Demonising the thrifty

Mum and Dad investors have been cast as the new class enemy by a government searching for scapegoats

It was billed as the economic reckoning of the century. In the event, it was pure political stagecraft. Class conflict was performed as theatre—a spectacle of pulled punches, chest-slapping, and an unresolved plot.

Every generation of socialists generates its preferred class enemy. Maoism found them in landlords and the blood-sucking running dogs of capitalism.

The Occupy Wall Street movement’s chosen villains were the one per cent, the billionaires, hedge-fund managers and oligarchic financiers allegedly responsible for the 2008 financial crisis.

The Albanese government’s chosen moral antagonists are Australians who had the thrift and discipline to put aside portions of their after-tax income to save for retirement, hopefully with a little something left over for the kids.

The median wealth of Australians aged 55-65 - $877,000 in 2021-22 - may look high to a struggling graduate with a self-inflicted HECS debt.

As the return on three decades of compulsory superannuation payments and seemingly endless monthly mortgage payments, it is hardly excessive.

They have paid over a lifetime, and many of them are doing their best to address what the Treasurer calls intergenerational equity by chipping into their children’s mortgage deposits, helping with their grandchildren’s school fees, or unpaid childcare.

Australians aged 55-59 are the nation’s largest philanthropists, while the over-75s are the most generous, donating an average of $4331 a year in 2020-21, four times the national average.

Perhaps the greatest contribution self-funded retirees will make to future generations is paying their own way in retirement. They reduce demand for public pensions, Medicare and government-funded aged care, thereby reducing the burden on taxpayers.

These frugal, self-sacrificing, law-abiding Australians have been cast as the new class enemy by a Labor government searching for scapegoats for its own policy failures. Mum and Dad property investors are defamed in caricatures as grasping, selfish villains.

They are the mean older siblings of our childhoods, shuffling top-hatted figures around the Monopoly board, laying houses and hotels like landmines from Old Kent Road to Mayfair, greeting every bankruptcy with a smirk.

In Jim Chalmers’ imagination, the government is cast as the parent, confiscating cash and property titles and reallocating them to stop tears before bedtime.

As he’s discovering, the real economy, the one he makes a pretence of managing, is not a game governed by fixed rules. Alter one incentive and behaviour changes elsewhere. Unlike pieces on a board, human beings possess their own motives, strategies and reactions, each adjustment setting off chains of consequences no Treasury spreadsheet can entirely calculate.

That may be why Treasury has been so cautious in predicting the effect on the property market of the government’s changes to the taxation of capital gains and its removal of negative gearing concessions, sprung with little warning on Australians by a government that insisted only a year ago that such a move had been categorically ruled out.

Anecdotally, hints that changes were in the offing have already softened sectors of the property market. Residential property investors are questioning why on earth they should go through the pain and uncertainty of holding an asset that is time-consuming and expensive to manage when the potential returns can be slashed at a whim.

As Malcom Turnbull discovered at the 2016 election when he tried to tweak superannuation concessions, the effect of muted alterations to investment rules quickly spreads across other asset classes and to other cohorts of investors, as fear spreads that the government is scouting for other hollow logs.

It is impossible to tell where this flurry of activity in the asset markets leads. The secondary consequences of policy changes are seldom straightforward. Yet it is reasonable to forecast, as Treasury does, that there will be a net reduction in the stock of rental homes as landlords take flight forcing rental prices ups. That will be exacerbated by a reduction in the construction of dwellings for investors to buy because they will be less profitable to sell. As the attractiveness of the property market declines, it is unclear whether there will be a corresponding increase in houses on the market. Harry Triguboff, who has constructed more than 80,000 units on the eastern seaboard through his Meriton apartments group since the 1960s, thinks not. He says says looming tax changes will reduce apartment supply and push the economy further ­behind.

It catches Chalmers in a dilemma. Any claim that the government is making homes affordable is pure speculation. It must be balanced against the consequences of making rents less affordable, and for voters in the nation’s 2.8 million rental properties, that’s a big deal.

Hence, the Treasurer has moved cautiously, grandfathering many of the existing concessions and keeping them intact for investors in new-build property.

By doing so, Chalmers naively assumes new buildings will increase. That is unlikely, since the demand for new property is already high. The constraint is not demand, but the costs, red tape, and delays property developers encounter across the country.

At this point, Chalmers should have given up, telling us perhaps that he had come to a different viewpoint, different to the viewpoint he arrived at before, but consistent with the viewpoint he and the Prime Minister took to the last election.

Yet having declared intergenerational inequality to be one of the great injustices of our time, Chalmers feels compelled to press on. He has pledged to correct what he claims is an imbalance between the taxing of assets and income.

The scale of his difficulty is shown by the paltry size of the income tax cut he can deliver: $4.80 a week, or the price of a coffee or half a schooner of beer. Its fancy new name - the Working Australians Tax Offset - hardly helps. The reaction of most voters to WATO is likely to be “whatever”.

On the face of it, it seems incredible that Albanese and Chalmers were prepared to put their political reputation on the line for so little. Trust is a hard-won commodity in politics, yet Albanese seems willing to gamble it as rarely? as throwing chips on a roulette table.

He may yet win in an era when many voters, particularly young ones, gather their news from social media, a platform weak on context with a short attention span.

The breaking of an election commitment is bad enough. The most fraudulent element of this Budget, however, is that it will limit the horizons of the very cohort it purports to assist.

The tax incentives that allowed many older Australians to invest for a comfortable retirement have been denied to future generations.

They face the prospect of a smaller inheritance, a higher tax burden and fewer opportunities to accumulate wealth over their lifetimes.

Experience tells us that redistributing wealth does not make people rich. Their best hope is that they might be less poor than they otherwise might be, a paltry $250 less poor in 18 month’s time to be precise, a tax-cut that will have already been eroded by inflation.

Australia became one of the wealthiest societies on earth because previous generations built a broad property-owning democracy of homeowners, investors and self-funded retirees. The task of government should be to help future generations become rich themselves, not merely redistribute the diminishing spoils of those who already did.