One of the themes of the ALP spin on the budget is that the tax cuts don’t make up for the ‘triple whammy’ of higher fuel prices, interest rates and lower wages from the new IR legislation.
There’s another triple whammy (silly expression isn’t it?). In fact, in the spirit of the Grammy Awards, perhaps we should have the Whammy Awards and give one to the Government. If we have the Granny awards we’d give them to the Government as well. Because the other triple whammy is an intergenerational one.
First there was the once in a generation rise in house prices which has made it very difficult for 20 and 30 somethings to get into their first house. Second the labour market has been awful for younger people. In a remarkable pair of diagrams on Bob Gregory’s site (pdf) we see that the full time wages of younger age-groups have stagnated whilst the growth in the economy has slid steadily into the pockets of those over 35.
And then we have this week’s Budget. That part of the budget designed to improve savings was well how do you put it? Exquisite is the only word I can think of. Supporting saving from government is usually difficult because the most direct way for governments to increase saving is to build up surpluses. Another way is to add to compulsory super which doesn’t please those who have to fund it (and anyone else who fancies those contributions might be robbing them of higher wages).
But this government doesn’t fancy this path. Instead it’s about giving the money away. So how could tax cuts most directly increase saving? Well you’d imagine by lightening the tax burden on savings going into the superannuation system thus increasing the amount of money that ends up being locked away. That’s what Nick Minchin suggested. That would also be a bit of a hand to the struggling Gen X and Y’ers.
But that would be too difficult. It would be tax cuts without instant gratification. So instead we cut tax on money coming out of the super system. Well in theory that increases incentives to save. But who knows what the exit tax will be in 20 or 30 years time? So while it’s politically marketed as pro-saving, it’s immediate effect is to assist people consuming, not in increasing their saving. And it hands money to those who already have quite a bit of money (exit tax is currently progressive not being levied on small amounts of super).
Anyway, the Howard Government has at least got art on its side. I’d put this up there with kids overboard, but whereas that was tawdry, this well I can’t think of a more exquisite piece of work by this Government, appearing to do one thing, while doing the other. Its hard not to admire the artistry.
I wonder when some mainstream politician will get serious about how younger generations are getting screwed over.
PS – apologies for the image which is too small to read. I’m hoping Ken can fix it for me. The two lines at the bottom of each graph track the real full time incomes of the youngies – the 19-34 year olds and the two lines at the top of each graph track the real full time earnings of the oldies 35-54.