Boomers are enjoying a free ride at our expense. Picture: iStock
Boomers are enjoying a free ride at our expense. Picture: iStock

Boomer bonus bleeding the rest of us dry

Part way down page 17 in a long report released last week, Treasury boffins buried a landmine.

"Where one generation is required to fund their own retirement as well as the retirement of a previous or future generation they may view this as inequitable," they wrote.

No kidding, Treasury. No kidding.

This line comes from the consultation paper on a retirement income review the government is doing. The review has promised to recommend no changes, lest the powerful be disturbed.

Nevertheless my former colleagues at Treasury, perched in their modernist office block on the shores of Lake Burley Griffin ought to be careful.

Last week, I wrote a story about the immense privileges being provided by our system to the boomer generation, and the backlash was strong.

People contacted me in droves to tell me they knew someone who was struggling. I called the boomers a "luxury generation" and the response I got was #NotAllBoomers.

You know what, fair enough. I should have been more specific. If you're 65, renting a place to live and reliant on the pension, you're having a bloody hard time. I'm sorry. I didn't mean to be unkind to you.

Poverty among people aged 65 and over who don't own their own home is extremely high. It's a genuine issue; but, of course, they are not the only ones doing it tough. The type of household with the worst rates of poverty is the sole parent. There are more children in those households living in poverty (230,000 children) than there are people over 65 renting and living in poverty (135,000 over 65s).

Anyway, that's beside the point. Because the point of the boomer wars is not to focus on people in poverty, it's to focus on people who have many millions and are getting more.

The boomers I don't mind niggling a little are the ones who point to the two million dollar home they bought for $50,000 and say "we earned this!".

The ones who strolled out of school into a labour market with 2 per cent unemployment and found jobs with no degree.

The ones who like to chirp about how they endured 17 per cent interest rates without ever mentioning that, in 1974, average weekly ordinary time earnings rose 28 per cent in one year alone (and then rose 20 per cent the next year, and 13 per cent the year after).

The ones who feel, when they structure their financial affairs in order to maximise the tax breaks available through superannuation and home ownership, that these are the product of a universe where all is suitable, appropriate, just and correct.

The ones, in short, on the right hand side of this graph.

This graph does not paint a pretty picture.
This graph does not paint a pretty picture.

This graph comes from the same Treasury report, and when you see it, you get the sense Treasury knows precisely what it is doing.

The graph shows people in the top 1 per cent of the income distribution get a very handy $700,000 helping hand from the government in preparing for their retirement. That compares very generously to people at the middle of the income distribution who get $250,000.

The biggest helping hand for lower income earners is the pension. That's not available at the top. But what they lose on the swings, they gain on the roundabouts, because the superannuation earning tax concessions really start to kick in.

When your super investments earn income (eg, dividends), they are taxed. But unlike income from working and other income earned outside the super system, this income is treated differently. It gets tax concessions. Earnings inside super get taxed at 15 per cent.

Superannuation contribution tax concessions also help. Money you put into super is taxed on the way in too, at 15 per cent, which is potentially a lot lower than your marginal tax rate. These contribution tax concessions are not quite so powerful at the top of the scale thanks to some recent changes that double the tax rate on contributions for people earning more than $250,000.

This graph certainly causes a person to wonder if the taxes on superannuation are designed to help those that need help in getting ready for retirement. Treasury is calling for comments on its retirement income review. It is sure to be besieged by furious people calling for the benefits to be retained.

But there's a trap here for any young person who wants to play the intergenerational equity game. Any push for fairness here will probably be introduced gradually. Which is to say that it will be staged and scheduled in such a way that it hits not the retirees currently floating off the Whitsundays, but the ones who intend to give up work in two or three decades time. That is, you and me.

Jason Murphy is an economist and former Treasury staffer | @jasemurphy. He is the author of the new book Incentivology.