The generational divide that will shape this federal election


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Don’t get me flawed. A few of my favorite persons are oldies. And even they’re more and more baffled by the federal government largesse they at present take pleasure in versus what youthful individuals can anticipate.

On the opposite facet of the generational divide are youthful Australians who appear to know the jig is up.

Millennials know the jig is up.

Millennials know the jig is up.Credit score:Shutterstock

These of us on the youthful facet of this generational divide have come to view taxes not as a self-serving piggy financial institution we get to interrupt open sooner or later, however as an annual contribution we make to serving to these much less lucky than us. We don’t anticipate to get the cash again.

Certainly, few youthful Australians at present really feel assured the age pension will assist them in outdated age. As issues go, most of us anticipate to be properly within reach of a picket field earlier than we develop into eligible.

Plus, we’ve had it drilled into us actually because the day we began work that we are going to be anticipated to fund our personal retirement, by means of obligatory superannuation.

Solely, it seems more and more doubtless we’ll must smash open these tremendous nest eggs on retirement simply to discharge our supersized mortgages – that’s, if we’re nonetheless allowed, and never compelled to take it as dribs and drabs as some form of annuity.

Actuality is, extra of us will find yourself on the age pension than we thought. And based on a current Grattan Institute report, that’s okay.

The concept we may ever totally fund our retirement was at all times a con – a scare marketing campaign engineered by a self-interested superannuation business that collects a tidy payment for investing our cash.

Most younger Australians will nonetheless retire on a full or half age pension. Which can really feel like candy aid to anybody beforehand residing on the more and more miserly Newstart allowance.


However the cash goes to have to return from someplace. Certainly, we don’t discuss it as a lot as we used to when Peter Costello was urging us all to breed like rabbits, however funding the rising wants of an ageing inhabitants stays this nation’s best fiscal problem.

It’s on this gentle we should always view Labor’s coverage to finish money refunds on extra dividend imputation credit – so known as “franking credit”.

I am in a novel place to clarify this coverage, not due to my economics diploma, however as a result of considered one of my first jobs was working in a mailroom the place, as a substitute of licking and sticking stamps, we fed outgoing envelopes by means of an Australia Put up issued “franking” machine, which might stamp them “postage paid”.

An analogous course of works with dividends – the distribution of firm income to shareholders.

When firms make a revenue, they need to put aside 30 per cent for the Tax Workplace and determine what to do with the remainder: both reinvest it into the corporate or distribute it to shareholders as dividends.

Earlier than the Hawke authorities reformed issues in 1987, shareholders have been additionally required to easily declare any dividends to the ATO and pay tax on them at their marginal charge. The identical slab of cash was taxed twice.

The so-called “dividend imputation” system was designed to cease this double taxation.

Below it, firms can determine to difficulty partially-franked or fully-franked dividends – attaching a sure proportion of firm tax paid to every dividend. Shareholders can then use these franking credit to offset their tax.

In 2000, the Howard authorities got here to the dividend occasion and began permitting shareholders to not solely use the credit to offset their tax, however, when their tax legal responsibility was diminished to zero, to get any unused credit cashed out by the ATO. Candy, hey?


It was a political sop to the oldies by the Howard authorities, making us the one developed world nation to refund unused credit. It has since develop into an growing drain on coffers – costing greater than $5 billion a yr, up from half a billion when first introduced.

Along with corrupting the basic structure of our tax system, the coverage has inspired traders to go on a dividend binge, urging firms to return income as franked dividends, slightly than reinvest.

It’s excessive time it was wound again as Labor, if elected, intends to do from July 1 subsequent yr. Along with its funding property tax crackdown, Labor has formulated an bold tax platform that can put youthful Australians on a greater footing.

About 200,000 self-managed superannuation funds and eight per cent of taxpayers – largely retirees – will lose their perk. Their loss will likely be actual. However their beneficial properties have been unfounded and unaffordable within the first place.


Australia’s tax system already treats younger Australians with contempt. The Senior Australian and Pensioners Tax Offset delivers older Australians entitlement to a a lot larger efficient tax free threshold than youthful individuals, merely due to their age.

The Age Discrimination Act is designed to guard Australians from unfair therapy solely on the premise of age. Clearly tax insurance policies are exempt.

The federal finances is inside a whisker of surplus, we’re advised.

However there’s loads extra work to do to reform our tax system and put the finances on a extra sustainable footing to make sure youthful Australians don’t find yourself selecting up the tab for the approach to life of their dad and mom.

That’s one thing Australians on each facet of the generational divide ought to have the ability to agree on.

Jessica Irvine is a senior author.

Jessica Irvine is a senior economics author for Fairfax Media.

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