The world will be different after this pandemic. Hand-washing will be a thing, as will sneezing in your elbow. The handshake may be gone for good, taking with it the alpha male proclivity for pureed knuckles.
One thing that won't be different: in the wake of another crisis not of their making, the young will once again be left to pick up the tab. As things stand, it's a tab that will take them half a lifetime or more to reconcile.
It's an outcome of the nature of a tax system that insulates the 'owners of capital'. It's an outcome that is inevitable without reform of the tax and transfer system.
Slowing the spread of COVID-19 has been essential to managing the resources of the health care system. The measures implemented are of particular benefit to older people, in many cases saving their lives from otherwise fatal infection.
But the massive shocks these measures inflict on the economy have long-term consequences. Job losses and negative economic growth, ballooning government debt, and a loss of competitiveness are just the tip of the iceberg.
The financial burden and job losses will severely impact the young. Younger workers, more likely casuals or recent hires, are first to be let go. Furthermore, research confirms that young people seeking to enter the workforce in hard economic times take 10 years to catch up financially. Their lifetime incomes never recover.
The burden of paying for today's massive ramp-up in government debt will stretch over decades and fall squarely on the shoulders of today's young people. The design of the tax system predetermines this. Heavy reliance on direct taxation-of corporations and individuals-means debt repayment will rely for decades to come on the post-pandemic lower incomes of today's working novices. Even Australians yet unborn will endure this debt chewing into their quality of life.
Governments respond to crises such as the current pandemic, or the GFC which preceded it, with policies intended to minimise the failure of businesses.
To do otherwise would unleash massive disruption, job loss and harm to workers of all ages, particularly those with scant resources beyond their remuneration.
But with the same brushstroke, government policies underwrite the value of assets held by the "owners of capital".
Over time, policies intended to protect jobs and prevent economic shocks from becoming incendiary depressions have the added consequence of increasing wealth inequality.
The large increases in wealth inequality following the GFC evidence this: government policies to re-ignite economic growth simultaneously inflated asset prices.
Australia's tax system failed to adequately capture capital gains in asset prices unleashed by economic stimulus. Egregiously, the asset where the bulk of well-off Australians' wealth is held, the family home, is held outside the capital gains regime.
Exacerbating this inequity is the exclusion of the home from the age pension asset test. Further again, zero-tax retirement income means wealthy retirees holding assets such as shares can generate large and untaxed income flows.
This works for those who own homes. Work hard and pay tax while young, but accumulate savings and enjoy a big financial break when older.
But increasingly, hardworking Australians, particularly the young, will not make it over the hump to join the 'owners of capital'. The system, going into this new crisis, is generating inequities.
Across the "Coronavirus Bridge" that same system promises even greater inequity, should government policies protecting capital continue 'business as usual'.
On the other hand; tax reform.
Tax reform can address growing inequality and simultaneously contribute to the post-pandemic recovery package.
To equitably share the benefits of the coming economic recovery with the young and/or capital-bereft requires tax reform. The suggestion is not novel.
It is simply being restated in the current context. A context which, untended, will accelerate the inequity which is already undermining the cohesion of Australian society.
So what does this tax reform look like? Here's some actions to get us started:
- Reduce corporate and personal rates and remove exemptions that enable inequitable tax minimisation;
- Increase and broaden the GST and tax accumulated wealth as it is spent;
- Dispense with stamp duty and implement a land tax that better captures the increasing value of assets and unencumbers the buying and selling of houses;
- Include owner-occupied homes in the age pension asset test, implement a national reverse-mortgage program for those who need it, and capture part of the value of outlasting assets through death duties;
- Reform the capital gains tax system into a single low tax rate on all capital gains regardless of source.
And do this now, as the only equitable complement to the debt now loaded on generations to come.
Older Australians are the main beneficiaries of the government's coronavirus response. Older Australians must bear more of the associated economic and financial costs.
The reforms above will encourage economic growth to the benefit of young people. They will lower house prices to the benefit of young people.
By tapping into accumulated wealth, the above policies will also redistribute the financial burden of this pandemic across society more equally to everyone's benefit and especially that of young Australians.
- Robert Breunig is Professor and Director of the Tax and Transfer Policy Institute at the Crawford School of Public Policy, The Australian National University.
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