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Tax system means young Australians will pay COVID-19 bill

14 April 2020

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Robert Breunig is a Professor at Crawford School of Public Policy in the ANU College of Asia and the Pacific. Robert is also Director of Crawford School’s International Development and Economics Program. He teaches Economics for Government POGO8081 and regularly teaches in Crawford School’s Executive Education program.

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Australia’s tax system will mean young people will be left to pay the bill for the Government’s economic response to the COVID-19 crisis, a leading economist warns.

Professor Robert Breunig, who leads the Tax and Transfer Policy Institute at The Australian National University (ANU), says the epidemic is increasing inter-generational inequality.

“This inequality will be exacerbated by our tax system settings,” Professor Breunig said.

“The massive Government spend of at least $330 billion to counter the economic shock of COVID-19 will have to be paid for by young people. The design of Australia’ tax system has pre-determined this outcome.

“Our heavy reliance on direct taxation—activities by corporations or individuals—means that the tax burden to repay the debt will fall very heavily on the future incomes of young people, which will now be lower as a consequence of the pandemic.

“In addition, governments’ economic responses to crises, like COVID-19, favour protecting people’s assets and their value. This includes the family home and shares.

“This is fine for people with assets. But in the main young people don’t have these assets and if their parents don’t have these assets, they can’t even look forward to inheriting them. And so they are the ones who will be left with the bill.”

Professor Breunig is calling for urgent policy fixes to make Australia’s tax system fairer. He proposes a number of solutions, including an increase to GST.

“This has the extra benefit of taxing people’s accumulated wealth as they spend it,” Professor Breunig said.

“We should also switch from stamp duty to land tax to better capture the value of increased asset prices and make it easier for people to buy and sell houses.

“Another option is to include owner-occupied housing in the asset test for the age pension and introduce a government-run reverse-mortgage program to help people to spend their assets while alive.

“And we should reduce corporate and personal rates while removing many of the exemptions that allow people to avoid paying their fair share of tax.”

Professor Breunig said the above policies, when implemented with others, will see more economic growth and lower house prices in Australia.

“Both of these are good things for young people,” he said.

“By tapping into accumulated wealth, the above policies will also help to redistribute the financial burden of this pandemic across society more equally – this benefits everyone and especially young people.”

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