Wednesday, June 17, 2015

Governments let oldies screw the younger generation

When I see the way the Abbott government – like its Labor predecessor – happily presides over a system stacked against the younger generation, it makes me wonder why they're not rioting in the streets. Answer is, it's thanks to the evil genius of our politicians.

Young people tend to be more idealistic than those of us who've lived longer and seen more. So when they see the low level to which standards of political behaviour have fallen – the promises so casually broken, the lies told, the way the pollies profess to care about the welfare of the next generation but don't walk the walk – they're even more inclined than the rest of us to turn their back on politics and public policy.

Which means, of course, that most young people have only a vague inkling of the extent to which successive governments have been screwing them.

The pollies' problem is that they'd love to please everyone, but don't have sufficient resources. So they have to short-change someone, and the victims they pick – apart from those who have no friends to stick up for them – are the people who aren't paying attention to what the pollies are up to.

The people who pay most attention are the oldies – whose number is being swelled by the retiring Baby Boomers – who have so little else to worry about they even imagine injustices that aren't real. The great majority of oldies own their own homes, but other home owners are equally zealous in protecting their privileges.

This is the most topical instance in which governments are allowing the old to screw the young. Apart from the fact that our homes get bigger and better over the years, house prices rise when the demand for them exceeds their supply.

Both sides of politics believe in high levels of immigration, but haven't bothered to ensure sufficient additional homes are being built to accommodate the growing population. So reducing impediments to the building of additional homes – mainly a responsibility of the state governments – is the fundamental solution to the problem of housing affordability.

But distortions in our tax laws – distortions other countries long ago corrected – are adding unnecessarily to the demand for houses by making them a tax-preferred form of investment. This is "negative gearing", which means first home buyers are having to compete against well-established older investors with a lot more collateral.

It wouldn't be a problem if negatively geared investors were adding as much to supply as they are to demand, but they prefer buying established homes.

The government could easily fix this distortion, and do it in a way that didn't precipitate an immediate exodus of investors from the market but, to date, neither side has been prepared to do so.

Why not? Because the pollies are much more afraid of the anger they'd arouse among oldies benefiting from the tax lurk – and all the business people who see themselves as getting a cut of the proceeds – than they are of all the young people who don't quite understand how they're being worked over by their elders.

The fact is that the rate of home ownership – which once was as high as 70 per cent – is steadily falling as higher and higher proportions of people in younger generations fail to make it onto glittering merry-go-round of owner-occupation.

So, having got themselves ensconced on the merry-go-round, the older generation and the politicians in thrall to it are now effectively repelling boarders.

This means a high proportion of the younger generation will be renters all their lives, including in retirement. And that means they'll get screwed by the system which, in the name of encouraging home ownership, has always been loaded against renters.

For a start, our tenancy laws afford renters less security of tenure and fewer rights than in European countries where life-long renting is the norm.

But tax and benefit arrangements also discriminate against renters. Invest in your own home and you escape paying capital gains tax when you sell it; invest in anything else and you don't.

Own your home when you retire and its value, no matter how high, is excluded from the assets test in assessing your eligibility for a full pension; choose to save in any other way and you're zapped.

This crazy arrangement discourages the old from selling the family home and moving to something smaller and more appropriate.

The truth is, living on the age pension is bearable provided you own your home. In other words, the people who have most trouble getting by on the pension are those obliged to rent in the private market.

When Kevin Rudd inquired into the adequacy of the age pension he was told it was really only the private renters who had a big problem. He ignored the report, granting a big increase to single pensioners regardless of their housing status, plus a smaller increase to people on the married rate so they wouldn't feel left out.

All this is of little interest to young people, of course. They know they're never going to get old.

If I were a youngster I mightn't be rioting in the streets, but I certainly wouldn't be voting for any party that wasn't promising to fix negative gearing. If you're more afraid of greedy oldies than you are of me, I'll be voting against you.