Australia’s Growing Divide: Are We Sliding Towards a Neo-Feudal Society?
Australia is facing a critical juncture. A leading tax expert warns the nation is on a trajectory towards a neo-feudal society, where wealth – and therefore opportunity – is increasingly determined by inherited property rather than individual effort. This isn’t a return to medieval times, but a modern manifestation of inequality driven by the soaring cost of housing.
The Role of Housing Wealth
The core of the issue lies in the explosion of housing wealth. According to Bob Breunig, director of the Australian National University’s Tax and Transfer Policy Institute, the primary driver of inequality isn’t simply old versus young, but those within the same generation who possess assets versus those who don’t. If a young person’s parents own significant assets, those assets are likely to be passed down, leveling the playing field in their favor.
This trend is particularly concerning given the current housing affordability crisis. The Greens-led parliamentary committee investigating capital gains tax (CGT) has highlighted how generous tax breaks fuel speculative investment in residential property, exacerbating the problem.
Tax System Imbalances: Favoring the Old?
Recent analysis reveals a shift in the tax and transfer system, becoming more generous to older Australians over time. Breunig emphasizes the goal isn’t to penalize retirees, but to ensure the system reflects current realities. Historically, old age equated to poverty, justifying financial assistance. However, this is no longer universally true.
“We need to move beyond the idea of old being a tag for poverty,” Breunig stated, advocating for targeted assistance to those genuinely in need. Currently, tax and transfer settings haven’t adapted to this changing demographic, continuing to allocate resources based on outdated assumptions.
Capital Gains Tax: A Key Point of Contention
The debate surrounding the 50% capital gains tax discount is central to this discussion. While some, like former Reserve Bank governor Bernie Fraser, argue for its abolition, believing it would significantly impact house prices, others suggest its effect would be modest. Breunig notes the CGT discount isn’t unusually high compared to international standards.
However, he cautions against grandfathering changes, arguing that protecting existing investments would actually worsen intergenerational inequity by denying younger generations the same benefits.
Beyond CGT: Untaxed Wealth
Breunig identifies the “much bigger issue” as the “egregious undertaxation” of the family home and superannuation. These areas represent significant concentrations of wealth that largely escape taxation, contributing to the growing divide.
What Experts Are Saying
Union leader Bill Kelty has called for a more ambitious reform agenda to address the concerns of younger generations, who feel increasingly alienated from the prospect of homeownership and financial security. This sentiment underscores the urgency of addressing these systemic issues.
Frequently Asked Questions
Q: What is neo-feudalism?
A: It refers to a societal structure resembling feudalism, where wealth and power are concentrated in the hands of a few, largely determined by inherited assets rather than merit or opportunity.
Q: What is capital gains tax?
A: It’s a tax on the profit made from the sale of an asset, such as property or shares.
Q: Why is the CGT discount controversial?
A: Critics argue it encourages speculative investment in property, driving up prices and making homeownership less affordable.
Q: What are the potential solutions?
A: Potential solutions include reforming the CGT discount, addressing the undertaxation of the family home and superannuation, and implementing policies to increase housing affordability.
Did you know? The ANU’s research highlights a clear trend of increasing financial advantage for older Australians through the tax and transfer system.
Pro Tip: Stay informed about proposed tax reforms and advocate for policies that promote greater equity and opportunity.
Want to learn more about the housing affordability crisis in Australia? Read our latest coverage here.
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