Australia’s Wealth Divide is Labour’s Target

Australia’s Wealth Divide is Labour’s Target

Sigh… it seems we are firmly now into election mode.  The latest polls have Labour still looking comfortable favourites.  Bloomberg ran an article last week highlighting the reasons behind some of the wind in Labour’s sails titled “Housing Dream Turned Nightmare Spurs a Backlash in Australia”.

“A generation of young Australians priced out of the property market and frustrated at a widening wealth divide could prove pivotal in triggering a change of government in May.

The main opposition Labour party has made tackling the growing gap between so-called baby boomers and millennials a key plank of its campaign to win office for the first time since 2013.”

The tax benefits of dividend imputation and negative gearing are largely for older more well off Australians.  Work by the Grattan Institute clearly highlights the benefits to older Australians compared to younger.

“While Australia has avoided recession for 27 years, the spoils have not been shared evenly as older people capture a greater share of the nation’s wealth. According to the Grattan Institute, households headed by people aged 65-74 were on average A$566,000 wealthier in 2015-16 than the same age group was 12 years earlier. That far outstrips growth in other bands and compares with just A$38,000 for the 25-34 age group.”

Opinion is deeply divided on the effects of scrapping Negative Gearing, with both sides having convincing ‘science’ to prove their point.  To soften the perceived blow of scrapping it, Labour have also pledged subsidised rents and building 250,000 new homes.  Their premise is negative gearing has priced first home buyers out of the market whilst ‘wealthy’ older investors enjoy tax breaks for pushing those prices up.  The chart below certainly supports that.

Those against the move rightly point out that we have, on any measure, a precarious residential property market at present.  Whilst the bubble is deflating in a semi-orderly fashion (Sydney is already down 12% from its 2017 peak), it is nonetheless still a bubble and scrapping negative gearing is the pin that could turn orderly into a very much disorderly ‘pop’.

Our friends at Nuggets News on Friday night released a very well-produced and informative video special titled “Australia - A Coming Financial Crisis?”.  It’s had nearly 23,000 views already and for good reason.  Every Australian should take a spare 30 minutes to watch it as it takes you through how we got to where we are now and how these actions have got us in a precarious economic position as a nation.  You can watch the video here.