesion. History teaches us that voters — particularly the young — should be vigilant in identifying the con­sequences of government policy that are not immediately obvious.

This requires the next generations to become more economically literate so they can sort the healthy policy ideas from the superficially sweet ones.

It is time for the millennials and Gen Z to put pressure on the major parties to adopt reforms that get to the heart of the matter rather than win cheap votes. To combat rising house prices, they should look to root-and-branch tax reform and the changed local planning laws.

To combat rising government expenditures, they need to investigate the failures of our health and education systems — particularly their inability to adequately incorporate price ­rationing and combat the self-serving actions of the medical profession, education administrators and workers.

To improve productivity, they need to help ­encourage entrepreneurship and target skills training and reduce onerous, ill-conceived regulation.

We have the opportunity to bury the phony generational war rhetoric and focus youthful ­enthusiasm on the real enemy: shortsighted and feeble political leadership.

Matthew O’Donnell is a senior research fellow at The Centre for Independent Studies.