Generation why us: tax break could change lives
Illustration: Kerrie Leishman
I like old people. Some of my favourite people in the world are, on any independent measure, old. Society benefits little from the so-called ''generational wars'' that artificially pit young against old. Young people are invariably portrayed as selfish and greedy. Old people as hard-working contributors to society and pillars of the community.
But Australia's tax system is hopelessly skewed against the young in favour of the old.
Young people really do get a bad rap. Is there any more maligned group of people than Generation X and Y? (I'm on the cusp.) We're flighty. We change jobs too often. We move house. We rent. We won't settle down. We won't get married and provide those longed-for grandchildren. We are only interested in ourselves. We play computer games all day.
But consider, just for a moment, the view from the other side of the fence. Young people have watched helplessly as the generations before them have been showered with one-off senior's payments, family payments, baby bonuses, tax-exemptions on family homes and superannuation tax breaks.
We've also watched as house prices skyrocketed, meaning we can't afford to buy homes - or if we can, only under the weight of crippling mortgages.
We started our working lives burdened by HECS debts that add between 4 and 8 percentage points to our marginal tax rates.
The trade-off for younger generations was always the assumption that we'd earn our government entitlements when we had children, bought a house and sprouted grey hairs. The bonuses, the tax breaks and exemptions would be ours, too.
But with wafer-thin budget surpluses and an ageing population, it is increasingly clear the largesse of the past few decades cannot be sustained. The jig is up and young people will have to make do without the government help afforded to previous generations. By compulsion, they'll have more super when they retire but they'll be less likely to own their homes outright. They will be called upon to pay the income taxes needed to fund the needs of an ageing population and there will be fewer of them to do it.
Just so we're clear, it's not old people's fault. Politicians just happened to do the numbers and decide the children of the Great Depression and their baby boomer offspring were significant voting constituencies.
Older Australians have no doubt worked hard and made sacrifices to build a good portion of the wealth now stored in their family home. But, it should be recognised, they have also made a killing thanks to house price inflation. And now it appears the government wants them to live in those half-empty three-bedroom houses for the rest of their lives.
Last Friday's aged care announcement - the most sweeping reforms to aged care in 30 years - means more older Australians will be paying more out of their pocket for care. But one sacred cow remains - the family home.
According to the Minister for Ageing, Mark Butler, the ''primary objective is to support older Australians staying in their own home for as long as possible and, if at all possible, for the whole of their lives''.
Retirees won't be forced into a fire sale of the family home to fund care. The government has rejected a Productivity Commission proposal for a public home equity withdrawal scheme, so that elderly people won't be encouraged to tap into the wealth in their home to fund their care. And, of course, the family home will remain exempt from the means test for their pension.
From the perspective of the young, who in increasing numbers will never own the home of their dreams outright, the idea of older Australians being entitled to live out their days in their family home carries a special sting.
If the aim is to keep people out of institutionalised care and in private accommodation for as long as possible, great. But encouraging older Australians to rattle around in three or four-bedroom houses no longer suited to their needs helps no one.
A study by the Australian Housing and Urban Research Institute released in May 2010, How well do older Australians utilise their homes?, found 84 per cent of homes occupied by people aged 55 or older are under-used (having one or more spare bedrooms).
While older people view such spare rooms as necessary, for hobbies and when grandchildren come to stay, arguably a more efficient allocation of housing would help relieve upward pressure on house prices.
Policymakers should continue to look at ways to remove the barriers to older Australians downsizing.
Providing a mix of housing in communities, freestanding homes and higher-density developments, means that old and young people can move in and out of age-appropriate housing without leaving their communities.
Stamp duty concessions for older people downsizing would also remove a barrier to downsizing. A land tax, applied on a square-metre basis, would penalise old and young for under-using space.
The phenomenon of children resisting the sale of the family home to unlock funds for a parent's retirement, so that the children can inherit the wealth tax-free - otherwise known as the ''nailing granny to the floor'' phenomenon - must also be addressed, possibly through an inheritance tax on housing.
It is true that many young people stand to inherit great wealth in the form of housing. But they'll do so not because of their labours, or their ability to reinvest it productively, but pure dumb luck as to who their parents are.
Using the family home as a tax shelter only increases intra-generational inequality. It's time for a serious look at how we house not just older Australians but younger ones, throughout the life cycle. The decisions we make today about the shape of our tax system, particularly as it applies to housing, will influence life for generations to come. So far, we're making a hash of it and younger generations will pay.
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