Intergenerational Theft

Conservative politicians and commentators love to talk about intergenerational theft. Through the prism of this line of argument, government spending that drives budgets into deficit is unfair to future generations who have to pay off the accumulated debt. We are stealing money from future generations, in the form of inevitable tax hikes that will be necessary to pay down debt.

It is a similar to the line of argument that spending taxpayer dollars on things like welfare is unfair, because the taxpayers aren’t receiving services or handouts commensurate with their contributions.

As recently as February, treasurer Joe Hockey spoke of intergenerational theft in one of his many sermons on lifting:

You've got an erosion of the corporate tax base, you've got massive growth in expenditure in welfare, health, education, a range of other things including defence. The outcome has to be that we all do the heavy lifting. It's a call to arms to the nation that these things will not be fixed overnight, but we must fix things otherwise we're going to be guilty of intergenerational theft, effectively. [emphasis added]

And in defending the recently announced 2014-15 Budget, the prime minister has made repeated comments in Question Time about the intergenerational theft that the previous Labor government perpetrated.

There are any number of ways to poke holes in these kinds of arguments. One could argue that accumulating debt is necessary to provide a strong, stable economy that will provide future generations with jobs, education, healthcare, infrastructure, quality of life. One could point out that deficits and surpluses are cyclical, and generally swing from one to the other a number of times throughout each generation’s working life, and are therefore not heaping a debt problem on any particular generation.

A much more useful way of approaching it is to assume that intergenerational theft is a real problem, and applying the same principle to a range of other policy issues. In this context, we compare any supposed debt problem with other problems that we are handing on to future generations, such as depleted natural resources, a changing climate, a rising inequality of wealth and incomes, and so on. As we work through each of the issues, we gain perspective on the scale of Australia’s deficit spending and accumulation of debt, and weigh up the costs and benefits of cutting budgets to reduce debt or taking steps (some of which may have a negative impact on the budget) to address other intergenerational policy issues.

Climate change

The Liberal-National Coalition Government seems intent on walking away from years of bi-partisan support for the renewable energy target, and it appears that only a resistant senate will prevent that from occurring.

If the government was serious about intergenerational theft, it would take serious action to curb carbon emissions and prevent ever more dangerous increases in global temperatures. The powerful forces unleashed by rising temperatures are surely a form of intergenerational theft. Higher air temperatures cause droughts that impact on agriculture and livestock; higher sea temperatures and ocean acidification destroy invaluable natural resources, like the corals of the Great Barrier Reef; more powerful storms clobber our tropical communities; increased risk of bushfires take away both livelihoods and lives. These are very real impacts that future generations will face, if meaningful actions aren’t taken by our current generation of parliamentarians.

To address this form of intergenerational theft, the government ought to retain (if not increase) the renewable energy target, continue to fund marginally profitable green ventures, re-impose indexation on the fuel excise, and retain the carbon pricing scheme, if not in it’s current form, then with an increased price on pollution.

Natural resources

Australia has plenty of natural resources of great economic value. Some of these provide short term gain, such as minerals that are extracted and sold for a one-time profit; while others have an enduring value, such as the great barrier reef, rainforests and Uluru, which provide a continual attraction for tourist dollars.

The federal and state governments should show better stewardship of these resources, rather than trying to cash in on them for short-term gain. The federal government has recently been rebuked by the UN on its intention to wind back heritage listing of Tasmanian forest, and the Queensland state government is continuing with its ports expansion in spite of clear evidence that it will harm the reef, and credible research showing that port expansion isn’t necessary.

Let’s try to see the best in these governments, and say that their motives are about creating jobs growth and prosperity for Australians. This is a reasonable objective. But it creates a few jobs today at the expense of the jobs of tomorrow. Degrading our natural resources, which could provide jobs in tourism and other service industries for generations to come, is surely a form of intergenerational theft.

Meanwhile, governments should be seeking to get the most out of the natural resources that are dug up and shipped overseas. The Abbott Government will be abolishing the mining tax, with little benefit to the profitability of mining projects, and to the detriment of the budget bottom line.

Unemployment

Youth unemployment has skyrocketed worldwide since the global economic crisis began. Int eh developed world, 18 per cent of people aged 16 to 24 are jobless. Youth unemployment in the UK is 16 per cent, 20 per cent in the US, and above 50 per cent in Spain and Greece.

In Australia, arguably the country that weathered the global economic storm better than any other, youth unemployment remains at 13.1 per cent (as at May), up nearly 50 per cent from September 2008. Over the same time period, general unemployment rose less than 35 per cent to a rate of 5.8 per cent.

Unemployment rates, Australia

These rates, and their persistence, has led the International Labour Organization to warn of the risk of a “lost generation”, with the affects of unemployment carrying long-term consequences for those who find themselves locked out of the labour market, as well as long-term cnosequences for lost productivity in the economy.

The stick-and-no-carrot approach to getting young people into jobs that the federal government has been shown to be completely futile, with increasing numbers of unemployed youth and dwindling job vacancies.

What is missing from the government’s sweeping reform agenda is anything at all that will promote jobs growth in Australia. Scraping coins into the treasury coffers to solve a debt and deficit crisis that does not exist, while idly watching more young people join the jobs queue, is intergenerational theft.

Superannuation tax concessions

Let’s talk superannuation.

The Abbott Government is set to scrap the Low Income Superannuation Contribution scheme, introduced in 2012, which rebates up to $500 per financial year into the super accounts of Australians earning less than $37,000.

Meanwhile, superannuation tax concessions are increasingly favouring wealthier Australians. According to the federal treasury, around 30 per cent of the benefit of tax concessions goes to the top five per cent of income earners.

The concessions benefit older Australians and are funded by younger, working taxpayers. Treasury estimates that the concessions hit the budget bottom line by around $35 billion a year. If the treasurer is so concerned about running deficit budgets, and sparing future generations from paying of the resulting debt, perhaps he should look closely at this expenditure.

Negative Gearing

Negative gearing is the policy that everyone knows is bad but nobody wants to touch.

Negative gearing provides incentives to invest in the property market, which, naturally, pushes up property prices. This benefits wealthier, typically older, Australians, while pricing first-home buyers out of the market. Those who cannot afford homes a condemned to paying rent to those who can. Not only that, but it reduces the government’s tax revenue, piling up debt, supposedly, on future generations.

The Grattan Institute has made the following proposal on negative gearing:

Negative gearing allows taxpayers to deduct any losses they make on investments (including mortgage interest) from their overall income when they calculate their tax liability. Under the proposed reform, investors would no longer be able to deduct these losses against wage income. However, they would be able to carry forward any losses and deduct them against any capital gain they make when the investment is sold. The proposal would contribute about $4 billion a year to the budget in the short term, falling to approximately $2 billion a year in the long term. The change could increase rates of home ownership by reducing demand for investment properties. The change would have little impact on those in the bottom 20 per cent, who own relatively few investment properties.

The Grattan Institute argues that abolishing negative gearing would increase home ownership rates by reducing returns at the margin for landlords relative to first home-buyers. Would-be property investors would instead invest in more productive assets.

Negative gearing is a form of intergenerational theft that should be abolished.

Health and education

Spending on health and education are both clear ways to improve outcomes for future generations, and cutting spending in these areas could clearly be seen as depriving future generations of opportunities to reach their individual potential, and to contribute to a society and economy that reach their potential.

Joseph Stiglitz, on his current tour of Australia, recently told the press, “Spending money on health, education, making sure that the bottom half of your population, the children, have the nutrition, health and education to be more productive and live up to their potential, seems to me to be first order investments in any society.”

So is Australia best to cut spending in these areas, as the federal government plans to, in order to cut down our low level of debt? Or are we best to proceed with the needs-based “Gonski” funding for schools and continue to fund hospitals at adequate levels? Which of these options presents the larger burden to future generations?

Tertiary education

Sticking with our guest Joseph Stiglitz, he has also weighed in on the topic of university deregulation. Today he said:

Countries that imitate the American model are kidding themselves. It seems that some people here would like to emulate the American model. I don’t fully understand the logic. … Trying to pretend universities are like private markets is absurd. The worst-functioning part of the US educational market at the tertiary level is the for-profit system. It is a disaster. It excels in one area: exploiting children. If you’re rich, your parents can pay the fees, but if you are poor, you are going to worry about how much debt you’re undertaking. It was a way of closing off opportunity and that’s why the US doesn’t have educational opportunity. While we in the US are truing to re-regulate universities, you are talking about deregulating them. It really is a crime.

Education is great equaliser. Mr Hockey recently gave a speech about the role of government; that it ought to be about providing people with equality of opportunity. He is absolutely spot on, and education is the way to achieve it. Deregulating university fees; which inevitably see them rise, while also introducing interest payments on fee loans, is a form of intergenerational theft. It will price a large part of future generations out of university education, not only excluding them from a wide range of work opportunities, but also severely limiting our nation’s capacity to grow into a technically sophisticated economy.