Poor old generation Y

[contrary]

I can see why some in generation Y and X are embittered. The super rules are fantastic if you are nearing 60. Basically, your marginal rate of tax is capped at 15% unless you make over 135k/year. The CGT tax changes to 50% of MRT if held for 1 year are also very generous to people who already own assets. It basically means that you get taxed at a maximum rate of 22.5% for CG. PAYG's get taxed at double that. The younger generation are unfortunately likely not to have any benefit from the super changes or the CGT changes (as they have few assets to make CG's), are more likely to have most of their income as PAYG. Furthermore even if they contribute to super, the most they can put in per annum is 50k. This discrepancy is a pretty blatant tax inequality.

For the rest of us, what a handout, thanks John Howard! Is it sustainable ? Who cares if you are nearing 60. Again the younger generation will bear the brunt of future probably unfavourable changes to super. It is hard to see how it can be more attractive than it currently is.

The tax changes have made a huge impact on investment landscape in this country. What the government give, it may one day take away when their coffers are emptying...

 

[yorke]

What are you on about? You should be happy you don't have to support them for the next 40 years. Wasn't the whole idea behind the scheme to let them save up on super if they can so you wouldn't have to pay them an age pension ? Unlike the X & Y gen most of them didn't have a compulsory super until recently and some were paying more then 50% of their income in tax which the gov used to build schools and infrastructure for ungrateful brats. They may be embittered but most of them are too stupid to run a lemonade stand, spend every cent they have on useless crap and travels abroad and then come home to cry poor. Its tough but they can either sort themselves out or wait for mum & dad to fall off the perch so they can inherit. Provided that mum & dad are silly enough to live anything other then debt behind.

 

[natmarie73]

I wouldn't think a lot of Gen Y's would be giving a stuff about superannuation rules anyway and certainly only a very few would be wanting to salary sacrifice the maximum allowed.

I'm sure that when Gen Y are in their 60's the super rules of the time will benefit them as well.

In the meantime, the majority will be spending their disposable cash on discretionary items and like most people will only start worrying about it 10 years before retirement when they realise they are staring down the barrel of 20+ years of living on the poverty line.

And if Gen Y think they will be able to access their super at 60 they will be in for a nasty shock. The poor dears will probably be made to work until 80.

 

[BayView]

I can see why some in generation Y and X are embittered. The super rules are fantastic if you are nearing 60. Basically, your marginal rate of tax is capped at 15% unless you make over 135k/year. The CGT tax changes to 50% of MRT if held for 1 year are also very generous to people who already own assets. It basically means that you get taxed at a maximum rate of 22.5% for CG. PAYG's get taxed at double that. The younger generation are unfortunately likely not to have any benefit from the super changes or the CGT changes (as they have few assets to make CG's), are more likely to have most of their income as PAYG. Furthermore even if they contribute to super, the most they can put in per annum is 50k. This discrepancy is a pretty blatant tax inequality.

For the rest of us, what a handout, thanks John Howard! Is it sustainable ? Who cares if you are nearing 60. Again the younger generation will bear the brunt of future probably unfavourable changes to super. It is hard to see how it can be more attractive than it currently is.

The tax changes have made a huge impact on investment landscape in this country. What the government give, it may one day take away when their coffers are emptying...

This is but one of the reasons why I always say not to pin your future on super - Govt changes. You just know that every Govt change is going to be for the benefit of the Govt; no the superannuation clients.

However, your post sounds as though your income is over $150k per year?

If it is, and in case you didn't know - that's just a lazy 3 times the national average wage approx.

So I wouldn't be whinging about your lot if I were you. Otherwise you put yourself in the same category as the Pollies you don't like - highly paid and out of touch with the real world.

 

[northie]

Let me also add that gen X & Y will bear the brunt of tax revenue being diverted (as they reach their maximum earning potential) to infrastructure needs by the time which these infratructure come to bear, the next generation will benefit the most from this.
gen x and Y are the ones paying for the old (through generous super benefits which may or may not exist in the future and ageing population) and the young (benefiting from infrastrucutre investment).

 

[lizzie]

not to mention those infernal tax rates ... oh wait ... the tax rates are going down significantly over the next 5 years!

oh dear, i remember my father paying 75% tax rate, being in the highest bracket (which was not actually very high at all) back in the early 1980's.

within 5 years there will be no tax payable up to $20,000 and the top rate is expected to be around 40%.

that is one reason why there is this mentality amongst the older generation (which i do not agree with, by the way) that they are entitled to a pension because they have already paid.

my heart bleeds for the x/y's ...

oh, that's right, i'm an x

 

[coastymike]

The rules could very easily change. The recent review of Australia's tax system has suggested that the dividend imputation system be reviewed,and possibly removed, as Australia and NZ are the only countries in the world to have such a system.

All those 60 year olds who locked their money into shares hoping to get a refund of their imputation credits will be quite shocked if such reforms were implemented. And what about those dividends. Well maybe companies will no longer have an incentive to pay out dividends, the dividend yields o/seas are quite low, and capital growth of the company is much more important that ensuring adequate yields with adequate franking credits. It wouldn't matter anymore. What a bonanza that would be for the government in extra tax revenue. No more refunds of imputation credits. Don't know why they didn't get rid of it ages ago.

Again one of the few countries in the world to not have a social security tax. Our personal income tax rates, along with the associated family tax benefits and other benefits, are low compared to other countries around the world. People forget how many benefits we dish out here in Aus.

 

[ethereal]

All those 60 year olds who locked their money into shares hoping to get a refund of their imputation credits will be quite shocked if such reforms were implemented.

Possibly not near as shocked as they now are having just found out from their dear financial advisers that a substantial proportion of their capital has vanished due to the recent sharemarket carry-on. Particularly those who acted on advice to sell IP's and put the proceeds into managed super funds.

Louise

 

[marg4000]

Well, as I am nearing 60 I guess I am one of the "lucky ones".

But here are a few things you may NOT remember (being so much younger).

Actually having to SAVE a deposit before buying a property.
Maximum borrowing for a home of 66% total value otherwise increased interest.
Investment properties 2% higher interest.
Banks or finance companies only - no mortgage brokers to help, no alternative lenders.
Bank manager had final say - if he (and it was ALWAYS a he) did not like the look of you then he said "no" and that was that.
Tax rates of up to 60% - that's right, do overtime and the government got more than the worker.
No superannuation for women (and their wages were always lower for the same work).
No superannuation unless you worked for a large firm or the Government.

My son is 29 (is that X or Y?). He has a PPOR, an IP and a block of land where he is building a holiday home. At the same age we had a PPOR and 10 years to go before we could afford our first IP.

Anyone can get ahead in this world.

Work hard, save money, and learn the difference between what you need and what you want.
Marg

PS: And yes, we lived through interest rates up to (and exceeding) the famed 17%.

 

[contrary]

Lizzie, I'm not sure where you get 35% top MRT from. It is 45% next financial year and foreseeably as far as I am aware, which is slightly less than the 47% this year. The top MRT was 62% in 1979, but there was no 10% GST then or medicare levy.

Marge, who knows whether it was a harder or easier game in property in the last 20 years Vs 40 years ago. LVR's back to 70% and credit rationing maybe something we see again soon.

Anyway back to tax.

marginal tax thresholds have gone down ... by about what bracket creep or inflation gave the government in the last 10 years.

marginal rates have gone down by 10% ... about what the GST is ! (that other little tax that wasn't there before the 'tax cuts'. People forget they are still paying that !).

But GST and marginal rates affect everyone : generation A-X/Y/Z, investor or worker. What I was pointing out is that the taxation regime currently for investors and retirees is excessively generous compared to wage earners (which I am not).

At the end of the day, why should retirees only have to pay a maximum 15% tax. To compensate them for... um... time or ... age ??? In that case we should make tax reducing on a linear basis adjusted to how old you are. It was an obvious and somewhat desperate votebuying ploy by John Howard which is slowly being unwound. The first step, reducing the super attractive (excuse the pun) transition to retirement arrangements has already started. The threshold being gradually reduced over time in terms of the maximum limit over 50k you can put in over 3 years in the period before retirement. I think the retirement tax landscape is likely to go backwards. After the current resources boom, there's going to be a lot of old people, few young people and a Japan like demographic and economic aging problem. At least our governement unlike the US, will not be broke before it starts.

Probably more important to investors in the medium term : why should investors get a 50% exemption for capital gains when salaried taxpayers pay the full marginal rate on their 'work' income ?

I have benefited as much as anyone from the tax changes so in a way I am not complaining. But I do not think it is sustainable.

It's a glaring anomaly. I think at some stage the 50% CG exemption will be taken away ... say next downturn and one or two budget deficits.

 

[yieldmatters]

But here are a few things you may NOT remember (being so much younger).

Actually having to SAVE a deposit before buying a property.
Maximum borrowing for a home of 66% total value otherwise increased interest.
Investment properties 2% higher interest.
Banks or finance companies only - no mortgage brokers to help, no alternative lenders.
Bank manager had final say - if he (and it was ALWAYS a he) did not like the look of you then he said "no" and that was that.
Tax rates of up to 60% - that's right, do overtime and the government got more than the worker.
No superannuation for women (and their wages were always lower for the same work).
No superannuation unless you worked for a large firm or the Government.

Ah - the good old days. Tax rates of 60%, men in management, and superannuation aside it would be good for all if we reverted to many of the things you listed.

My son is 29 (is that X or Y?). He has a PPOR, an IP and a block of land where he is building a holiday home. At the same age we had a PPOR and 10 years to go before we could afford our first IP.

Anyone can get ahead in this world.

Makes him a Y I think. It sounds to me that he has doubled and tripled down into the one asset class (property) and done it with some serious debt (unless he is earning $300K / yr) so it's probably too early to say whether he has "got ahead". Next 2 years should tell us. He may have.

 

[lizzie]

I'm not sure where you get 35% top MRT from. It is 45% next financial year and foreseeably as far as I am aware, which is slightly less than the 47% this year. The top MRT was 62% in 1979, but there was no 10% GST then or medicare levy.

i'm sorry i should have clarified.

the 75% tax rate was in new zealand. i understand the australia was probably less - but 62% is still a large whack compared to top rate currently of around 47% and definately a lot higher than the proposed 40% with $20,000 tax free threshold.

and i was trying to recall the proposed tax rate drop from a newspaper article a couple of weeks ago.

however this link http://www.alp.org.au/media/1007/msloo181.php is one of several advising that the top tax rate is planned to drop to 40% in five years time - not 35% as i thought - i shall amend my post.

i also understand there is gst currently, where there wasn't before. however, at least you get the choice of spending or not spending or what you spend on (hence incuring, or not, gst).

as for the cgt rduction to 50%, this was bought in to prevent speculation of flipping properties/shares during growth periods. i don't see this as being removed in the near future, as it would have to be applied to all forms of investment.

 

[yorke]

The top MRT was 62% in 1979, but there was no 10% GST then or medicare levy.

You are right about the Medicare levy, the GST is another matter. Before the GST taxes on goods came on 3 different flavors : 11%, 21% and 31%
They make the 10% GST look like a bargain.

 

[Peter Parker]

You are right about the Medicare levy, the GST is another matter. Before the GST taxes on goods came on 3 different flavors : 11%, 21% and 31%
They make the 10% GST look like a bargain.

Though bear in mind that the previous sales taxes were wholesale rather than retail, so they were a higher percentage on a lower amount on a narrower range of goods.

The overall effect of the GST on prices depends on the item; the new TV dropping from a 30-odd % WST to a 10% GST got cheaper, but the cost of repairing it got dearer as labour was previously not subject to WST, but is taxed under GST.

Peter

 

[GreatPig]

All those 60 year olds who locked their money into shares hoping to get a refund of their imputation credits will be quite shocked if such reforms were implemented.

They wouldn't be the only ones.

Those of us who have a pile of franking credits in personal companies, and intend to utilise them (ie. pay dividends) once other income streams have stopped, wouldn't be impressed either if it meant losing those franking credits.

Paying 45% tax (plus medicare levy) on income is bad enough, but 75% would really suck.

GP

 

[nonrecourse]

Parisites by another name

Possibly not near as shocked as they now are having just found out from their dear financial advisers that a substantial proportion of their capital has vanished due to the recent sharemarket carry-on. Particularly those who acted on advice to sell IP's and put the proceeds into managed super funds.

Louise

About eighteen months ago a friend of ours was going to seek advice from an investment advisor. I was concerned because this guy and his wife are teachers and are a bit naive when it comes to investing. The one smart move they had made years ago was to buy out the other relatives inherritance share in a small block of flats they were all left from a deceased estate.

When he told us about seeing this financial planner I bet him a beer what he would be told to do.

I said he would advise them to sell their block of flats and contribute it into their super where they should buy managed funds. I then went on to explain how they would be up for capital gains on selling the property and how the free investment advisor's advice is not free because he gets his cut through comission from the managed funds.

I then made the point that this was a great money spinner for the financial planners but with all that money flooding into the share market what would happen to an already booming share market? Like everyone else I had no idea what would evolve it was just common sense. But common sense isn't so common especially if your selling managed funds

Our friends duly went off and sure enough was given that "free advice". The end result is our friends still have their block of flats and they have watched with a much greater appreciation the financial fiasco that is now unfolding world wide with the credit debacle.

 

[Dazz]

My son is 29 (is that X or Y?).

....from the dodgy bit of stuff that I know.....

Year of Birth............Generation.............Known As

Pre 1946.................Depression Era........Old buggers
1946 - 1964............Baby Boomers.........Rich buggers
1964 - 1980............Gen X...................Top sorts
1980 - 1995............Gen Y...................Lazy buggers
Post 1995...............Gen Z...................Whipper Snappers

Cusp years....dunno and don't care.

I know these aren't official, but once again.....WGAR.

 

[LynnH]

No prizes for guessing which category you fit into, Dazz!!!

Cheers
LynnH

 

[RumpledElf]

Pre 1946.................Depression Era........Old buggers
1946 - 1964............Baby Boomers.........Rich buggers
1964 - 1980............Gen X...................Top sorts
1980 - 1995............Gen Y...................Lazy buggers
Post 1995...............Gen Z...................Whipper Snappers

Hah ... I'm a top sort, the other half is a lazy bugger and we have two whipper snappers. Love it!

 

[yorke]

Though bear in mind that the previous sales taxes were wholesale rather than retail, so they were a higher percentage on a lower amount on a narrower range of goods.

Fair comment but same difference, since the costs were pass on it was still the consumer who paid for it .

The overall effect of the GST on prices depends on the item; the new TV dropping from a 30-odd % WST to a 10% GST got cheaper, but the cost of repairing it got dearer as labour was previously not subject to WST, but is taxed under GST.

Come on now, does anyone really bother to repair a TV once its out of warranty anymore ? And even if they did it would probably be done for cash.