1. “Take from the dead to give to the living,” The Weekend Australian, July 17-18, 1993, p. 2.
2. “Tide starts to turn against reign of the baby boomers,” The Weekend Australian, December 11-12, 1993, p. 2.
3. “Baby-boomers must pay their final dues,” The Sydney Morning Herald, April 27, 1996, p. 26.
4. “Young to carry old tax burden,” The Sydney Morning Herald, July 27, 1996, p. 32.
5. “Why the buck stops at the nursing home,” The Sydney Morning Herald, November 8, 1997, p. 42.

1.
Padraic P. McGuinness, “Take from the dead to give to the living,”
The Weekend Australian, July 17-18, 1993, p. 2.

Should we bring back death duties? The case for doing so to restore inter-generational equity is becoming overwhelming.

This is not just another proposal to increase taxes. While there is a very good case for an across-the-board temporary increase in income taxes to help the unemployed both by way of retraining and job-subsidy, any such proposal is inevitably seized upon by vested interests to demand more spending on their own pet priorities.

But one of the main causes of unemployment is the lack of savings and the wage-levels of those privileged enough to have jobs; to propose an increase in income taxes to help those excluded from the workforce by the selfishness of the employed is only to propose a redressal of the balance.

A similar argument applies to death duties. As the proportion of the population in the older age groups increases, the cost of medical and other support services for the elderly increases, and the pensions and unfunded superannuation entitlements of the baby boomers loom as a crippling financial impost on the post-baby boom generation, new fiscal means will have to be found to finance these payments.

What better proposal than to make the beneficiaries, whose legacies show they can afford it, pay up when they no longer have any need for the money?

In the “good old days” there were no pensions or free hospitals, no Medicare scheme to provide expensive care for the old, frail and dying. Their children were expected to stump up; and of course those who had no children, or who had been abandoned by them, died in misery and poverty.

These days the State, the welfare system, has taken over the role of the children for most old people — why then should the State not be the legatee, the first claimant to the estate, of those it has supported through old age, sickness and death? If the heirs abandon their responsibility, surely they should also forfeit their claim to inheritance.

Thus there is a very good case for all old-age pension payments to be recoverable from the estate of the deceased. In the case of those who have no property, there is no problem. They should be treated with compassion and supported in decent circumstances at a reasonable standard of living. If they are sick, they should be cared for; if they incur expensive medical bills (as most people these days do in their last decade of life) they should be treated without charge.

But why on earth should those people who die with considerable assets not be assumed to be liable for repayment of these expenses? The classic example is of an elderly widow left with a large house in which she has spent most of her life. To impose a means test on the pension in terms of that house is objectionable and unfair — but the children who will benefit from the inheritance of such a house have no proper claim to it unless they have supported their mother. The first claim on the sale value of the mother’s house ought to belong to the community that has paid her pension.

This applies equally to the huge costs of medical support for many old people. If they are to receive the treatment they have the right by any humane criterion to receive, but have assets which after death can be applied to payment for that treatment, surely the community has a better claim than the children who would otherwise benefit.

This has little if anything to do with the envious proposals for death duties or other forms of inheritance tax from those who see it as a means of destroying large estates or confiscating the wealth of those who have had fortunate parentage. While there may be a case for such taxes — indeed, there is a very good argument to be made for a 100 per cent inheritance tax, since anything of value parents have to pass on to their children should have been achieved, by way of upbringing and education, long before their deaths — there are problems in erecting disincentives to the accumulation of wealth. To prevent either the accumulation or passing on to the next generation of wealth is likely to damage the health of any economy severely.

But we are facing a generational problem, unlike that faced by any other generation in history, in that we have a welfare State which was designed not to “make the rich pay” but to make the young and the next generations pay. The welfare State, as it has developed in the rich countries, is a one-generation affair — the baby boomers took from their parents, while at the same time they erected a welfare system which will enable them to take from their children.

And the children of those who have accumulated capital assets, from the family house on, are the only members of the paying generation who have any prospect of compensation for the burdens which they will inherit.

It is only equitable, therefore, that their own dereliction of duty — their failure to support their parents, their imposition of their relatively asset-rich parents on welfare and health support services which they could well have afforded to pay for, their presumption that the pensions and superannuation of their parents could be raised from the general taxpayer — should be dealt with by inheritance taxes.

This would undoubtedly create social tensions. How many of the baby boomers have blithely assumed they can purchase the loyalty of their children by promising an inheritance sometime, while at the same time loading their pension entitlements and their medical expenses on to the conveniently amorphous generation of the young? Virtually the only members of the post-baby boom generation who are going to get any compensation are those whose inheritance has been protected at the expense of those without property, and the poor.

It is not just an urban problem, of course. Much as we should be concerned about the plight of the undercapitalised rural producers who are suffering in the present drought and recession, why should we assume any assistance given them should not be repayable from their assets at death? There is not a God-given right for the children of farmers to inherit a property unencumbered because of the problems of their parents.

The principle suggested has, indeed, quite wide application. Unemployment benefits, education expenses, health subsidies throughout the whole of life, as well as unfunded pension and superannuation benefits and medical expenses, could better be collected at death rather than levied on the living taxpayers and begrudged to the genuinely poor.

It would no doubt create an incentive to dispose of assets before death, as inheritance taxes always do. There are few difficulties in this if such taxes are explicitly related to payments to the old, and it is made clear, for example, that any pensions, medical expenses, etcetera, would be in principle recoverable from assets held or transferred after retirement age.

There is a widespread misconception the baby boom generation has paid, through taxation and superannuation contributions, through the Medicare levy and its equivalents, for the entitlements they anticipate. The truth is they have not. The community of the next century has a moral right to recover the shortfall from their estates.

***
2.
Padraic P. McGuinness, “Tide starts to turn against reign of the baby boomers,” The Weekend Australian, December 11-12, 1993, p. 2.

The revolt against the baby-boom generation appears to be gathering force. As the perception filters through to the young adults just coming to maturity that their parents’ generation not only mythologises the absurdities of the 60s and 70s, but also has been so self-obsessed that it may go down in history as the most selfish generation ever, there is increasing grumbling.

This will inevitably have political fallout. The Saulwick poll published last Monday reflects a fascinating pattern of age differences in voting intentions. For years the Labor Party has always seen itself as having a special advantage among the young, relying on youthful radicalism. But of course the Labor Party is no longer radical, but the party of the conservative establishment, and its support is now strongest among the younger baby boomers.

Thus the poll shows that as of the beginning of this month, support for the Labor Party was 28 per cent among the 18 to 24 age group, rising to 34 per cent in the 25 to 39 age group, and declining to 26 per cent in the 40 to 54 age group and 24 per cent in the 55 and older age group. By contrast, support for the Coalition parties in the corresponding age groups was at 51 per cent, 39 per cent, 53 per cent and 59 per cent. The fact that the proportion of the under 25s intending to vote Labor is so much lower than that of the middle group must have disturbing long-term implications for Labor.

Of course the baby boomers like to think of themselves as progressive, reforming, anti-establishment and so on; but this generation (which covers the age group, roughly, born between 1945 and 1965) as it grew up steadily occupied the medium-to-top levels of each occupation, pushing aside as many of its elders as it could, and it has now become the establishment against which any genuine radical young people are in revolt. The baby boomers are now trying by means of abolition of the retiring age and age-discrimination legislation to ensure that they will stay in control indefinitely.

They have also created a fiscal time bomb in the huge and growing bill for unfunded superannuation, as well as pensions, medical bills and proliferating fringe benefits for the aged. Because superannuation is such a complex issue the bill that the young are going to face in the future to pay for their parents’ profligacy as well as to finance their own superannuation is only just beginning to be realised.

An attempt to convey the magnitude of the problem of superannuation was made in an important television documentary made by the SBS documentary unit and shown on Tuesday. (I must declare a small interest, since I appear briefly in it.) Super Imposed, made by David Hirst and Valerie Morton, is the best attempt I have seen to convey to a general audience the essence of the huge superannuation problem we are facing as the population ages due to the reluctance of the baby boomers to raise the children on whose future work their pensions depend.

For the rest of their working lives the now young are going to have to pay double — first, to finance their parents’ pensions and superannuation, and then to finance their own. It is no longer possible to consign the bill to future generations, since they won’t be there in sufficient numbers.

To this bill there will be added soaring medical costs for the older age groups. It will be in the perceived interest of the baby boomers, who all want to live forever (hence the obsession with wowserism, health fads and exercise — although there is mounting evidence, I am glad to say, that vigorous exercise is likely to extend one’s lifetime only by a matter of weeks), to keep escalating the bill for aged medical care.

This is becoming such a problem that I was led to suggest some time ago that it may soon be appropriate, not to deny expensive medical care and accommodation to the aged, but to charge them the full cost for it. Since it would not be equitable or fair to do this during their lifetime, there is a good case for recovering such costs from any estate which they leave. The same should apply to pensions and unfunded superannuation payments.

This would seem unfair to their children, no doubt — but the present set-up is even more unfair to those who without any expectation of inheritance will, through their taxes, be paying for these expenditures.

There are chilling implications in such a proposal, of course — with a growing swell of support for legalising euthanasia, there would be families in which the old would be encouraged, or pressured, to bump themselves off. But this is only an extreme form of the generational war which is inevitable as the baby boomers during the next 25 years try to hold on to all the privileges they have presented themselves with during the past 25 years.

One aspect of this privilege has received some publicity this week as a result of the auditor-general’s report on the cost of getting rid of bludging public servants. His report pointed out that it took up to three years and $300,000 to sack a useless public servant. On his very conservative estimate that there were still at least 4300 such still in the federal bureaucracy, which means that the taxpayers are paying about $350 million a year for entrenched bludgers, who would cost on present procedures about $300,000 each to get rid of — that is, more than a billion dollars.

The extent of secure inefficiency in the Public Service could be much higher — one senior bureaucrat who recently transferred to the private sector told me this week that he estimated the department he had just left, one of the better ones, could be cut in numbers by about a third and still perform better than now.

The cost of this entrenched job security is of course borne by taxpayers generally, and especially by the young who are excluded from employment by such people. The Industrial Relations Bill at present going through Parliament will greatly strengthen job protection in the private sector also — which in Europe is well known to be a major cause of unemployment among young adults.

Thus while job security seems a great idea if you already have a job, it is a lousy idea if you are looking for one, since it makes it so much more expensive and risky for employers to take on new employees. And the present government policy of a compulsory superannuation levy paid by employers will simply ensure that unemployment will remain higher than it otherwise would be.

The glaring characteristic of the welfare State, in fact, which has already become apparent in New Zealand, is that it is a one-generation benefit. The huge apparatus of social welfare and expenditure which has been built up during the past 25 years or so is being paid for, in effect, by borrowing from the next generation — that is, the generation now reaching adulthood.

The breakdown of this system has begun to show up through the moves to make compulsory superannuation universal (which is not much good to those who do not have jobs, or, as the SBS doco points out, to people like Aborigines whose life expectancy does not reach retiring age) and to charge for the tertiary education which the baby boomers got for nothing. Although there is a strong case for university fees, I do not blame students for complaining bitterly about the injustice of having to pay for what their parents got for nothing.

So watch out — the young are waking up and getting angry.

***
3.
Padraic P. McGuinness, “Baby-boomers must pay their final dues,”
The Sydney Morning Herald, April 27, 1996, p. 26.

The coming war between the generations will be largely fought out on the battlefield of taxation policy. This war will be between the baby-boom generation, those born in the 15 years of high birthrates following World War II, and their children, especially those born since the mid-’70s.

Dr Vince Fitzgerald, who has written an important report to government on savings, has on a number of occasions pointed out not only that our savings are inadequate to sustain investment and economic growth at a rate sufficient to keep up with our Asian neighbours, but also that the savings of the present generation have been insufficient to finance the demands they will be making on the welfare, superannuation and health systems in coming years. They have created a huge system of liabilities which will fall on their children. Whereas the parents of the baby-boomers will not be a burden on the workforce for very long into the future, the system which the latter are leaving to their children will require large increases in taxation if it is to be financed.

The population bulge which followed 1945 will, as it leaves the workforce, translate into a huge liability on a relatively much smaller workforce.

Fitzgerald has estimated that an increase of about 12 per cent in taxes on the workforce will be needed to finance this. In addition, the workforce is being forced into contributory superannuation so that post-boomers will have to pay for their own super as well as the unfunded pensions and super of their parents.

In a recent speech, Fitzgerald canvassed a number of possibilities with respect to savings and taxation, including a reintroduction of death duties. This, which might better be renamed a posthumous wealth tax or an inheritance tax or an inheritance tax, would, despite the general detestation of such taxes in Australia, be desirable. Indeed some form of tax settlement after the taxpayer’s death is now virtually inevitable. There has never been any good reasons why a person with some real property and other wealth should enjoy free medical treatment after retirement, free or subsidised care, and even some elements of an unfunded pension. In the case of a person with no assets, of course there should be an adequate safety net.

But why should the generation which has devised the present system and has failed to save for its own retirement expect to benefit from the savings of their parents when all or a major part of their health, medical and nursing home costs have been shoved off onto the community. Surely the community is the appropriate heir in such cases? That is, the first claim on the savings and assets, including the family house, farm or business, of a deceased person should be the welfare benefits he or she has received since retirement. There is nothing wrong with generosity to the living, but when the community takes over the caring role which once properly belonged to the heirs, it should inherit instead of the children.

This is of course an outrageous proposition to those who await the death of their elderly parents in full expectation of an inheritance, regardless of the expenditure of the community on their health and support. But unless some kind of recoupment of costs takes place from the estates of the deceased, the people who will end up paying higher taxes will be the post-boom generation.

We are here dealing with three generations, those born pre-1945 (Generation I), the boomers (Generation II) and the post-boomers (Generation III). Only quite recently have social policy-makers begun to investigate the problem of intergenerational equity. As things have been set up over the past 40 years or so, Generation II took from Generation I, and both set up a welfare system which depends on contributions from Generation III. Generation II expects to inherit from Generation I. At the same time, they are determined to live as long as possible, thus increasing the health and care burden on Generation III, while denying an inheritance indefinitely to it. Of course, within the generations there are disparities of income and expectations. The only members of Generation III who can expect to benefit from inheritance are those whose parents are rich enough to pay their own way for all health insurance and care expenses. Thus, the poorer strata of this generation are suffering a double inequity — the young poor are paying for the old rich.

Inheritance and wealth taxes are very inefficient forms of taxation, easily avoidable by the very rich (only on its deathbed did the last Government discover the rorts of the family trust system) and set at the insistence of the middle classes at such high levels of commencement that their own assets will escape. Instead of inheritance taxes, therefore, it would be preferable to establish a kind of lifetime accounting, in which the welfare and health expenditures received by a person of whatever kind should be offset against their remaining assets (including gifts to family) at death.

It is clearly in the interests of Generation III that such a form of posthumous reckoning should be introduced as soon as possible, so that the inheritors of Generation II should not receive legacies which are rightly the entitlement of Generation III. At the same time, systems of health and age insurance which are self-financed from the beginning are in the interest of the youngest so that they will be paying their way and will have an incentive to save.

Not only will the baby-boomers be trying to hang on to the levers of power, they will be taxing their children to pay for it.

***
4.
Padraic P. McGuinness, “Young to carry old tax burden,”
The Sydney Morning Herald, July 27, 1996, p. 32.

A lot of people I know are having 50th birthdays this year. They are the first cohort of the postwar baby-boomers. All these birthdays are a reminder of the relentless aging of the Australian population, since the baby-boomers for whatever reason have had smaller families on average than their parents.

The median age of the Australian population was 34 last year — that is, half the population is older than that. This median age, according to the latest population projections of the Australian Bureau of Statistics, is rising, and is now expected to be between 40-41 in 2021 and 42-44 in 2051. The numbers of people over 65 are set to double over the next 25 years, with the highest rate of growth of this group to take place in the second decade of the next century. The proportion of this group over 85 will rise rapidly over the first half of the century.

These figures are only projections based on assumptions which may or may not prove correct. In particular, we cannot be certain that the birth rate will not rise again, but short of another world war there is no predictable factor which would produce this result. If there is no net migration, the Australian population will cease growing and begin falling after 2033, after having reached a peak of 21 million. Although there are some people in Australian governing circles, most notably the Victorian and South Australian Premiers, who think that population growth can be manipulated, there is little any government can do to change these projections. As with the birthrate after the war, it is nothing they have anything to do with. Social attitudes, and in particular women’s attitudes, will determine the birthrate.

But there is a very strong change that life expectancies will rise as a result of biological research. Few people turning 50 this year really believe that they have less than 25 years ahead of them; and indeed the proportion of the population, especially women, living beyond 85 is increasing rapidly. It could be that our population will age even more rapidly than at present projected.

Immigration is not a solution to aging of the population, even if higher growth were desirable. The family reunion component of immigration is not likely to lower the average age of the population much if at all, and high unemployment rates among some migrant groups add to the demands on the social security system.

So we ought to be thinking very seriously about the implications of our aging population. If we add the young dependants to the old dependants the total dependency rate may not change much, but the cost of old dependents, their demands on the social security and health systems, is much higher on average than that of the young. Moreover, all of the old have votes. There will thus be a rapidly growing constituency for more expenditure on health and welfare, more aged accommodation at public expense, more services and concessions for the aged, and so on. Most of the cost of all this will fall on the children of the baby-boomers.

Unless there were to be a substantial increase in taxes based on age as well as income over the next 15 years, the great majority of the baby-boomers, especially those who expect to receive the pension or public service superannuation, will be taking from the rest of the community.

The reality of this will hit their children in the near future; any feasible tax increases in the foreseeable future will be absorbed in financing this expenditure. Moreover, if generations X, Y and Z are to be forced to contribute to the financing of their own pensions and superannuation, and if the essential shift of resources towards next saving is to take place, those generations must suffer a very substantial reduction in living standards relative to those their parents have enjoyed.

It is difficult to see any government introducing higher income tax levels for older age groups, even though there is a good case for it. They have too much voting power. There is a strong case for making any expenditures on health and welfare for those who have ceased to contribute taxes repayable after their deaths out of their estates. But of course the families who expect to inherit would bitterly resist this, even if overall it would be to the benefit of the working age population. They might become even keener on assisted euthanasia for the old and sick.

The younger generations have every reason to mistrust their elders when the talk about how highly Australia is taxed, how important free public health services are, and how generous welfare benefits ought to be. For what is really being said is that taxes are to be increased on the young to pay for the demands of the old. Present projections suggest that by 2021 there will be more than 4 million people over 65; that is, nearly one fifth of the population and nearly a quarter of those of voting age. This is a pre-emptive potential swinging vote. If one adds to it the votes of those anticipating retirement or ill health, say those over 55, the old vote will be invincible.

It is difficult to see how any of the present political parties will be able to defend the interests of the young against the growing power of the old vote. Indeed, those politicians who blithely defend the idea of free health case (paid for, of course, out of the taxes of the young, the healthy, the drinkers and the smokers) are already declaring their allegiance in the generational conflict.

***
5.
Padraic P. McGuinness, “Why the buck stops at the nursing home,”
The Sydney Morning Herald, November 8, 1997, p. 42.

Sometimes one has to wonder about the quality of political advice received by the present Federal Government. Although its victory at the election showed that it was more in touch with electoral feeling than was the Keating Government, this does not seem to have lasted. Who on earth in or near the Government could have thought that selling the nursing home entry payment would be possible? There was nothing wrong with the policy advice. It is one of the great injustices of our society that old people can receive large subsidies for care and health, the latter rising dramatically towards the end of life, without any contribution having to be made by their estates after their deaths to offset this. Their children expect to inherit the parental home and any other assets while other people, usually poorer, have to foot the bill for the parents.

But this has nothing to do with popular feeling. Australians are deeply averse to taxation of windfalls — perhaps it is not unrelated to the gambling mentality. Try to tax lottery winnings, and there would be a storm of protest. Inheritance and intra-family gifts are considered sacred also. Death duties were always unpopular, and competitive reduction of them by the States, particularly Queensland, finally led to their abolition. Yet the case for inheritance taxes at any time is a strong one, and when there are large expenditures incurred by the community in the last years of the life of a person, the case is overwhelming.

As the scaremongering about the nursing home payments has demonstrated, equity does not loom large in the argument when the self-interest of the baby-boomer generation is at stake. All the plucking of heart-strings about poor old folks being forced to sell their family homes has dodged the fact that this is far more equitable than taxing the young instead.

There is indeed a strong compassionate case for not insisting on the sale of a home before the death of the owner.

But why should the asset be passed on intact at public expense to an heir rather than having it sold to pay back the community for some of the parental health and care costs avoided by the inheritor? All the emotionalising and denunciation of cold-hearted “economic rationalists” has been an attempt to obscure what is really going on.

While the Government was foolish to produce the policy it did in the way it did, the underlying justice of charging people who can pay for entry into homes is unshakeable. The arguments brought against it ranged from the ridiculous to the patently dishonest.

Those who have some assets will always be able to pay for extra space, comfort, facilities, etc, in a nursing home just as they do in their own homes. How does the absence of an advance payment affect this? No-one has suggested that those without assets should receive an inadequate standard of accommodation, and indeed the whole idea of the entry contribution was to provide funds to upgrade the standard of accommodation for everybody. Only the worst kind of authoritarian and joyless socialist would demand that everyone’s accommodation should be levelled down to the minimum standard. Unfortunately there are quite a few such people in the debate.

While the whole affair has certainly done the Howard Government no good, it should have two results. One of course ought to be the realisation by that Government that its haphazard approach to formulating and announcing policy initiatives needs radical revision. Mr Howard needs a kitchen cabinet not of people like himself but of hardheaded and realistic political marketers. The Labor Party has always had an oversupply of these — maybe the Liberals ought to employ a few of those who are now in the business professionally. Advertising types are definitely contra-indicated — few of them would know a policy if it bit them.

The second is a renewed urgency in the search for policy approaches to deal with the huge bill which the aging of the population is putting onto the rest of the community. There has been a lot of attention given to these issues within the bureaucracy, but Canberra officials are notably cack-handed when it comes to understanding public responses to policy.

Along with all the talk about tax reform we need to face up to the necessity of introducing wide-ranging property and inheritance taxes. At present it would have to be said that such taxes are simply unsalable, certainly to those who see their time of harvest from their parents’ deaths drawing nigh.

The politics of an equitable policy on inheritance taxes are difficult just because of the origin of the problem of an aging population. The majority of the levers of power in our community are controlled by the baby-boom generation which itself has not produced enough children to permit a continuance of the community rating approach to medical, health and age care. The tax burden will in the next few years, therefore, fall heavily on the young employed who will be subsidising their parents’ inheritance. They will be paying for their grandparents’ care while their own parents await the proceeds of inheritance. And they will have to look forward to continuing to pay taxes at high rates to support their parents’ retirement and aged care, with their own prospects of inheritance being even further and further postponed by medical advances and increased longevity.

Death taxes will never be popular, and swingeing tax increase on the living will never garner votes. The only workable solution will be an asset-tested and user pays approach to both medical and accommodation care for the aged.