Tax Slavery: It's For Your Own Welfare in Retirement

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The foreigners and the elderly are unpopular this morning. The first lot keep buying our houses and mining shares. The second are rorting our welfare and retirement system. Both got a lambasting in the papers.

An age-old Daily Reckoning tradition is to stand up for the whipping boy…it never seems to save anyone’s backside, but it always makes us refreshingly unpopular. That’s what whipping boys are for, after all.

Too much foreign investment and too much welfare for the elderly are true ‘first world problems’, as the saying goes. It’s unusually meant in a dismissive way though. In this case, it’s rather accurate if you read western newspapers.

The Americans worry about Chinese holdings of their government Treasuries (lending money is not the road to popularity), the Europeans worry about the inflow of immigrants taking advantage of their welfare systems and the Australians, housing obsessed as ever, worry about the Chinese buying their homes.

Of course, when Australians invest in China, it’s just fine from our perspective. Chinese journalists probably call it ‘imperialism’.

We’ll get back to Chinese buying ‘our’ property below. For now, why are the elderly being criticised?

To be honest, we’re not sure. As far as we can gather, it’s because they’re not old enough. If they were 70 and collecting their impressive entitlements under Australia’s retirement welfare system, there wouldn’t be a problem. But they seem to be retiring too early. Loopholes and clever tricks allow them to lean on the government too much for too long.

That implicitly leaves us youngins footing a large tax bill. ‘Implicitly’ being the important word there. Australia’s population pyramid is getting square. If you think Australia’s future workers will each support a child and a parent on their income, you’re in for a surprise. If you think they will each support a child, a parent and buy the investments you plan to sell in retirement as well, you’re in for a fright. But that’s another story. It’s the welfare system and its pressure on the government budget over the long term that the nation’s journalists are worried about today.

Rob Burgess of Business Spectator reckons Australia needs to change its government policies. Why journalists always come to this conclusion is a mystery to us. Policies never produce the expected outcome, so arguing about which policy is best is utterly pointless. That said, Burgess starts out well with the title ‘Breeding a generation of tax slaves won’t work‘. Indeed.

That’s a fine stand to take, until you realise what it says about the current state of things. What would today’s taxpayers think if they realised their existence was justified based on tax slavery?

If we had one, we’d put ‘tax slave’ on our business card for the World War D conference. Perhaps those Holden workers should be thankful to their employer for liberating them from their slavery and giving them the freedom of welfare cheques. And perhaps the need for government revenue explains why people bother with children in the first place. Someone’s got to pay taxes for our retirement. And actual slavery is banned.

We’re just jesting. The spate of pregnancies around our libertarian office suggests there are other factors at play. But this plot is straight out of the film The Matrix. Having taken over the world, machines breed humans as a source of power. Today, the government pays parents to breed future taxpayers via baby bonuses, childcare subsidies and parental leave schemes. Heh, it’s even called a scheme.

So how is the evil scheme going? Rob Burgess uses Britain to illustrate what demographics and poor welfare policy can do to a national budget. The figures are too miserable to repeat in a pleasant, optimistic publication like The Daily Reckoning. But Australia is on a similar course. Budget deficits will balloon if we don’t do something. The debate is on for how to fix the problem. Apparently, cutting spending isn’t going to be enough. We need to ‘widen the tax base’.

Yes, that’s right. What we need is more tax slaves!

Breeding’ them will take too long. The fastest way of going about getting them is to change the definition of ‘retirement age’ for welfare benefits. People will have to qualify for them much later in life. The real question then is, how old should slaves be before they’re allowed to live off younger slaves?

So much for slavery being outlawed.

Now for the foreigners. We’re one of those, but not for tax slavery purposes according to the Australia Tax Office. And we haven’t bought one of your precious properties, so keep reading.

The worry is that foreigners are stealing Australian houses from Australian first home buyers. Credit Suisse estimates Chinese investors are buying new houses and apartments at a frightening rate thanks to restrictions on similar investments back at home. Around 18% of new homes in Sydney and 14% in Melbourne are bought by Chinese investors, according to the investment bank.

Real estate agents point out the Chinese are all millionaires and billionaires, so they buy at the high end of the market, nowhere near the dumps first home buyers squeeze into. Others say the Chinese don’t lease out their investment properties, tightening the rental squeeze while making occupancy data misleading. In short, it’s a complete shemozzle.

The politicians are fixing the problem by holding an inquiry. Victorian MP Kelly O’Dwyer is in charge. By the sounds of it, she’s made her mind up already: ‘We need more homes, so foreign investment that increases the number of homes available is a good thing, particularly where it is housing for first-home buyers.‘ This seems like an especially bad misinterpretation of the fallacy that demand drives supply.

First of all, if the Chinese are buying the homes, then the first home buyers are not buying them. Secondly, it’s the government’s policy on releasing land that is restricting supply. Surging prices are like the blow off valve for the pressure created by these two forces. But higher prices make life even more difficult for the first home buyers.

The good news is that the current data on foreign investment into property is quite poor and the inquiry should fix it up. The bad news is that data tends to empower the government to do whatever it wants regardless of what figures come up.

Sir John James Cowperthwaite, who makes many appearances in The Daily Reckoning, was a British civil servant and the Financial Secretary of Hong Kong from 1961 to 1971. He knew the local busybodies couldn’t help themselves from taking a large slice of the pie if they could get their hands on the numbers, so he prevented Hong Kong officials from collecting data for this very reason. Hong Kong is still cited as an example of free markets generating vast prosperity.

But the place also suffered under the Chinese yoke of property buyers for years. They bid up prices there too. Next thing we’ll find out the Chinese ended up running the place.

Regards,

Nick Hubble+
for The Daily Reckoning Australia  

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Nick Hubble
Nick Hubble is a feature editor of The Daily Reckoning and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about The Daily Reckoning, he started writing for it. To follow Nick's financial world view more closely you can you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.
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2 Comments on "Tax Slavery: It's For Your Own Welfare in Retirement"

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slewie the pi-rat
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pi-rats tend to ‘retire’ by ~age 35.
of course, we do not retire from being pi-rats, we retire to become pi-rats.

Owen Carington Smith
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Interesting article on Tax slaves. I am one. As an early Baby Boomer I commenced work in 1968 have a SMSF, still work and will never draw a pension. Became a CEO of a mid cap and worked 70-80 hpw for 10 years. I have paid much higher tax % of my hard worked efforts than any of the begrudging X & Y generation today, this includes the super penalty tax in the ’90s another privaledge of working hard and long. We have been unique in that we have not only supported the aged pensioners but also had to save… Read more »
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