The debate over the budget continues and I suspect many Firstlinks’ readers have strong opinions. Some of those opinions are well reasoned and rational. Some are based on how particular budget measures impact personal circumstances which is a natural view to take.
But some reactions are fully or partially based on grievances against a particular cohort of people. You’ve likely heard this grievance-based commentary – ‘tax those ‘rich’ people who don’t deserve their wealth’ or ‘the government is taking my hard-earned money and giving it to lazy, entitled people who don’t deserve it.’
At the heart of any grievance-based argument is the notion that one group deserves something and one group doesn’t. This is called the belief in justice theory. Coined by social psychologist Melvin Lerner the theory outlines how critical it is to the human psyche to believe that people get what they deserve.
This works both ways – hard work and sacrifice is supposed to pay off while the lazy and ignorant should pay the price.
Traditionally the focus of the belief in justice theory was on the downsides. The origin of the theory stemmed from work done by controversial social psychologist Stanley Milgram. He was the guy who ran experiments where subjects administered increasingly high levels of electric shocks to victims.
The shocks were fake but 65% of all subjects administered shocks at a level they were told would seriously injure the other party. Milgram wanted to explore obedience and how so many people could have participated in the holocaust.
Lerner built on his work and was partially inspired by the lack of empathy he witnessed from other psychologists who had the tendency to blame their mentally ill patients for their condition.
There is more than enough grievance-based commentary, but it is also worth considering the positive aspects of the belief in justice theory. As easy as it is to focus on the negative, I think the main problem we are facing in Australia is an eroding belief that people get what they deserve.
The upside of the belief in justice theory is the promotion of something psychologists call prosocial behaviour. It is prosocial behaviour that improves the way people interact with other people. This forms the basis of a strong society.
Individuals who exhibit a strong sense that people get what they deserve believe their efforts will pay off. Many Australians have lost this faith.
The issues faced by Australians and the proposed solutions
Australian National University’s Mapping Social Cohesion project shows the extent of the disillusionment. In 2013 80% of Australians between the ages of 25 and 34 believed Australia was a land of economic opportunity and if they worked hard they would live a better life. By 2025 it was down to 51%.
Housing affordability is the problem and there is a significant amount of research showing the impact of giving up on being able to afford a home. Research from economists at the University of Chicago and Northwestern showed that if there is no realistic prospect of being able to afford a home people increase risky investments / betting, reduce work effort and increase leisure spending.
In contrast research by Seung Hyeong Lee and Younggeun Yoo shows people that see a realistic pathway to home ownership take part in less risky behaviour and work harder.
There is clearly an issue that needs to be addressed with younger generations. To deny this or to blame all young people for their predicament ignores the facts. Will the budget address younger generations concerns in any tangible way? Some are more confident than me – but that doesn’t mean there isn’t a problem.
In making substantial changes to the tax system there are other considerations that go beyond the dollars and cents. For my completely overlooked generation and older millennials, the rules for building wealth have changed after people have started down the pathway of making a life. They have changed before anyone has fully taken advantage of the previous tax policies.
Tax policy is not a contract. Governments can - and do - change taxes and rules frequently. But building wealth is a long-term endeavour. It means sacrificing today in the hopes of a better future. It takes patience and faith in the future. It means doing the right things with the expectation it will pay off.
There is an implicit faith when these decisions are made that taxes and rules will stay substantially consistent. When things change it can feel unfair which erodes belief in the future as well. To ignore this impact is foolhardy and to downplay the knock-on effects of major tax changes is intellectually dishonest.
Sometimes trade-offs are worth it and many of the previous policies like the 5% deposit scheme tried to avoid hurting one group while helping another. That isn’t how life works – somebody needs to lose for others to win.
All Australians would benefit from a more rigorous debate on the effectiveness of the proposed changes in addressing the real issues the country faces. Doing this requires leaving the grievance-based commentary out of public discourse.
The Firstlinks’ community is knowledgeable and thoughtful and can easily rise above grievance-based commentary. I would love to hear your thoughts in the comments section on the positive and negative impacts of the budget proposals.
Mark LaMonica
Also in this week's edition...
Inflation doesn’t just raise today’s bills - it quietly increases the amount needed to retire, while simultaneously making it harder to save. Jen Richardson outlines three steps to take before June 30th to help improve retirement outcomes.
AI fears have shifted from bubble talk to disruption anxiety, driving investors toward asset-heavy, “AI-resistant” businesses while punishing many software and service firms. Matt Reynolds thinks this environment may be ripe for stock pickers.
Private markets can offer diversification and return potential, but their opacity, scale and wide dispersion of outcomes make manager selection and due diligence critical for non-institutional investors. Marc-André Lewis proposes an approach for investors to get the most out of private markets.
True financial success isn’t about how much you make, but whether you can sustain it — survival is the only win that matters. Nick Maggiulli argues for building wealth through quiet, disciplined investing.
Joe Wiggins outlines how assets that deliver emotional satisfaction tend to offer lower financial returns, as investors accept an “emotional yield” in place of performance which shapes how investors approach ESG and unpopular assets.
Global REITs have fallen out of favour, trading at deep discounts after years of underperformance, despite resilient earnings and improving fundamentals. David Kruth makes the case for REITs.
Jason Teh outlines why Australia's biggest energy bet may already be redundant while a less celebrated government program is exceeding expectations.
This week's white paper is Dexus' latest Australian Real Asset Quarterly Review looking at the widening divergence between listed and unlisted real assets.
Curated by Mark LaMonica and Leisa Bell
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