Super raids see Millennials facing grim future

Socking it to the oldies has grown to be as popular a pastime as decrying the state of Australian cricket. Looking for more funds to fill their coming election war chests, politicians are circling Australia’s retirement system ¾ accompanied by a chorus of cheers from millennials and Gen Zs.

But the while the young are applauding what they see as bi-partisan axing of largesse to Baby Boomers, they are not looking ahead to how this will play out.

They should be very wary of the long-term consequences of Labor’s plan to remove the refundability of franking credits and the Liberal Party’s 2016 superannuation changes capping of concessionally-taxed individual superannuation contributions. Both policies are piecemeal manoeuvres merely focused on filling holes in the federal Budget.

And there are a number of reasons that Millennials and Gen Z should be worried about our fearless leaders renewed interest in raiding the savings of retirees.

First, the latest cash grabs highlight the current unsustainability of government spending. Over the past decade, federal government expenditures have grown by around 5.7% a year while revenues have only grown by 4.2% per annum. These trends explain why the federal Budget is in perpetual deficit even though we have had 26 years of uninterrupted economic growth.  This perennial deficit problem can only be fixed one of two ways: cut spending or raise taxes.

The recent introduction of growing entitlements ¾ think of the National Disability Insurance Scheme, Gonski 2.0, expanded childcare funding and maternity leave ¾ highlight that our political parties are on a spendathon.

So while there is plenty of talk of getting the Budget back to surplus, it is hard to have faith that when the next election comes our politicians won’t be tempted to throw more money at special interest groups to help win seats.

In short, kicking sensible expenditure austerity down the road guarantees millennials and Gen Z will have to increasingly pay for past profligacy.

A second, related problem is that the age pension system is already becoming unsustainable and is likely to require reform. The cost of the pension is ballooning because there are more and more pensioners. The population bubble of Baby Boomers are now all over 60, and they ¾ and the generations behind them ¾ are all going to live longer in retirement. The icing on that problem cake is that individual pension payments are growing significantly faster than inflation or the Consumer Price Index.

Even on the relatively conservative assumptions in the government’s Inter-Generational Report, the real cost of the pension will almost triple on a per-worker basis by 2054. Essentially, by 2054 it is projected that for every $1.25 the average worker saves for their own retirement, they will need to pay $1 in taxes to pay for other people’s pensions.

Hence, Millennials and Gen Z can reasonably expect that the age pension will not be as generous as in the past. So they should make sure they plan to have high superannuation savings by retirement… right?

Unfortunately, this is where the major parties’ recent plundering of retirees should really alarm young workers. If they get away with raiding superannuation now, you would be a fool to believe that when the consequences of creating ever-expanding, new expenditure entitlements and an overly generous pension system hit the Budget that they won’t be tempted to raid your superannuation piggy bank to reduce the funding gap.

There are numerous examples around the world where governments that have got themselves into financial trouble have basically stolen the savings of citizens who have tried to do the right thing and prepare for their own retirement.

The recent actions of our major parties reduces the willingness of young workers to both save and work ¾ both of which will exacerbate budget deficits and increase the unsustainability of the age pension.

This death spiral can be avoided by millennials and Gen Z realising that unwise expenditure and taxation policy today, disproportionately impacts them tomorrow. Rather than call for free university tuition and other youth-targeted special privileges, the under-40s would be better served calling for Budget discipline, spending reform and a more sober and realistic assessment of what governments can do.

Regardless of how much millennials and Gen Z workers and students are earning today, they need to realise that they are tomorrow’s taxpayers. And if they fail to call for more responsible planning and policy, they will be the ones paying the devil’s cut.

Matthew O’Donnell is a Senior Research Fellow at the Centre for Independent Studies.