The next election is as much about Labor v Liberals as young v old

Mon, 02 Apr 2018  |  

This article first appeared on The Guardian website at this link: https://www.theguardian.com/commentisfree/2018/mar/19/the-next-election-is-as-much-about-labor-v-liberals-as-young-v-old 

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The next election is as much about Labor v Liberals as young v old

For younger Australians who are increasingly disaffected and angry about the growth of intergenerational inequality in housing, superannuation and education, there will be a clear choice at the next election.

With its latest policy on the tax treatment of dividend imputation, Labor has added to its policy agenda that promises to tackle some of the intergenerational unfairness that has built up in recent decades. It follows Labor’s proposed reforms on housing and education which should give young people something to be pleased about and a motivation to turn up at the ballot box when the election is held.

For the so-called baby boomers, generally those at or near retirement, Labor’s policies are likely to generate disaffection and shore up their support for the Coalition.

Specifically, the Labor party’s policies on negative gearing will help make housing more affordable, while its plan to adjust the tax treatment of dividends that currently favour well-off baby boomers with shares in their superannuation portfolios will free up cash for spending in education. This in turn will allow younger people to have greater access to gaining a skill, training and education without the burden of huge HECS debt.

These policies should set a clear divide between the young and old, between Labor and the Coalition at the next election.

The negative gearing policy change is being strongly opposed by those wanting to maintain the generous tax treatment of investment in established dwellings – mainly older high-net-worth individuals. At the same time, trustees and beneficiaries of self-managed superannuation funds will oppose Labor’s proposed changes to the dividend imputation scheme, a cohort of people who are again generally older and well off.

To recap, Labor’s negative gearing policy will prohibit investors claiming negative gearing tax benefits for the purchase of established dwellings, but will allow it for the purchase of new ones.

This will have two important effects which young people should warm to. It will plainly reduce investor demand for established dwellings, which has been cited by the RBA among others as one factor behind the surge in house prices over the past few decades.

By allowing negative gearing, but only for investment in new houses, investor demand will switch from established to new dwellings. Builders and developers will undoubtedly react to meet the likely lift in demand in this space by building more, negative-gearing eligible, properties. In a world where the laws of supply and demand still work, lower demand from investors for established dwelling means prices will be lower than they would otherwise be and a fresh supply of new housing will help meet the strong demand from population growth.

This is a win for young people looking to tap the housing market.

The recent policy announcement from Labor on superannuation, which abolishes cash refunds for excess dividend imputation credits, will fall almost exclusively on the well-off baby-boomer cohort. Young people don’t hold many shares in their superannuation portfolios relative to older people. While Labor are yet to reveal its plans on where the budget savings for the government from this measure will accrue, the $59bn saving over the decade will likely fund a mix of items that will tend to favour the younger generation, in particular education and government debt reduction.

When companies pay dividends to Australia n shareholders out of after-tax profit, shareholders receive franking credits , a credit against their own tax bill based on the tax paid by the company. This system, which is known as " dividend imputation ", is unusual – only four other countries in the world use it. However, in 2000 the then treasurer, Peter Costello, made the system even more generous to shareholders by allowing them to claim a cash refund if they received more in franking credits than they owe d in tax. Because income from superannuation is tax free for people over 60, high -income retirees can use franking credits to get a cash "refund" of more than 40 cents for every dollar they receive in dividends.

The cash payments cost the budget $550m the first year they were paid. The ATO estimates that the measure cost $4.6 bn in 2012-13, and Labor claim s that abolishing the payments from 2019 will save $8bn a year.

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Capping university fees and the provision of additional resources for schools and technical and trade training are items that benefit the young (and also society over the longer run). Here again, Labor’s policy agenda is skewed to helping the young get a hand up in income and productivity-enhancing skills and education, without the university debt burden that is a crippling part of society in the United States.

High-quality, world-class education and training services are expensive for the budget, which is why many baby boomers, who derive zero benefit from extra school funding for example, are often complacent when there are cuts in spending and higher fees in this area.

All of which boils down to the proposition of the next election being as much about young versus old as it is about Labor versus the Coalition.

Fortunately for the Coalition, the baby-boomer cohorts are more likely to be on the electoral roll, are more inclined to turn out to vote and are usually better organised when it comes to groups that campaign on these issues on their behalf. If Labor is to tap support for these policies and improve their chances of winning, it will need to get young people to enrol in the first instance and then, plainly, turn up on election day.

This will be a challenge and will require a change in behaviour from younger voters, partly in terms of which side of politics they support, but also in terms of just showing up to vote for a side of politics that will likely improve their economic wellbeing.

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