Wednesday 21 March 2018

Wealth Inequality in Australia – something to think about



In 2015-16 there were an est. 326,000 to 337,000 households out of 8.9 million households which could be classified as the richest Australian households based on income and/or wealth, according to the Australian Bureau of Statistics.

Wealth in this cohort starts at $10 million and rises, with average weekly incomes starting at a little over $5,000.

The Guardian, 18 March 2018:

The richest 20% of Australians hold about 40% of the national income but nearly 65% of the national wealth, and a majority of the wealth is held by those over 55. And our tax system is designed to help them not only keep it, but to garner more and then give it to their children (who then garner more and then give it to their children, who then ...)

Our retirement system is based around tax-free holdings of wealth – through the family home, which is exempt from capital gains tax, and tax-free income from superannuation.

With those exemptions comes revenue forgone, and the cost of paying for our ageing population is an issue that is hitting us square between the eyes.

The prime earning age for workers is between 25 and 54. Between those ages, you are no longer studying, and not really thinking about retirement. These workers not only power much of our production, but also our tax revenue.

And right now the cohort is shrinking.

Currently just 41% of the population is aged between 25 and 54. The last time it was that low was in 1987, when the first baby boomers were entering their 40s.

Back then, it wasn’t a problem because only 10.5% of the population was aged over 65. But now those 40-year-old baby boomers are retiring and those over 65 account for 15.5% of our population.

That jump is the equivalent of about 1.2 million extra people aged over 65 – people who mostly don’t work (and nor should they be expected to), or pay income tax, but whose pensions and services need to be paid for by the revenue derived from those prime-aged workers.

So what is to be done?

You could – as is the government’s current policy – increase the retirement age to 70 (this policy is still on the Department of Human Services website). That might be fine for someone like me typing away at a desk but not for many others.

You could “crack down on welfare cheats”. The problem is, despite protestations from the government and conservative media, there aren’t many of those.

On Friday, the government announced that it had saved $43.4m – $17.8m in this financial year – from “more than 1,000 wealthy welfare cheats”. That’s from a $46.1bn annual budget for Newstart, DSP and Family Tax Benefit (and the aged pension is another $45.4bn).

Or you could, as the ALP is doing, seek to find extra revenue by cutting out rorts that were designed as electoral sweeteners and favours to the Howard-Costello key demographic.

When this imputation cash rebate was introduced, not many were affected but like any good tax rort, accountants soon caught wind. Add in the 2006 decision to make income from superannuation tax free for those over 60, and suddenly you had a lot of people with a high actual income but very low or zero taxable income taking advantage of it.

Further add in this weird belief that the retirement nest egg must not be touched, and you get a lot of idiotic reporting – such as in the Herald Sun, which had the case study of a woman with an income of $160,000, who we should feel sad for because she will lose her $12,775 rebate. She could, of course, sell some of her shares, but that would actually be using superannuation for its purpose and not as a tax-free inheritance fund.

So it is a smart and needed policy, but also a dangerous one because it affects an area shrouded in confusion and thus very much susceptible to fear-mongering……


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