Head of the Prime Minister’s Economic Advisory Council, Maurice Newman, has penned a fascinating piece in The Australian today, arguing that the Budget measures must pass “for the sake of our children”:
…baby boomers (those born between 1946 and 1964) and their cousins loudly resist any moves to crimp their lifestyle, content to leave it to future generations to pick up the tab. And pick it up they will. If the budget doesn’t pass, by the time today’s seven-year-olds get a vote they are likely to inherit nearly $700 billion in debt with a deficit of $25bn in today’s money, with no end in sight…
Policies such as paid parental leave, the raising of the pensionable age to 70 for those under 50 and providing incentives for the employment of eligible workers over 50 are all directed at keeping as many people in the workforce as possible to boost productivity. In attempting to bring the budget into balance, the government is exercising a duty of care to future generations…
Yet there is collective opposition to attempts to remedy this, and a refusal to pay as you go. By definition it will fall to future generations to shoulder the burden. Where is the fairness in that?
By design or default, it is socially destructive to pit generations against each other.
…without urgent action, future generations seem destined to become critical of a system that allowed the profligacy and selfishness of previous generations to limit their opportunities.
With the present mix of macro and micro settings, our fiscal imbalances won’t fix themselves.
Let me state from the outset that I agree with Newman’s position that current Budget settings are unsustainable, given the ageing of the population and the structural decline in the terms-of-trade. I also broadly support the Budget’s changes to indexation arrangements for the Aged Pension, which are essential to prevent payments ballooning as the proportion of workers supporting the aged shrinks. That said, it would have made even more sense to significantly reduce the assets/income test, so that wealthier retirees lose access to the pension, rather than targeting the rate per se.
However, it is a bit rich to claim that passing the Budget’s measures are essential “for the sake of our children”, when many of the measures represent a direct assault on younger Australians.
Take, for example, the Budgets changes to university funding and the deregulation of university fees, which according to NATSEM, will see fee repayments for many courses double – hardly a win for younger Australians.
Then there are the incentive payments for the employment of eligible workers over 50, which will make it harder for younger unemployed to gain a job at the same time as the Budget attacks their access to welfare.
Nor has the Budget addressed Australia’s world-beating and poorly targeted tax expenditures – including superannuation concessions and negative gearing – which overwhelmingly benefit wealthier older Australians. And let’s not forget that the Abbott Government has stupidly moved to reduce taxes on resources via the abolition of the mining tax.
The end result of these failings is that the tax take on younger workers will rise dramatically over the coming decade, according to the Australian Treasury (see next chart), leaving younger Australians picking up the bill for the generous entitlements afforded to their relatively wealthy parents.
On this front, Newman would do well to heed the advice of Malcolm Turnbull, who yesterday proclaimed that Australia’s tax system is overly reliant on personal income taxes and favours older people over younger people:
“Looking at Australia’s tax regime you would say that it is too tough on people earning income… but is incredibly concessional to older people who have made their money…”
Overall, it’s hard not to disagree with Newman and view the Budget as being fundamentally unfair and poorly targeted, even if its overall goal of making the nation’s finances more sustainable over the longer-term is valid.
And until the Coalition tackles Australia’s egregious tax concessions head-on, whilst also ensuring that the tax base is broadened and based on more efficient and equitable sources (rather than simply punishing workers), then its calls to ‘end the age of entitlement’ and for Australians to ‘share the burden of adjustment’ will fall on deaf ears.
