Are the Baby Boomers the greediest generation ever?
Date May 22, 2016 Comments 168
Baby boomers are on course to leave a legacy of substantial debt that subsequent generations will struggle to pay off.
The Baby Boomers should not expect future generations to pay for their current benefits. The brilliant Harvard professor, Niall Ferguson, describes the traditional intergenerational compact as our most important social contract and one that is being broken in Western economies.
Our deficit in 2016 is estimated at $37.1 billion. Our net debt has risen from zero in 2007 to some $279 billion in 2016. If the Senate continues to block expenditure reform and Treasury assumptions on growth, unemployment, terms of trade, productivity and inflation are not realised, national debt will continue to rise. Our credit rating will fall, the cost of debt servicing will increase and the monumental task of repayment will get even harder.
This week the secretaries of the Treasury and the Department of Finance have spoken on expenditure restraint in unusually blunt terms.
We have an ageing population, increasing life expectancy, an aged pension benchmarked to average male weekly earnings (the highest possible index) and the family home excluded from the asset test. The aged pension costs us $42 billion a year and is estimated to grow at 6 per cent a year over the next 10 years – far higher than any predictions of inflation, GDP growth and real wage growth.
A person earning $80,000 who cannot afford a home pays taxes to support an aged pensioner in a $3 million family home . That home eventually passes tax free to the descendants. Hardly fair.
As we age our health care demands increase significantly. We provide a Senior's Health Card, which excludes from its means test any untaxed income from superannuation.
The cost of aged care and ageing is more than $13 billion a year and is estimated to increase at 7.5 per cent a year over the next 10 years. The means test for aged care does not include the full value of the family home.
Gen X and Y while being left with the bill have not complained, yet
We have a scheme where support for the older generations and other extravagances were legislated based on the assumption of continuing revenue from an unprecedented investment boom in resources. The boom is over and the government is now forced to borrow to cover the ever growing shortfall.
The dole, refugees, single parents and foreign aid are not the problem. Support for those most in need is threatened by support for those who are more able to look after themselves.
Of course we should ensure people and business pay their taxes. The over generous super provisions are another wealth transfer from the young to the old and should be tightened while not discouraging thrift and self-sufficiency (two words slipping from our lexicon). The potential revenue from these additional tax raisings are swamped by the growing budget deficit.
On cue, the left says simply raise more taxes from business and the rich to pay for the unaffordable. This is the European model, which has been a massive failure. Countries such as Sweden have rolled back company and personal taxes to encourage investment and jobs in an economy that was going backwards. The euro area has 16.5 million unemployed and an unemployment rate of 10.5 per cent.
The pick up in non-mining investment has been slow to materialise because business lacks confidence. No matter what happens to the official interest rate business continues to sit on its cheque book. Business employs 80 per cent of the workforce and is the only true generator of wealth and jobs.
There is no growth in real wages and inflation is at record lows. The average Australian feels they are treading water or going backwards.
Higher taxes are not the answer as they will threaten the very investment and jobs growth we so desperately need and disadvantage the young. We must bite the bullet and rein in expenditure, focusing our support on those who cannot look after themselves. The Baby Boomers should tighten their belts in the interests of their children and grandchildren.
The Audit Commission recommended a single asset test for the aged pension including the value of the family home above $750,000 for couples to be phased in over 15 years giving time to plan and adjust. We recommended that the benchmark for the aged pension be tied to average weekly earnings again with the adjustment being phased in over 15 years. In aged care we recommended including the full value of the family home in the means test. For the Seniors Health Card we recommended that untaxed superannuation income be included in adjusted taxable income to determine eligibility.
We recommended the superannuation preservation age and the age pension age be adjusted in line with greater life expectancy. We suggested that the superannuation tax concessions be tightened because they did not appear to be working to encourage more people to be self-funded.
In July, Baby Boomers should vote for posterity and not for themselves.
Tony Shepherd is a businessman and a former head of the Commission of Audit.