Class, not generation, is the real dividing line

December 18, 2014

By Emily Millane

“Why young Aussies are getting screwed.”

“Generation less.”

“Young Australians could face lower living standards.”

These are just some of the headlines referring to the Grattan Institute’s The Wealth of Generations report, released last week. For the first time, the report finds, Australia’s young people are set to be materially worse off than the generations preceding them.

If only it were that simple. Variances within generations are where the real policy complexities, and solutions to social inequalities, lie.

So variable is the wealth within generations that it’s far more useful, for policy makers and the public alike, to understand the real dividing line in our society: class.

Let’s start with the situation today.

Talk to anyone north of 65 and the first thing you figure out is that the only defining feature of boomers is their heterogeneity. For every prince there is a pauper.

A small share of retirees – about 15 per cent at the time of the Harmer Review – receive the age pension and the ancillary benefits that go with it, despite being in the wealthiest quintile group. These same people may also have used a transition to retirement pension arrangement to pay less tax on their earnings, or used their superannuation fund to borrow, in order to purchase another property.

Wealthy older Australians give money to their children, to give them a leg-up in the housing market. This isn’t a bequest when they die, rather, it is through the establishment of family trusts or direct transfers. So the point about people dying later, and transferring the wealth to their children later, really only relates to the less wealthy.

So that’s the few. What about the rest?

While about 12 per cent of Australians aged over 65 are renting, the number of people in low-income rental households is projected to increase by 115 per cent to 419,000 between 2001 and 2026.

A 65-year-old in private rental housing is figuring out how to afford to buy a steak that week, not deciding which kid gets what. Anglicare figures show that 3.6 per cent of private rentals are affordable to couples on the pension; only 1 per cent for single pensioners.

I spoke to one lady last week whose friend, who lives alone in a country town, has to decide whether her aged care allocation each week is used for vacuuming the house or dusting it. It’s her choice: vacuuming or dusting. And this person was on a Gold Card.

It is the vulnerable in each generation to whom our attention should be turned. It is through the policies that entrench class differences that the solutions lie.

A 65-year-old in private rental housing is figuring out how to afford to buy a steak that week, not deciding which kid gets what.
Here are three examples that bear out this argument.

Firstly, the flat rate of taxation on superannuation contributions is more beneficial the more you earn. According to the MYEFO the cost of this expenditure is forecast by the government to reach $22.3 billion dollars by 2017-18. These concessions are not preferential to one generation or another. It is just that it is only when people reach retirement age that the inequities in the system become apparent. More than 50 per cent of the superannuation tax concessions go to the wealthiest 20 per cent of Australians, according to Treasury modelling, and noted recently by the Murray Review.

The inequities in the system are based on level of income and security of work, which are in turn also linked to gender. Per Capita modeling has shown that a woman retiring in 2049 who has children and who works a mix of full time and part time hours will have only 60 per cent of the superannuation balance of a man the same age, a deficit of $358,000.

Secondly, eligibility for the age pension means that wealthier older Australians are eligible to receive government benefits. This is undermining the sustainability of the system, obviously, but it is also undermining the moral basis of the system as a safety net for the most vulnerable in our aged population. The assets test for the age pension should be tightened for people who own their own homes outright.

On the other hand, the sufficiency of the age pension should be reviewed for people who are wholly reliant on public benefits as they age, especially those who rent. As ACOSS has noted, more than a third of people over 64 still live below 60 per cent of the poverty line – that is, below $24,648 per annum.

Thirdly, the Government should facilitate the release of home equity for wealthier Australians so that they can fund a portion of their retirement, whether for aged care costs or for retirement income. Over time, public savings made through such a mechanism could be directed to those reliant on the full pension, whose income still falls below commonly accepted standards for a modest retirement income.

These proposals enjoy broad-based support across a number of national policy groups and community stakeholders. It is the Government’s turn to participate in the “mature” discussion that many are already having.

But let’s be clear during this conversation: there are significant numbers of vulnerable Australians across all age cohorts, and it is to them that our policy solutions should be addressed.