Treasurer Scott Morrison must believe that “ending the age of entitlement” does not extend to older Australians.
As reported in The Australian, Morrison has put forward the ingeniously inequitable plan to allow retirees to sell-off their expensive large homes, pocket the money, continue to collect the Aged Pension, and be exempted from paying stamp duty on their next (smaller) dwelling:
Scott Morrison is canvassing bold tax reforms designed to persuade retirees to downsize to smaller homes and plough more money into retirement-income products…
The plan would include a one-off exemption from stamp duty on the purchase of a smaller house.
As an extra incentive, profits from the sale of the family home would be excluded from the Age Pension assets test provided they were channelled into an approved retirement product such as life annuities and aged-care bonds.
As regular readers will know, I am strongly oppose stamp duties on equity and efficiency grounds. One of my biggest concerns around stamp duty is that it discourages housing turnover by unnecessarily penalising people that move to homes that better suit their needs. As such, stamp duties inevitably lead to an inefficient use of the housing stock, such as empty nesters occupying large homes with multiple spare bedrooms, or young families cramming into small apartments.
That said, I cannot support abolishing stamp duties for retirees only, whilst continuing to financially penalise young families upgrading to more suitable accommodation. Such age-based measures will unfairly shift the tax burden even further onto the younger generations, burdening the very segment of society (young families) that are arguably already under the most financial strain.
Nor can I support Morrison’s plan to allow oldies to pocket the windfall from their sale without affecting their access to the Aged Pension. Morrison must honestly believe that it is equitable for younger people’s taxes to rise in order to pay for the bloated entitlements of those who had the good fortune of purchasing their homes cheaply before they skyrocketed in value, to the detriment of their children and grandchildren, who must now support them in old age?
Genuine and equitable budgetary reform is about sharing the burden of adjustment. However, by creating a special class of citizens exempted from bearing any pain – i.e. home owning retirees – Morrison would effectively shift the burden of repairing the Budget to the younger generations.
If Morrison had any budgetary sense, he would instead advocate:
- For one’s principal place of residence to be included in the assets test for the Aged Pension at some point in the future (e.g. 1 July 2020), thus allowing current retirees and prospective retirees adequate time to make arrangements.
- Replacing stamp duties for everyone with a broad-based land values tax.
- Extend the existing state sponsored reverse mortgage scheme, the Pension Loans Scheme, to all people of retirement age so that asset (house) rich retirees can continue to receive a regular income stream in exchange for a HECS-style liability that is recoverable from the person’s estate upon death, or upon sale of the person’s home (whichever comes first).
Under such a plan, pensioners could continue to receive an income stream as they do now under the Aged Pension, but with less drain on the Budget and on younger taxpayers. The stamp duty to land tax switch would also deliver more efficient use of the housing stock, but without favouring one generation over the other.
The Coalition’s concerns about fighting “inter-generational theft”, so often espoused by former Treasurer Joe Hockey, will be for naught if it proceeds with Morrison’s plan, which places the welfare of asset rich retirees well above their children and grandchildren, who will be left picking up the tab for Budget repair.
