Tuesday, May 13, 2014 (Comment)

Budget 2014: Top ten reasons why you have to work until you're 70

If you were born after 1965, you would have expected to qualify for the pension at the age of 67. But now the Abbott government wants you to work until you're 70. Why? Let me count down the reasons.

(10) 70-year-old owners of multi-million-dollar homes are entitled to the full pension if they play their cards right. 69-year-olds who never had a chance to become home owners should have dealt themselves a better hand. Excluding the home from the assets test costs roughly $1 billion per year.

(9) Property investors are entitled to claim negative-gearing losses against their wages or salaries although the losses are not work-related, while you are not entitled to claim the cost of getting to work although it is work-related. Neither are you entitled to claim any part your rental expenses against your wage or salary, although rents are higher where work is available than where it isn't. And if you somehow manage to buy a home to live in, you are not entitled to claim the margin by which the mortgage interest exceeds the rental value. That's because investors are entitled to be able to service bigger mortgages than you, so that they can outbid you for the home you want to buy, so that you can rent it instead. Investors must not be obliged to build new homes in order to claim this entitlement, because if they didn't buy established homes for you to rent, those homes would vanish into thin air and you'd be left on the street!! In the long term, the negative-gearing entitlement costs about $2 billion per year in forgone revenue.

(8) Multinational companies operating in Australia are entitled to avoid several billion dollars in income tax per year, by shifting profits to foreign tax havens using elaborate transfer-pricing schemes such as the Double Irish Dutch Sandwich. You are not entitled to do the same with your wage or salary. More fundamentally, the multinationals are entitled to the perpetuation of a tax system that relies primarily on income tax, because they can avoid income tax but you can't.

(7) Too-big-to-fail banks are entitled to an implicit promise of a taxpayer-funded bailout, but are not obliged to compensate the taxpayers. Such compensation could reasonably raise $3 billion per year.

(6) New parents who were paid up to $100,000/year are entitled to be paid the same if they stay home for six months, even if that's more than you get paid to work. The cost of recognizing this genuine entitlement — over and above the old policy of paying new mothers the minimum wage for 18 weeks — is at least $3 billion per year.

(5) High-wealth individuals are entitled to split their income among family members through discretionary trusts, thus avoiding at least 3 billion per year in tax. You are not entitled to do the same with your wage or salary.

(4) Big polluters, far from being obliged to pay $8 billion per year as a tax on pollution, are entitled to pollute without penalty, and are entitled to be paid for any “direct action” by which they kindly reduce their pollution. (Bless their hearts.)

(3) Mining companies are entitled to an exemption from the fuel excise that you have to pay (and which is about to be indexed to inflation), because they don't use the roads that you use. Never mind that fuel excise is paid to the Feds while roads are a State responsibility. Never mind that you also pay rego on your car. This fuel-excise concession costs at least $2 billion per year in forgone revenue. Mining companies, other than those seeking oil and gas, are further entitled to dig up our dirt without paying a Resource Rent Tax on their above-normal profits. A serious RRT would raise of the order $7 billion per year, making a total of something like $9 billion per year in forgone revenue from mining. (Now we get to the big stuff...)

(2) People with assets are entitled to a lower tax rate on their unearned capital gains than you pay on your hard-earned wages. In particular, they are entitled to tax-free capital gains on their principal residences, so that they can more easily outbid you when you're trying to buy your first home. Even if a capital gain on real estate is caused by a desirable infrastructure project funded by your taxes, the property owner is still entitled to it, and is entitled to charge you more rent for it. These entitlements cost about $34 billion per year in forgone revenue. (And the winner is...)

(1) People on higher incomes than yours are entitled to retire younger than you can, with the help of bigger tax breaks for their superannuation. Tax concessions for super cost nearly $49 billion per year and are about to become more expensive than the age pension. Never mind that compulsory super was supposed to reduce expenditure on the pension: it hasn't done so, and never will as long as retirees can take their super as a lump sum, spend it on their homes or on consumption, and then cry poor and claim the pension. Even so, tax concessions for super are needed to encourage people to save for their retirement. Never mind that they'll do it anyway because it's compulsory. But if you run a struggling small business, you are not entitled to be paid for collecting GST and personal income tax, because that's compulsory.

To cover the cost of all these entitlements, the age pension would need to be abolished more than twice over! Think yourself lucky that the government only wants to lift the age of eligibility. You young people need to lower your expectations. Doing without that 50-inch plasma TV will pay a week's rent. Doing without that smartphone or tablet or computer that you need to find your next tenancy and your next casual job will pay another week's rent. So grow up, pay your rent, pay your taxes, and get over this ridiculous notion that you're “entitled” to get somewhere just because you're working your butt off.

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