3 ways to defuse intergenerational anger

1.Close borders (unfortunately our population will reduce as we're not replacing ourselves quickly enough, reducing the tax base and our economy wont grow)
2. Unskilled workers do a lot of the work that current residents wont do. Look at the personal care industry.
3. Climate change is a hoax and forget about equity of access. Not the sort of country I want to live in.
4. No rules. Forget building codes, height limits, safety on worksites. Drill baby drill. Really?
5. Add history, so that we don't repeat the mistakes of the past. History is very underrated. Is that woke?
6. Subjective - where do we start? Healthcare, research, roads...
7. I can go one better - perhaps start by charging the big miners and gas exporters properly and we can set up a fund like Norway has done to make tertiary education and childcare free (hope that isn't too woke)

Quoting from the above article “ Retirees have contributed years of taxes to fund the pensions they are collecting”.

No. Their taxes did not pre-fund their age pension. Their taxes were spent on the government budget of the day - healthcare, education, etc. Age pensions are paid out of current working people’s taxes.

Spot on, Eve....saved me from saying the same thing.

I agree that is technically correct but there is some merit to the argument. Current retirees funded the generation before them and expect the same thing to happen after they’ve retired. We can't all simply fund things exactly when we need them - only paying taxes for education when your children are school age, only paying for disaster relief when the disaster impacts where you live, etc. I still think the means test for the pension should change but so often these debates come down to what some person or generation “deserves” while not acknowledging they made any contribution.

How can you talk about "Housing prices are being boosted by entrenched tax incentives that benefit older homeowners while pricing new homeowners out of the market." but not once mention the extremely high levels of migration which is almost certainly placing the strongest pressure on dwelling availability and hence prices? The article's failure to address this issue renders the article shallow and largely irrelevant.

Hi Bernie -

I was paraphrasing the prevailing narrative from younger voters. Whether you agree with that or not it is likely to influence the policy proposals in the upcoming budget. My point was to try and propose alternative approaches and admitted they didn’t address property prices.

I think that young people seeing entrenched tax benefits as the cause for expensive housing, and not excessive demand from population growth exceeding supply growth of housing is part of the communication problem. And part of that is the current trendy and somewhat misplaced use of the word "intergenerational", usually used by the younger "journalists"/influencers. As alluded to by someone else, some basic literacy around finance wouldn't go astray. The basic concept of supply and demand (and the manner "price" tries to balance the two); the bleeding obvious concept that those who have earned an income for longer (and saved) amazingly have more money than those just starting out; and finally that those who pay the most taxes usually get the most value from any tax benefit (there's lots of talk about who gets the most benefit but the reason they do so, that is they pay alot more tax to start with (the top 1% pay nearly 20% of income tax, and the top 10% pay nearly half of all income tax and around 40% of adults pay zero income tax), is usually conveniently left out of the conversation). But lets just stick with "intergenerational", the media just love to stir up a fight rather than trying to be factual and educate.

Things the government, not property investors, has done (and could undo) to impact younger generations ability to save/afford a house or to lead any decent lifestyle that their parents/grandparents didn't face?

* Compulsory 12% Super.
* HECS/HELP debt is too high
* Bracket Creep - the governments dirty little secret to lazily increase taxes.
* Population - in 1980s Australian population was 14M, hence the relative demand (and hence price) for that house was, by definition, lower.

I am dismayed that my 20yo and 22yo children work in part time jobs, where 12% of their earnings is "withheld" until they are 60yo, whilst meanwhile they accrue an annual $17K HECS/HELP debt which must be paid off and impacts ability to get a mortgage, and they can look forward to joining the work force effectively paying a 30% (ATO) +12% (SGC) + 15% (HECS) = 57% marginal tax rate.

10% super should be more than suficient over a working lifetime as long as the fund manager performs properly and not fraudulently

The 12% of their earnings going to super should be in a High Growth fund which will deliver 5+%pa real after tax. The HECS debt interest rate is 0% real. It is a no brainer to preference super contributions over HECS debt repayments.

There is a problem here that many young people are encouraged to go to University and accrue HECS debts. Whilst many benefit, others drift and are unable to find employment -yet our trades are suffering through lack of trades-people. Migration has not addressed this issue, with so many family reunions for older parents who are not able to contribute taxes. Universities endeavour to attract large numbers of overseas students, and quality of degrees is suffering. Aspiring University applicants need to assess whether there will be employment for them. Personally I had to contribute 5% of my small pay from 1962 into a Bank's Provident Fund, and then 50% to cover boarding costs for mandatory country service until I married. At least a banking career cut short by retrenchment at 49 taught me how to manage my, and customers' finances.

“Things the government… has done …(that their parents/grandparents didn't face?”
"HECS/HELP debt is too high"

My generation didn’t have HECS/HELP debt but we had to pay for our education up front or miss out (uni was not free until 1974) - at least the current generation has an option- pay up front or borrow and pay back over time.

"Bracket Creep - the government’s dirty little secret to lazily increase taxes"
Bracket creep affected all generations, particularly during periods of very high inflation as occurred during the 70s and 80s, because it was every government's dirty little secret and no government wanted to introduce a measure (such as indexation of tax scales) that deprived them of more income without appearing that they were increasing taxes.

BMC, you are repeating a commonly-held misconception. Your children are not having 12% of their earnings withheld. Rather, your childrens' employers are paying your children 100% of their earnings, less tax at their marginal rate, and THEN those employers are paying 12% in addition to those 100% wages, as Superannuation Guarantee Contributions, to your childrens' complying fund/s. As an small-business employer for many years I endured that creeping Government-mandated impost at every payday, which has finally plateaued at 12%. Whether, by cancelling that mandate and maintaining their employers' outgoings to your children at what would be 112% of their current earnings, the difference for them to spend or save as they see fit and thus forego the long-term compounding returns of super, they would be better off in the long run, is a decision for them as voters to make.

The Treasurer has shown he is is very good at drawing the media's (including economists) and voter's attention away from the underlying problems in the economy, including the significant increase in Government spending, requiring increased taxation; inflation which is now at much higher risk of being embedded; lack of productivity improvement in the workforce; and in housing the failure by a significant margin to deliver the housing supply targets which the Government itself set.

Rather than be diverted into a tax debate by the Treasurer, let's focus on the issues that will provide housing that younger generations can afford to purchase. The issues are primarily on the supply side:

- Lack of trades partly contributed to by an infrastructure construction build which is much higher than a decade ago and requires significant trade input. As an example - Do we really need to construct the Suburban rail loop in Victoria now?

- The fall in productivity in the construction sector. No one cause, but a variety of issues including changes in workplace laws and increasing regulatory and safety requirements by Federal & State Governments and local councils. Some of the requirements are sensible - others over the top. Some simply create the need for expensive reports that are largely copy and paste.There must be a better way. Do we really need 4 stop and go personnel to ensure safety when a single person monitoring a light set (or remotely multiple sets!) could do the job. Other regulations require higher standards than in past decades. Some are justifiably so e.g asbestos. But other requirements e.g. Basix rules, sometimes just add to cost for little benefit.

Improve productivity, and significantly shorten the build time, by increasing the use of manufactured and prefabricated technologies. There is a important role for government play as this needs a commitment on minimum quantites over a time period due to the set up period. It also requires good modular designs to meet varying needs and family sizes which impacts the minimum quantity. Surely this should be a much higher priority for Government expenditure than building solar panels?

And very importantly, the priority and level of commitment given to the creation of communities in new areas. This is not easy but if it was genuinely given priority and a sense of urgency imparted by all levels of government it could be done. At the basic level this requires essential infrastructure supporting housing development - power, water, sewerage, roads. At the next level it is provision for commercial, business and manufacturing centres, schools & universities, hospitals. Why is so much of our infrastructure spend focused in already developed areas, when the cost of the housing build itself in greenfield areas is much cheaper than brownfield housing built in inner areas?

Definitely agree with including the value of the family home in an altered age pension assets test. My parents would just do a reverse mortgage earlier, so currently everyone is paying tax so I get a bigger inheritance.
Bracket creep has been around I think since income tax started. I expect most are OK with an annual CPI increase of thresholds.
Extra rent protections could reduce the number of investors. and push up rent prices.

“Housing prices are being boosted by entrenched tax incentives that benefit older homeowners while pricing new homeowners out of the market”

Unfortunately this narrative ignores what IMHO has been the PRIME driver of ballooning housing prices over the past 30 years or so, namely the dramatic DECREASE in the cost of borrowing money. For example a $500k mortgage in the early 1990s cost at least $60k per annum just to service the interest on the debt. That same mortgage today would cost about half that amount even after the recent rate increases are factored in, meaning that the same income could now service a $1M debt. This is the main reason that house to income ratios have ballooned dramatically.

In contrast and based on recent reports and economic modelling from Treasury and independent institutions, reducing the 50% Capital Gains Tax (CGT) discount is generally estimated to have only a modest downward impact on house prices, with estimates typically ranging between 1% and 4% lower than they would otherwise be.

"dramatic DECREASE in the cost of borrowing money":

Herding of home buyers into mort-gages by negative real net SAVINGS rates.

Government has made this problem worse with excess spending, give aways to other countries & groups, immigration out of control and not being corrected, complete waste as seen with Vic. Government, & ridiculous waste on net zero when our countries emissions are so low, and now they come after retirees who have always paid their way, and houses go to their children who cannot waite...correct these problems and let the younger generation work, save and waite for their handouts and they will end up with house, savings and super, but need to have respect for the way retirees did it the hard way....

Generally a sensible approach, so unlikely to have much impact I am afraid.....
Regarding the vexed question of including the primary residence in the asset test for pensioners: the easiest and fairest way to determine which value to exclude is to include the value of the primary residence and eliminate the distinction between home owners and renters for the asset test. What has been determined to be a fair amount of excluded capital for renters should be a fair value for home owners.
Superannuation: an easy and reasonable solution would be to require compulsory withdrawal of the age-based minima and do away with the distinction between pension and accumulation accounts. Once you achieve pension age, you must withdraw. If you don't need the money, just invest it outside the tax sheltered super environment. That also takes away a lot of complexities.

Agree on the superannuation point, but your suggestion of simply including the full value of the PPR may seriously disadvantage those in rural and regional areas, where house prices have not grown by anything like those in the capital cities, thereby possibly entrenching further the city/country divide.

A % weighting on the house value by postal code perhaps?

I agree with the proposal to incorporate the value of the house into the Assets Test for the Age Pension, the issue will be how to do it in a somewhat "fair" way and also in a way that Centrelink can actually make work. I'm not sure which of those will be more difficult, but neither of them are likely to be easy.

If we incorporate the value of the house into the Assets Test for the Age Pension, we should also remove stamp duty on the sale of houses. It's a vicious tax on any retiree who wants to downsize or a worker who wants to improve their life by moving to a better job.

When talking about property prices it's essential to look at supply. We need to analyse the myriad costs and hurdles involved and make it much easier for any individual or company to build more housing. That's a massive part of the problem.

And, of course, restrict immigration to people who have the skills and attitude needed to make Australia a much better place in which to live.

Australian inequality is subsidised by the tax system. While countries like Germany and France prioritise renter stability (indefinite leases and rent caps), Australia treats housing as a tax advantaged investment rather than a basic utility. Taxing work to subsidise wealth.

Politicians need to grow some and do the right thing!

"Australia treats housing as a tax advantaged investment"

This comment now excludes the state of Victoria which treats housing as a tax DIS-advantaged investment spawning an investor exodus and making Melbourne a standout under-performer. Mooted changes to CGT and/or negative gearing at Federal level will be the final nail in the coffin.

Thank you VIC, my Melbourne based youngest son and his wife, in their late twenties have purchased a home and their first bay is due next month.

Sydney based sons are renting and can’t afford a dog, let alone a house to start a family.

"Thank you VIC"

While those that can afford to buy may be grateful, long term renters are not grateful because "affordable" rentals are skyrocketing and there are reports of 140 people queuing for a single "affordable" rental. Moreover nobody is prepared to build into a market where up to 8000 new apartments remain unsold because they are no longer viable investments.

Firstly, inrelation to investment properties. ABS and ATO data shows that approximately 20% of investment properties are owned by boomers, with the remaining 80% mostly owned by GenX and GenY age groups.
Secondly, many elderly persons sell their home to pay to enter aged care facilities. Including the value of the family home in the asset test will not effect self-funded retirees, but for aged pensioners, this will see a reduction in capital equity which overtime will see families have to fund the $700k+ fees each for their parents to enter aged care facilities or the government will have to fund the increased costs.
Finally, superannuation was designed to fund retirement. The big change to superannuation that would reduce aged pension costs is to stop access to lump sum payments and make access by regular fortnightly payments with maximum annual withdrawal linked to average weekly earnings. To many people are withdrawing large lump sums and spending to enable access to the aged pension.

"people are withdrawing large lump sums and spending to enable access to the aged pension":

Then they would spend lumps more before retirement on gilding their homes to coast into the Age Pension on retirement.

Better to abolish Mean Testing Age Pension. Then people will 'calculate' themselves their best fit of home and retirement assets and not be driven into an ill fit forced by one size fits all Age Pension Mean Tests.

If lump sum withdrawals from superannuation were abolished they would not be able to spend superannuation savings, noting also the requirement to be retired or transitioning to retirement to access superannuation. How people spend their savings outside of superannuation, there is not much governments can do.

Yes a pretty glaring weakness of a system forced on people to "pay for their retirement" but no means to ensure the savings are used for this "primary purpose". It's like gifting your kids some money to pay for education or a house deposit and they decide to blow it on a new car or world trip. Perhaps a new tax "incentive" (of the "stick" variety, to counter the loss of the initial "carrot" variety. The tax incentives behind super (in accumulation) means the amount you have in super is greater than if you had just saved some after tax income; that is one of the main points, to help achieve a higher balance in retirement. So some of the final balance is effectively foregone tax (which was deliberate of course, to make lifelong compulsory saving "fair"). So one could argue that to just spend the money that was tax advantaged for the primary purpose of retirement, on something other than retirement, one should forego any tax benefit accrued. That is, if you keep your money in super and use it to fund a pension, the rules would stay as-is. But if you withdraw to pay for a cruise or pay off a house extension, or anything else really, the lump sum should be classed as taxable income.

Mark, Thanks for the article.
I agree with many of the points you raise, especially indexation. I would state it more strongly, though: every threshold throughout personal income tax, super and the age pension should be indexed in exactly the same way, preferably in the same way as the full age pension (which attempts to maintain its value relative to living standards).
The guiding principle here, is twofold in my view: first, every independently adjustable parameter is another button for the politicians to play with, making the entire system ever more complex and unintelligible; and second, if different thresholds are indexed differently, their relative values change over time, so an element of instability is built in.
Another really important point is the interaction between asset values and the age pension. For example, any tax on super (at any stage) which reduces the value available to fund retirement can be counter-productive, because it will increase age pension cost for anyone affected by the assets test at some point in their retirement (not necessarily at the start). Forced withdrawals from an account-based pension have the same effect. I see no evidence that the government or Treasury has ever bothered to think this through.
It is commonly believed, as you say, that the age pension asset test does not assess the pensioner’s home. Indeed, Centrelink says as much (https://www.servicesaustralia.gov.au/asset-types?context=22526): “We assess most of the assets you own in your asset test. This generally doesn’t include your principal home …”
But compare the asset limit (value at which the test reduces the pension by $78 per annum for every extra $1,000 of asset value) for a single homeowner with that for a single renter: $321,500 versus $579,500. Effectively, the homeowner has an extra $258,000 added to whatever other assets he or she has, when calculating the assets test.
In other words, the value of the home is assessed (deemed) as $258,000.
Why does Centrelink lie about this (as they have for a long time)? Why does the financial industry let them get away with it? Why $258k, and not some other value?
And, with respect to this article, by how much would you suggest increasing the deemed value of the home? And how would you expect an affected pensioner to respond?

"none of these changes will address the source - property prices":

'Death to mort-gages' would reduce prices.
That would force s-S-SAVING to buy a home. Or demands that the olds paid c-C-CASH to get rid of the non-s-S-SAVERS sods.

Those paying off a mort-gage would be non-too-pleased.
Positive real net interest rates operating over a long term would be middle ground.
Soothing savers and saving spenders.

"none of these changes will address the source - property prices":

'Death to mort-gages' would reduce prices.
That would force s-S-SAVING to buy a home. Or demands that the olds paid c-C-CASH to get rid of the non-s-S-SAVERS.

Those paying off a mort-gage would be non-too-pleased.
Positive real net interest rates operating over a long term would be middle ground.
Soothing savers and saving spenders.

Agree with the author's suggestions.

In addition, the tax rules for superannuation are needlessly complex, are contributing to intergenerational inequity and exacerbate the revenue hole we will see as the population continues to age. Here is how the superannuation system should've been structured:

- system remains compulsory with no withdrawals until retirement;
- 0% tax on contributions and on income within superannuation accounts;
- annual limit on contributions;
- drawings from superannuation accounts taxed at marginal tax rates.

Obviously huge difficulties in trying to transition at this point however it could at least be introduced for those entering the workforce now and there may even be a workable approach to create an (indexed) credit for tax paid which can be applied against tax on future withdrawals.

Introduce long term housing leases and cut out the spruking real estate lobby. Introduce stability and reduce housing stresses including FOMO.

Stability further banks, investors, owners and renters, short term leases are part of the fear generating cycle, hurt all parties.

If a pensioner couple had to draw against a fund calculated on all the income tax they ever paid, it would not cover even three years of pension. This would especially be the case for those in their seventies and eighties as many relied solely on the man's pay as many women stayed home and never entered the work force when the kids left school.So in many ways the current system is pretty generous as the taxes they paid were used up by the government of the day.each . It seems a long time ago that Peter Costello produced five budget surpluses to ostensibly fund future pensions
Regarding BMC's comment on his overtaxed children , I recall paying 60% tax and 66% Provisional Tax on not a large income from business income that was invested back in the business and was very hard to pay

Oh how quickly we forget. In the last 20 years there has been no change to the tax system but, the world has experienced two major financial shocks - the GFC and the global pandemic - which threatened to plunge the global economy into deep depressions. In both cases central banks flooded the economy with cheap money through quantitative easing and extremely low interest rates.

While the mechanics of quantitative easing are complex, the purpose is not. Central banks printed money that retail banks were strongly encouraged to lend out at extremely low interest rates. Since there is nothing easier to sell than money, cheaper lending encourages spending and investing. The aim and effect of this deliberate policy was to raise asset prices, thereby fuelling inflation. Heh presto house prices exploded.

But the benefits of quantitative easing are not evenly spread. Asset owners who are typically older, benefit from increased asset prices, whereas young people and renters did not. In averting financial disaster it is possible that the central bank saved their jobs, because in a depression, large scale unemployment affects many unskilled workers, but they continue to be hurt by elevated house prices.

We know that inflation is always and everywhere a money supply problem. But, instead of reducing the money supply, the monetary response is always to raise interest rates to make credit more expensive. And once again this has an asymmetrical impact on the young and renters.

Governments could apply a fiscal response to reduce excessive consumer spending by raising taxes or withdrawing subsidies but that has a political dimension, governments prefer not to contemplate.

The age pension / family home conundrum is readily solved. The family home is a financial asset, especially to your estate, and it saves you the cost of rent. That’s why non-homeowners can have more assets, simply to generate more income to pay rent.

We should include the deemed income (and the rent saved) from the family home in the income test and that will level the playing field between home owners and non homeowners. We would then need to increase the threshold on the income test before the age pension is reduced and thus increase the incentive for retirees to continue working part-time while they are able.