Photo: Older Australians who earn a living from investments pay a lower rate of tax than those on a wage. (ABC News: Jake Evans)
Remember then-treasurer Joe Hockey's impassioned plea to the nation just on three years ago when he released the most recent Intergenerational Report?"Madam Speaker, we need to ensure that we can pay for today, and we also need to ensure Australians will be able to afford the future. We are currently living beyond our means."
He ended with a flourish.
"We need to ensure that we take the steps now to ensure our prosperity for generations to come, that we leave nobody behind."
Fine sentiments. But rarely has the future looked more uncertain for our younger generations.
A rapidly expanding population may have kept our economy growing but it has put upward pressure on housing costs, downward pressure on wages and is squeezing the life out of our urban areas.
And increasingly, the older generation — of which your columnist sadly now is a member — appears determined not to ensure the prosperity of future generations, but to grab as much of the pie as humanly possible right now.
Woe betide anyone who stands in the way.
Prime Minister Malcolm Turnbull and Treasurer Scott Morrison learned that the hard way when they attempted to unwind some of the more generous aspects of superannuation two years ago.
And last week's move by Opposition Leader Bill Shorten to rescind a generous tax handout to retirees who own shares sparked an uproar. More on that later.
Superannuation — who really pays?Our taxation system overwhelmingly favours older Australians.
Thanks to an overhaul in 2007, retirees over the age of 60 pay absolutely no income tax on anything they earn from superannuation.
It's a policy that has distorted our tax system and left the federal budget bereft of billions.
Think about this. A retiree, earning $60,000 a year from a super fund pays no tax at all.
Compare that to a 30-year-old, earning exactly the same amount through a wage, who racks up an $11,047 tax bill.
Then add in a Medicare levy of $1,200.
On top of that, many younger workers have student loans to repay as well.
That unequal tax burden is a direct wealth transfer. Our young are paying for their older and much richer Australians who have been allowed to use superannuation as a vehicle to store wealth, rather than savings to fund retirement.Then there's the housing situation. Home ownership for younger Australians (between 24 and 35) has plummeted.
In 1990, 60 per cent of low income youngsters owned a home.
That's now plunged to 20 per cent.
At the other end of the scale, older Australians have plunged headlong into the housing market, snapping up loss making investment properties that deliver generous income tax concessions.
If they sell, their capital gains are taxed at just half their top tax rate.
Not only have these two tax breaks been a key driving force behind soaring capital city housing prices in recent years, permanently locking young people out of the market, it has created anomalies in the way income is taxed.Those who earn a living from investments — generally older, established Australians — pay a lower rate of tax than those who work for a wage.
The great dividend imputation tax lurkThe latest battle between the generations, which erupted last week, revolves around share dividends and specifically what's known as dividend imputation.
It's a corporate tax system unique to Australia and New Zealand and it works like this:
Unlike other countries, where corporations first pay tax and then individuals are whacked as well for the income they receive as dividends, we only charge tax once.
If the company pays the full rate of tax, or close to it, shareholders receive tax credits, known as franking credits, that they can use to offset against their income tax bill.
It was a system that delivered the biggest benefits to those whose personal tax rates were higher than the 30 per cent paid by companies.
At least that's the way it was intended to work when Paul Keating introduced it in 1987.
In 2000, not long before a federal election, it was changed.
Complaints from investors who earned little or, in many cases, no income (because they lived off investments rather than wages) argued they were missing out on the rebates and convinced the Howard government to extend the system.
From then on, anyone who earned more franking credits than they owed in income tax was delivered a handy cash rebate.
Then in 2006, the system was sweetened again when it was decreed that retirees over the age of 60, should pay no income tax.
So, not only do they not have to pay tax on their earnings, each year the ATO delivers an annual gift of up to 30 cents for every dollar earned in dividends.
Essentially, it is a tax rebate for those who pay little or no tax in the first place.When the Howard government made the change, it cost the federal budget around half a billion dollars and was easily absorbed as China's insatiable demand for Australian resources delivered the government a revenue bonanza.
There are no revenue windfalls these days.
And the budget cost of the imputation changes has skyrocketed to around $5.5 billion a year.
It is expected to blow out to $60 billion during the coming decade.
Why? Two reasons. There are a lot more people retiring and financial planners have pushed investors and superannuants into a scheme that is money for jam.
The entitlement of old ageNot everyone who lives off super lives the life of Reilly.
Vast numbers are struggling and any loss of income will hurt.
So, it's not surprising large numbers of older Australians are concerned about Labor's proposed changes.
That aside, there's no denying the vast inequities now running through the tax system.
And it's not surprising younger Australians have had enough.
After years of budget assaults from both sides of Parliament, with the removal of support services and soaring student debts for degrees that no longer deliver employment, our youth watch on in stunned amazement at the faux outrage from their wealthier and older compatriots at the prospect of losing a tax lurk.With an ageing population, grey voters have become a powerful and effective political force purely by virtue of their numbers.
Video: Labor's new policy would take around $6 billion a year in tax credits away from self-managed superannuation fund retirees. (7.30)
Witness the headlines from this week. They've been screaming that the changes will hit low income earners hardest.
That's true. Sort of.
The thing is, they aren't talking about actual income. They are talking about taxable income.
Just to ram that point home, retirees by law have zero taxable income.
The usual argument for excusing retirees of any tax paying obligations is that "it's their money. They have saved for their retirement and they should be allowed to enjoy it".
But that's a disingenuous and deliberately misleading argument.
No-one has ever suggested taking or taxing their savings. This is an argument about income and how it should be taxed.
The broader question remains as to why our tax system allows one age group to avoid tax altogether while our youth get slugged.Maybe it's time Joe Hockey resurrected his famous lifters and leaners lecture.