By Lindsay David, cross-posted from Australia: Boom to Bust Blog:
As the election campaign drags on and desperation slowly sets in, the gloves are slowly coming off with the LNP and Labor advocating they are the better economic manager than each other. Both parties present a slight shift in policy and objectively have a case to criticise their foe’s policy.
I tend to take a neutral approach and don’t pick sides, especially in an election based on minimal reform; there are undeniable signals from both camps on their paltry approach to taxation and debt. In the backdrop to this election, it is important to note the costs of transferring significant sums of leveraged wealth to other Australians can be more costly to an individual versus any likely taxes ever paid down the line.
At his press conference yesterday, Treasurer Scott Morrison retaliated against Labor’s apparent and pending invasion of the hip pocket of Australia with a cheap cardboard sheet seemingly pulled out of Colin Powell’s 1990 collection of Gulf War charts, citing Labor’s war on taxes (in large capitals) with HIGHER TAXES ON:
– SMALL BUSINESS
– INVESTMENT
– INCOME
– HOUSING
– ELECTRICITY
If we take General Scomo’s military campaign against Labor’s proposals seriously, then the Coalition is claiming Australians will be worse off under a Labor government. It was suggested there will be no job creation because small businesses will not be able to afford new staff, less investment due to rising capital gains taxes, greater income taxes and rising electricity bills. Perhaps these things could occur.
If we take General Scomo’s military campaign in the War against Labor’s higher taxes with objectivity, however, Scomo is not upfront on his underlying message that is transmitted: protectionism. Protectionism of the old and grey – and the younger generation is General Scomo’s enemy in the War on taxes.
Labor’s alleged war on growth is seeking to level out the playing field in investment, primarily in relation to housing affordability, reducing speculators’ ability to outbid first home buyers. The latter group will undoubtedly struggle like no other generation in the post-WW2 period to create their own ‘real net wealth’ given the dire changes in the economy.
The Liberal party is warning of ominous consequences to the economy if dwelling prices fall, making it difficult for the older generation and speculators to capture unearned and unrealised wealth from rising land prices. This is what the General Scomo military campaign is attempting to protect.
When a young first-home buying Aussie does outbid their speculator tax-deducting foe, it is done so at an extraordinary cost to them. Every dollar that a young Australian has saved for a deposit alongside the gargantuan loan they must service benefits an older Australian for their retirement – an intergenerational wealth transfer.
Think of it as a bank-sponsored generational tax where a young Australian is investing everything they have in an older Australian’s retirement through leverage. This is unlike other nations such as Germany or the US where the older generation invests capital in the new; just look at their entrepreneurial startup scene compared to ours.
Australia’s approach is vastly different, by having the younger generation invest via debt to acquire older Australians’ property that will yield no new jobs for the nation but to secure another’s retirement at the lowest possible tax rate for the old.
The older generations are fond of reminding the young that they faced very high mortgage interest rates back in the day. But they also had the benefit of both lower deposit and price to income ratios, one adult earner and high wage growth which reduced their relative debt burdens.
Today’s younger generations are beset with two hardships: record-low wage growth amidst an income recession now 17 quarters long and sky-high housing prices. Without high levels of wage inflation to reduce massive debt burdens, it will become increasingly difficulty to muster up enough to invest in a new business or tech startup. The older generations don’t seem to invest in the young like the young invest in the old.
From an objective point of view, it’s worth cautioning that when combined, taxes and generational wealth transfers come in different shapes and sizes. For General Scomo to win the war on taxes, he has to repeatedly slay the young to protect the older cohorts’ wealth by continually raising the barrier for entry to allow the next generation of young Australians to succeed. This economic model has been tried and tested numerous times – and has failed every time.
