Friday, 15 February 2019

Labor tax policies that hit older people should be a source of shame

Let’s talk about inequality. I’ve been writing about inequality in various guises on this blog for a couple of years now, but the issue of taxing older people is probably the most disturbing because of the ways that parts of the community are becoming involved in it.

The poverty rate in Australia for people aged 66 and over is over 25 percent, which is the third worst result for any country in the OECD. Meanwhile, older women experiencing homelessness has grown 31 percent since 2011. "The number of older women accessing the private rental market increased by 45,000 in a five year period," according to a report by the National Older Women’s Housing and Homelessness Working Group led by the Mercy Foundation.

The economic outlook for older Australians is pretty bad already. But you then have the Labor Party planning to make matters worse for this sector of the population with four new tax proposals (franking credits, negative gearing, capital gains, family trusts) that will disproportionately affect the elderly.

What hope have older people got when both sides of politics target them for a good fleecing? Both major parties supported the inclusion of assets in calculations made by Centrelink to figure out nursing home fees. Older people generally have little income but significant assets, so this was a perfect way to tax them so that the burden on the broader community is less.

You hear people talking in public about these policies in a way that evidences a complete lack of understanding of the underlying realities that older people live with every day. Sometimes the people making these comments are journalists or politicians, not just random plebs with a personal axe to grind. These people should know better but you only ever hear one side. This post gives you the other side of the equation.

One claim has a journalist giving the example of a retiree with $2 million in assets paying no tax on income earned. As though that were a lot of money. With the Reserve Bank talking now about lowering interest rates to spur investment due to the sluggish housing market, many older people will be having a sinking feeling in their stomach, especially if they have their money tied up in term deposits with major banks. When the cash rate goes down, the interest you earn on this kind of investment also goes down, with many people preferring term deposits because they are a low-risk option.

So, that $2 million suddenly isn’t giving you $60,000 a year in interest earned. Suddenly there’s less money to use to pay for things like council rates, food, and transport. A couple that has retired with this kind of investment might own some Telstra and CBA shares as well, and if so they will be directly impacted by the franking credits tax changes proposed by Labor. As will people with even fewer assets than this.

Incomes for older people are always like this. If you have your money in higher-risk investments such as managed funds (where you buy units in funds the managers of which use your money to buy shares in publicly traded companies) or if you directly own shares, the markets will determine how much income you have in any given year. The common wisdom says that shares give you a nine-percent return year-on-year but this is an average where the extremes are widely separated. One year you might get a minus-15-percent return and one year you might get a one-percent return. And there’s no way to predict how markets will behave, they are notoriously difficult to predict over the short-, medium- or long-term.

Older people can’t win, it seems, in the current environment, where there is a tendency to see taxation and redistribution as an unalloyed good, regardless of how such a view affects the wellbeing of people who live on the margins of society, as older people do. The trend seems to be powerful and it is disheartening for people who have paid taxes all their lives, contributing to the health of the community in many ways by working and raising children.

What is to come next? Death duties were abolished in 1981, but the way things are going they'll probably be reintroduced by one party or the other in due course. Labor was the party that in a more rational age introduced superannuation for the benefit of older people, but now it seems they are turning against that part of the community in a witless cash grab designed merely to please the mob.

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