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Malcolm Turnbull is promising his next budget will be a pitch to the boomer generation, serving only to deepen intergenerational inequality. By Mike Seccombe.

Turnbull and the boomer racket

Malcolm Turnbull at a community lunch in Brisbane this week.
Credit: AAP IMAGE / GLENN HUNT

The biggest division in contemporary politics, says Ian McAllister, has nothing to do with traditional notions of class or social status. Nor does it follow the line between capital and labour or between the managers and the managed.

“The major line of cleavage these days is age,” says McAllister, professor of political science at the Australian National University. “And it’s enormous.”

Younger voters in this country and in other comparable nations are shifting their political allegiance at a rate that has startled and alarmed the political establishment.

In Britain today, McAllister says, age differences in voting are now about 50 percentage points between young and old. Among the youngest voters, close to 70 per cent now vote Labor, while barely 20 per cent vote conservative. At the other end of the age spectrum, among voters aged over 70, the percentages are reversed. “In Australia, it’s a bit less,” McAllister says, “but nevertheless in the order of 30 percentage points. That’s huge in historical terms.”

Indeed, it is perhaps the most radical political realignment in 80 or 100 years, he says, and “takes us back to when we had a simple binary class division in the 1920s and 1930s and that determined party support”.

The precipitating factor is the same: a response to economic inequality. But it’s a whole lot more complicated than the pay and conditions conflict between classes.

Back then, society’s “haves” were better educated, did quite different work, and moved in quite different circles from the “have-nots”. These days the have-nots are often better educated than the haves, do essentially the same work, and are of essentially the same class. The oppressors are hard to distinguish from the oppressed, except that they belong to different generations.

Maybe that helps explain why organised politics – on both sides – was so slow to notice or react. In Britain, the Labour Party’s hierarchy dismissed Jeremy Corbyn even after the rank and file – infused with massive numbers of new young members – installed him as leader. It stayed this way right up to the point where he nearly won an election. In the United States, the Democratic Party establishment fought off the youth-inspired and financed socialist insurgency of Bernie Sanders and then watched another insurgent from the lunatic right take the presidency. In Australia the Labor rank and file wanted to move left when they voted on the party’s current leader. But the party organisation chose to stay right, with Bill Shorten rather than Anthony Albanese.

Plainly, the progressive side of politics continues to struggle for direction, but it at least shows some awareness of the need to accommodate the demands of the rising cohort of younger voters.

Not so the conservatives. They are doubling down on their support for age-specific inequality, preparing to fight the next federal election substantially on the basis of generational privilege.

Consider the evidence presented this week in Melbourne’s Herald Sun, a Murdoch tabloid.

“Malcolm Turnbull is crafting a ‘Baby Boomer-friendly’ May Budget as he prepares an election-year bid to woo more than 4.8 million voters over 60,” the story began.

“The Herald Sun has learned the government is poised to introduce laws to guarantee tax rates and rules on superannuation, to give certainty to older voters planning for their retirement.”

The piece went on to predict “substantial” budget investment in residential aged care and further tax breaks.

The government had clearly dropped the story to get a jump on the budget. For the most part, it was a stunt. What was being proposed was actually impossible. The government cannot guarantee existing tax benefits because any legislation passed by parliament can be undone by subsequent legislation passed by subsequent parliaments.

But while the story revealed little new about policy, it clearly showed the central place that the older vote plays for the Turnbull government’s electoral hopes, noting a “collapse” in support among voters over 50, following last year’s modest reforms to superannuation and pensions.

It is no exaggeration to suggest the next election – and likely elections after that – will be essentially an old versus young contest. The current government’s survival relies on its ability to defend the intergenerational inequality largely fostered by its conservative forebears in the Howard–Costello government.

The biggest driver of that inequality, says Danielle Wood, the budget policy and institutional reform program director for the Grattan Institute, is asset prices.

“If you owned a house before the mid ’90s, when prices took off relative to income, you have made a substantial gain,” she says. “The average person over 55 is now a millionaire as a result.”

The generous provisions for negative gearing and treatment of capital gains played a major part in driving that boom in real estate. But it was more than that.

“A series of both spending and tax decisions – the tax-free superannuation withdrawals, the franking credit rebates, the increased generosity of the seniors’ tax offsets – was in the early 2000s,” she says. “A whole series of other decisions of that time has massively skewed the system towards older Australians.”

The outcome is simple: “There has been a huge divergence in wealth accumulation.”

“To give you some idea,” Wood says, “the average household aged 55 to 64 is $300,000 richer today than that same household back in 2003. If you go to the 64 to 74 age group the difference is more than $500,000.

“In the 25-to-34 age bracket though, there was almost no change in net wealth. Yet the proportion of over 65s paying tax has almost halved in that period, despite the fact that their income is much higher.

“If you want to talk of taxed-nots, it is largely older Australians.”

It suits the political right to foster the notion of younger people bludging on the taxpayer, but the statistical reality is that only one age cohort takes significantly more from the system than it puts in: people older than 65. Their net benefits per household average more than $30,000 per year.

Likewise, the myth is perpetuated that younger Australians are at least partly to blame for their own failure to accumulate wealth, because they spend too freely on non-essentials – the famous smashed avocado on toast that millennials are apparently buying instead of property. It’s not true. Those 25- to 34-year-olds save as great a proportion of their disposable income as did their elders. It’s just that their savings can’t keep up with asset prices.

There is also the issue of lost revenue. The tax system overwhelmingly favours boomers, and it means the money for public services must come increasingly from younger people. According to data compiled by the Australia Institute and National Centre for Social And Economic Modelling, in 2014-15, superannuation tax concessions, negative gearing and the capital gains tax discount together cost the budget almost $37.4 billion in revenue.

Well over half that benefit, some $20 billion, accrued to people aged over 50. Just 6.4 per cent went to those under 30 and another 15 per cent to the under 40s.

Given the rates of growth in these tax lurks, the analysis predicted, the cost to the budget will exceed $50 billion a year by the time Malcolm Turnbull calls the next election.

Until quite recently, Wood says, one significant bright spot for younger people in this country was income.

“In the United States and United Kingdom, they have generations of people on lower incomes than the generations before them had at the same age, so that someone born in 1985, for example, will have a lower income on average than someone born in the mid ’70s at the same age.”

As recently as 2014, she says, research by the institute showed income in Australia “was pretty consistently growing across age groups”.

“Since then, though, updated income data shows income growth has actually started to grow more slowly for younger households, particularly 25- to 34-year-old households.”

She suggests that stagnant wages across the workforce particularly hurt younger workers, because they are not getting the same succession of pay rises that used to happen in the early years of people’s careers.

“Young people sadly don’t have a proper understanding of just how disadvantaged they are under the current system,” Wood says.

The irony is that it’s privileged older Australians who have until now had the ear of politicians. There’s no mystery about why that is: politics is a numbers game, and the baby boomers, defined by the Bureau of Statistics as those born between 1946 and 1964, have always had the numbers. They have them still, as they move into retirement. About 38 per cent of enrolled voters are now over 55.

But as a voting bloc, the over 55s are perhaps not as solid as the government would hope. And not as united as the younger cohort of voters.

The rising generation of voters, those now in their 20s and early 30s, says McAllister, “are very different from those who went before”.

Their defining characteristic is education, and that changes everything.

“Fifty or 60 per cent of people now in the younger age groups go through tertiary education, and that matters more than occupation or income or anything else in terms of voting,” he says.

And the research here, as in the US, Britain and elsewhere, shows a powerful correlation between greater education and progressive politics.

Asked to sum up the education effect in a word, McAllister chooses “empathy”.

Education begets understanding, which begets empathy, which begets progressive politics. And when you reinforce that predisposition with a well-founded sense of having been cheated, the result is a very solid political bloc.

Interestingly, the same factor McAllister credits for uniting millennials is the one Wood nominates as the factor that divides the boomers.

They have children and grandchildren suffering the effects of intergenerational inequality. And, Wood says, when she sets out the evidence of the magnitude of that inequality, and its compounding effect over time, “it gets to them”.

Turnbull’s government continues to court the most privileged generation this country has ever seen. Without change to the rigged tax system that has supported this generation,  its excesses will one day cripple the systems of social security and health that are markers of our democracy, and starve the generations that follow. Turnbull can no doubt see this in the budget papers, but it will perhaps take the ballot box for his side of politics to learn it.

This article was first published in the print edition of The Saturday Paper on Apr 7, 2018 as "Turnbull and the boomer racket". Subscribe here.

Mike Seccombe
is The Saturday Paper's national correspondent.