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Not all boomers, obviously. Photo: Getty
Not all boomers, obviously. Photo: Getty

PoliticsApril 23, 2019

CGT was icing on a massive cake: five key triumphs in over-65s’ blessed lives

Not all boomers, obviously. Photo: Getty
Not all boomers, obviously. Photo: Getty

The capital gains tax capitulation is just the latest triumph for the most powerful voting bloc in New Zealand history. Duncan Greive details the Boomers’ most pivotal victories.

This post was published in April 2019.

Wednesday’s shock announcement around capital gains tax marked the first major government acquiescence to the power of the baby boomer voting bloc. And it came in a crushingly final form: Jacinda Ardern said that it would never happen while she was leader, a definitive end point to what has been Labour policy for a decade.

For those who elected New Zealand’s first millennial prime minister, who expected her to fight for a generation’s interests and heard the talk of a transformational government, it was a rude awakening. A demonstration of how power really works in New Zealand, and another reminder that Winston Peters is by far New Zealand’s most skilful politician. He cares about his voters and absolutely no one else, and is happy to sit idly while relatively uncontroversial legislation passes, rousing only to spike that which threatens any kind of grey power.

Yet this is only the most recent example of a parliamentary decision with an outsize benefit for our most powerful political class. Throughout the past half-century the size and economic importance of the baby boomer generation has seen our laws and institutions bend to ensure their immediate economic interests are satisfied. As they have passed through various age brackets, whether by accident or design, the most important milestones of life worked in their favour.

A pre-outraged howl disclaimer: advantages didn’t impact all boomers equally – there was plenty of hardship along the way, and plenty that remains today. Disproportionately suffered by people of colour, the LGBTQ+ community, women and disabled people. And of course there are plenty of baby boomers who lament what’s happened. But these are the broad realities of how the post-war years have played out for one very lucky generation – five examples of key victories in the epic, lifelong triumph of the boomer.

1. Free tertiary education

For most of the last century, a university education was entirely state-funded, an immense advantage to Boomers, giving them a permanent earnings advantage without any corresponding debt burden. It ended in 1990, with a 900% rise in previously tiny fees – the argument being that the cost was unsustainable (a similar argument curiously failed when it came to superannuation).

Fees came with student loans to pay them, meaning that almost all who subsequently left tertiary education for the labour market did so with a debt roughly the size of a deposit on a house. 1990 was, incidentally, the year the last Boomers turned 25, meaning every last one could get an advanced degree, entirely funded by taxes. Then up came the ladder.

2. Cheap housing and investment properties

In 1990 Boomers ranged in age from 26 to 45 – somewhere between the start and the prime of their working lives. Home ownership was at an all-time high, north of 75%, and the average house cost around $100,000. The average annual income was $29,393, making housing achievable in all cities for most full-time workers. In the nearly three decades since, the average income has inched up to $51,527, while house prices have risen more than five-fold – the RBNZ’s inflation calculator suggests a house bought for $100,000 in 1990 would sell for $542,000 today.

Peters referred to the scars of the 1987 crash as having chased generations out of the sharemarket and into the housing market, buying rentals through the 90s and 00s, both causing and benefitting from this huge sustained run of housing inflation.

Armed with free degrees, many Boomers bought affordable homes, then watched as they rocketed up in value. Once they had enough equity in a home, many bought second homes, third homes and more, just as construction started to dramatically decline, thanks to NIMBY-friendly planning codes which stifled the supply of new housing.

3. Low tax throughout their working lives

The last 35 years have encompassed the main working years of most Boomers. They have also coincided with the lowest sustained top tax rates of any point in our post-war history. The current top marginal tax rate of 33%, applied to the 19% of New Zealanders earning over $70,000, is very low by historical standards:

Research from Victoria University suggests that the last time the top marginal rate was lower was before the great depression. And it’s extremely low by international standards – the UK and Australia both pay over 45%. With last Wednesday’s announcement that taxing capital gains is off the table for generations, the most accessible way of raising significant new revenue looms as raising taxes on income. Conveniently, this occurs just as baby boomers move out of the working phase of their life, and into living off their investments.

4. Super remains one benefit which can’t be cut

Known as a political “third rail” – you touch it, you die – universal superannuation remains the great immovable in New Zealand politics. The payment for a single retiree is a generous $411, significantly more than a sole parent on the jobseeker benefit receives. Unlike taxes paid to those in material hardship like the DPB, it rises in concert with wage increases, whereas other benefits are linked to the much slower-growing cost of living.

Its universality means that it is distributed irrespective of need, to a cohort which is already New Zealand’s most asset-rich. As Bernard Hickey noted in his masterful survey of the CGT decision, over-65s are by far the richest group of New Zealanders, with a collective wealth of nearly half a trillion dollars, and one whose net worth has increased by $99 billion in the last three years – more than the total wealth of those under 35, whose paltry $61 billion net worth actually declined during the same period.

The age of eligibility for superannuation has remained at 65 for over 80 years, despite life expectancy leaping during that period, and the associated benefits – including free trips to Waiheke Island – only ever increase, largely thanks to Peters’ unflagging advocacy.

Super is not pre-funded, meaning it’s paid by today’s taxpayers – who are also paying for Kiwisaver, a user-pays retirement scheme which seems set up to ensure that the reverse of what happened with tertiary education happens when they eventually reach retirement: means testing arrives, and super is consigned to the past. But only once the vast majority of boomers have taken all they can from it.

5. Capital gains

The most recent – and most impressive – win, largely because they did it because they could, not because they needed to. As others have noted, the rich irony of the furious resistance to a capital gains tax coming from older New Zealanders was that it was always forward-looking – that the decades of tax-free gains Boomers had already banked would be locked in and entirely untouched.

It would only affect future gains – most comprehensively, those of Boomers’ children. It’s somewhat incredible, but true: young New Zealanders were passionate in their support of a tax which would have had by far the most profound impact on themselves.

The Boomer resistance was a reflex action, a schoolyard bully operating on muscle memory. It’s the story of a generation which has flexed its power and elevated its own interest at every opportunity, while at the same time building a matchless mythology. The generation which created civil and gay and women’s rights, the environmental movement, protests against war – and then the bounty of unprecedented innovation.

Yet the same generation has, when given the opportunity, ensured that it took the most from the world. Whether Labour or the Greens could have campaigned harder or politically managed the moment better seems immaterial: the result was what it always is: the big demographic bulge getting its way, again.

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