While much of Australia is beginning to enjoy the fruits of hard time served indoors during COVID-19 lockdown, with some venues reopening and travel restrictions starting to lift, it may be time to address the elephant in the room, says a University of New South Wales report.
That elephant? Who will foot the coronavirus stimulus bill?
Health measures have come at a huge economic cost, with the lockdown estimated to have cost about $1.4 billion a week. Millions are out of work and the federal government will end up spending about $213 billion in direct spending; state spending will be around $13 billion. Money borrowed from the Reserve Bank could exceed $105 billion.
Some commentators estimate the impact of reduced revenue in future years to $1 trillion.
Federal treasurer Josh Frydenberg rightly stated that a federal budget once expected to deliver a surplus for the first time in years will now be the “largest-ever deficit when a revised budget is released in October.”
It will take all hands on deck to repay this debt.
“The question is how we as a nation will pay the bill and over what time period,” says the UNSW report.
“And even though we aren’t out of hibernation yet, the debate has already started about whether we can grow our way back. This includes what tax incentives are needed to help stimulate growth and cushion businesses and workers through the transition and/or what belt-tightening and tax-raising strategies will need to be implemented.”
There have already been calls directed at retirees and baby boomers to fork out more than other generations.
“This is partially arguing intergenerational fairness – the high cost of protecting seniors as our most vulnerable group – and also a pragmatic approach that they are likely to have more capacity to pay, having accumulated assets over time,” said UNSW Business School professor of practice Jennie Granger.
“Of course, not all seniors are wealthy and even those who have been self-funding their retirements have had their investments and incomes significantly battered by low interest rates and the bear share market.”
She suggests more tax revenue could be taken from investors to help repay government debts – by putting a limit on franking credits, taxing superannuation withdrawals, limiting the concessional tax rate on super earnings, limiting capital gains tax exemption on their homes and limiting negative gearing.
Prof. Grainger also suggests broadening the tax base and reforms to GST and state taxes as a means of shoring up the economy.
Her colleague, Dr Rodney Brown, suggested three quick fixes to stimulate growth.
The first would be unwinding the legislated personal income tax cuts worth $158 billion. “This reduces forward expenditure, so we are not compounding debt. This is attractive because it is less painful to withdraw something we never had,” said Dr Brown.
The second was introducing a temporary levy, similar to the one introduced for three years after the Global Financial Crisis. This added two per cent onto personal taxable income over $180,000, affecting 400,000 Australians and raising more than $3 billion.
“A corporate form of this could be a temporary ‘super profits tax’ on the most profitable companies,” he said.
The third is cancelling the super guarantee charge rate rise, which Dr Brown says “doesn’t repair the budget, [but] it is a cost to business. It may be an attractive option for the government to defer or cancel this rate rise. If future employee costs for businesses don’t increase, that may be an incentive for businesses to hire additional employees”.
Perhaps retirees have seemingly been asked to shoulder the economic burden of COVID-19 because over 50s make up 27 per cent of the population but hold 50 per cent of the nation’s private wealth and 46 per cent of its disposable income.
However, the Alliance for a Fairer Retirement System came to older Australians’ defence over the weekend with an open letter to the Morrison government.
“We are beginning to see incessant lobbying from retiree groups demanding greater taxpayer support in the wake of COVID-19,” reads the letter published by Fairfax.
“Older Australians say the retirement system is in crisis and leaving them financially vulnerable, forcing them to call on the Morrison government to consider changes in areas such as the Age Pension, deeming rates and access to the Commonwealth Seniors Health Card.
“The Alliance for a Fairer Retirement System, representing millions of retirees and older investors, has written to key finance and welfare ministers urging reforms including to measures previously introduced to take pressure off the federal budget…
“Retirees are facing a string of inter-related hits to their finances. Company dividends are being slashed… Falling interest rates… Income from rental properties have also collapsed… The alliance said it all meant many retired Australians’ incomes were being stripped away by the impact of the coronavirus and the situation ‘could extend for years’.
“…the alliance wants the government to… [implement] another cut in the deeming rate.
“It also wants an automatic revaluation of assets used by Centrelink to determine the pension accessibility for retirees…
“The alliance has also called for the government to rethink the taper rate changes it introduced in 2017 that helped save billions in pension payments. The alliance says those changes now mean that couples who may have almost $900,000 in assets are up to $1000 a month worse off in income compared to a couple with $450,000 in assets…
“It wants all retirees to have access to the [Commonwealth Seniors Health] card and for the government to promote its availability.”
The intergenerational war over who’ll foot the bill is in full swing, even though we still haven’t recovered from the crisis. In fact, we’re still not even aware of what the final cost may be.
“The federal government has already racked up hundreds of billions of dollars of debt to steer the economy through COVID-19, which will need to be repaid by younger generations,” writes Leith Van Onselen for MacroBusiness. “Younger Australians have also been hardest hit by job losses.
“Now retiree groups want to throw billions more onto the debt burden of younger generations so that they can enjoy their retirements in undiminished comfort.
“Seriously though, the burden of COVID-19 must be shared throughout the community, not hoisted on younger Australians shoulders. Retirees must also bear some of the pain.”
Is repaying the debt even an issue for you? Should all generations band together to help our nation through these unprecedented times? How do you feel about this?
If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.