OPINION: The recent excitement over house price inflation has sparked a new debate about generational inequality.
Young people are upset about the lack of affordable housing as ratings keep rising.
Housing isn’t the only problem for younger generations frustrated with income security, debt burdens, and career development after two of the worst financial crises in history.
Global investment banking giant Deutsche Bank calls today’s young people “the most dissatisfied with the democracy of a generation born in the last 100 years”. She believes the crisis for young people will worsen after the pandemic.
Little known for its progressive, socialist credentials, the investment bank feels it is time to act and says Covid should be “the catalyst that policymakers are using to fuel generations.”
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The German is alarmed enough about the growing inequality gap that she has proposed some radical changes to the global system. In a report released this month, the bank’s analysts have called for a comprehensive plan to reduce inequality, put a leg up on young people and, in their words, “save capitalism”. His main idea to create a level playing field? Taxation of baby boomers.
Let us dwell further on the hypothetical proposal made by the Germans. Instead of proposing a flat-rate age-related tax, the German is proposing stronger taxation on real estate, stocks, bonds and a “super tax” on stocks that are associated with environmental pollution and climate damage. These taxes would primarily affect the wealthy boomer generation born between approximately 1944 and 1964.
Why boomers? According to the German, the older generation has benefited most from low interest rates and the subsequent inflation in asset prices since the global financial crisis. The bank also argues that older people have not had to pay as much for education and will not face the grave consequences of climate change “caused by the companies that emit carbon dioxide”.
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The headquarters of Deutsche Bank in Frankfurt.
The report acknowledges that many boomers worked hard for their fortunes, but says their taxes would capture profits “made by sheer luck, timing and forces beyond their control and expectations.”
While these levies wouldn’t be a huge jump for places like the United States and Britain (which already have capital gains taxes, property taxes, and inheritance taxes), I’m sure they seem unthinkable to many Kiwis.
As has been well documented in recent weeks, New Zealand’s lack of capital gains tax on “investment” properties has fueled the property market and exacerbated a chronic, decades-long undersupply problem.
It has given us a runaway market today where young people rely on their parents for help with the deposit or the prospect of renting forever and missing out on wealth creation.
With boomers remaining the largest and most influential electoral bloc, politicians show little sign of addressing the generation gap and wealth. The National Party is on one side, arguing against even small concessions for wealthy wealthy owners, such as B. mandatory heating in rental properties.
A centrist Labor government is on the flip side, ruling out capital gains taxes, moving too slowly to address the housing shortage, and terribly afraid of losing the boomer swing vote.
But as the German emphasizes, voter demographics will not stay the same forever. One day (around 2030 according to the United Nations), millennials and younger generations will become the largest electoral bloc.
In this case, political parties need to respond to these age groups and may need to listen to these long-ignored, increasingly loud voices desperate for change.
The German bank believes that the future of capitalism is at risk if inequality is ignored. It is predicted that the anger of younger generations will lead to aggressive, radical change in the future when Millennials and Gen Z have more influence over elections. Populist politicians are likely to “take advantage of the anger” by young people taking action “that not only blatantly redistributes but also turns the very foundations of capitalism upside down.”
Politicians fear losing the boomer swing vote, but the anger and dissatisfaction fueling the real estate price debate is not easing, writes Daniel Dunkley.
New Zealand banks made a similar point. Westpac economist Dominick Stephens recently suggested that sweeping changes in the form of wealth tax, capital gains tax or property tax are more likely in the future given the rise in wealth inequality: “Social concerns about growing wealth inequality will only increase. Eventually, a large constituency will be created for such a tax, ”explained Stephens.
The older generation has rejected requests for change for decades, nowhere more successfully than in New Zealand. Calls to follow other OECD countries in introducing capital gains taxes on investment property were immediately rejected as a policy of envy.
But as economists are becoming increasingly aware, the tide will change. It is only a matter of time before the measures rejected by the old are adopted by the young.
“There is a shift and the politicians here are way behind the rest of the population,” says tax expert Terry Baucher. “If you look at the capital gains tax debate, one side made all the fuss – the massive self-interest side. Those voices drowned out everyone, but younger people are beginning to be heard. The pressure on the dam builds up and the dam will burst. “
Changes to address the intergenerational wealth gap are imminent. It remains to be seen whether this will be done now in the context of a reasonable, broader discussion or in a more radical way in the coming decades. Like boomers, our younger generations have worked hard, but they have a lot less to show. The anger and dissatisfaction that fuels the property price debate is not subsiding – it should no longer be ignored.