REIA applauds Frydenberg’s budget
The Real Estate Institute of Australia has looked favourably on the measures handed down in this week’s federal budget...
The Grattan Institute has released a report titled Generation Gap: Ensuring a fair go for younger Australians that details the stark differences in wealth between older and younger generations following decades of booming asset prices and supportive government policy.
The issue is becoming particularly salient as Baby Boomers approach retirement age and are expected to live for decades after retirement – with all the health costs and pension costs associated with this.
Because the population is ageing, governments will have to spend more on health, aged care and pensions. But there will be fewer working-age people for every retired person to pay for it. There were 7.4 Australians aged between 15 and 64 in the 1970s. It was just 4.4 in 2015 and is projected to fall further to 3.2 by 2055.
The question successive governments will have to ask themselves is: is it fair for generations that on the whole do not have substantial assets to subsidise those that do?
Labor attempted to address these issues with substantial changes to the way investment property is taxed and was punished at the ballot box. However, as the relative electoral clout of younger generations increases, its likely that this issue will once again be revisited in the coming years.
As the tax burden increases on those of working age to pay these rising health and pension costs, it will be very tempting for governments to look at cutting tax concessions for those with multimillion-dollar property assets.
So what may this mean in practice? Well, negative gearing and capital gains tax concessions may be on the chopping block in the years to come.
Alternatively, the family home may be subject to means testing for entitlements such as the pension. There may also be other policies that encourage Baby Boomers to downsize and use that cash to fund their lifestyle and retirement.
The government is also likely to encourage higher-density development to accommodate empty nesters and make housing more affordable. Understanding these dynamics years before they occur can help property investors plan their portfolios accordingly and benefit from these changes.
Simon Peisley, Certainty Property