A TikTok influencer’s video exposing how young workers pay significantly more tax than older wealthy Australians has sparked furious debate online.
Sydney man Jack Toohey shared a clip to the social networking site outlining four different scenarios – a property investor, a late career professional, a retiree, and a young full-time worker.
The video begins: “Let’s play a game – who pays the most tax?”
The four characters presented are:
– A property investor on a $100,000 salary plus superannuation who owns a family home and two negatively geared investment property, receiving $60,000 a year in rent.
– A late career professional on a $90,000 salary plus superannuation who owns a family home and makes additional super contributions of $17,000 a year.
– A retiree drawing $75,000 from their superannuation, with super and shares worth $3 million, with the shares generating $120,000 in franked dividends.
– A young full-time worker on a $73,000 salary plus superannuation who rents and pays $2000 a year off a typical HECS debt.
“Coming in at first place is young full-time worker,” Mr Toohey declared. “And in last place, contributing the least to society, is the wealthy retiree with an effective tax rate of 0.1 per cent.”
He adds: “How is it possible that young people earning less pay more taxes than wealthy older Australians? That’s because of system taxes income from working differently to how it taxes income from assets.
“The less assets you have, the less ways you have to reduce your taxable income. It doesn’t sound very fair.”
The four scenarios were devised using modelling from the lobby group Think Forward, which advocates for “intergenerational fairness and long-term thinking in policymaking”.
It has just launched a campaign aiming to put taxation reform on the agenda, running a survey to draw data showing the plight of young people.
“The tax system sits behind a lot of the issue that young people face, whether it’s being locked out of the housing market, having their real wages go backwards, or seeing big polluters not have to pay anything for the climate change they’re causing,” Thomas Walker, chief economist at Think Forward, said.
“The aim of the video was to raise the issue with younger people, get them talking about it and hopefully get tax reform on the agenda as a young person’s issue.”
Think Forward’s belief is that each generation should also be able to move through the same stages of life as generations prior, when it comes to getting a high-quality education, having a good career, buying a home, starting a family and living on a healthy planet, he said.
“The reality is that most of the same opportunities enjoyed by generations prior no longer exist for young people.”
Matt Grudnoff, an economist with the think tank The Australia Institute, agreed.
He praised Mr Toohey’s video, saying it highlights flaws within Australia’s tax system that allow the very wealthy to pay virtually no tax.
“In a progressive tax system, you expect people who have more pay a bigger percentage tax. Our system isn’t as progressive as that.
“If you’re at a time when life is at its most expensive, when you’re young and perhaps just starting a family, you’re looking to buy a house or stuck in an expensive rental market, you’ve got a HECS debt, you’re actually paying the highest marginal tax rates of anybody.
“There are all these loopholes that benefit a group of people who have a lot of money and pay less tax than people grappling with a very expensive life.”
These inequalities have existed for many years but Mr Grudnoff believes it’s only the recent pressures driven by the cost-of-living crisis that have sparked awareness among younger Australians.
As well as skyrocketing costs and flat wage growth, many are battling to keep a roof over their heads as rents surge and buying a home becomes less and less of a reality, he added.
“They’re really just the surface issues though. Underneath it all are taxation issues that see younger people feel like the deck is stacked against them.”
Mark Chapman is the director of tax communications at H&R Block and said Australia’s tax system offers a range of incentives and exemptions for things the government is keen to promote, like savings and investment.
Therefore, if you’re looking to invest in property, start a company or save for your retirement, you are on fertile ground when it comes to saving tax,” Mr Chapman said.
“Is it fair? That probably depends on your point of view. For example, somebody who starts a company, running numerous financial risks, probably thinks it’s very fair that they then pay a reduced rate, possibly as low as zero per cent, of capital gains tax when they ultimately come to sell their company.
“But the problem is that all these tax exemptions and incentives entirely bypass those who work and earn a wage or salary. They simply have tax deducted at their full marginal rate.
“So, if you are 25 on a salary, renting a house, with little or no super, a student debt and no savings or investments, the tax system can seem very unfair as you have no way of tapping into any of these tax breaks.”
Mr Chapman does not see major reform on the horizon given the types of people who have the most to gain from the tax system’s structure.
“The various groups who benefit from these tax exemptions and incentives – retirees, property owners, small business owners – are very powerful, and are sure to push back on any attempted change. Therefore, the politicians are not keen to upset the apple cart, even if they wanted to.”
Mr Grudnoff has a more optimistic view of whether change is possible.
He said smart politicians interested in their own survival will have little choice but to recognise those who miss out on the benefits – sooner, rather than later.
“The interesting thing about democracy is that if you’ve got a larger and larger group of people who aren’t happy, either governments listen to them or they get kicked out.
“I think the breakout the Greens saw at the last election, particularly in Brisbane where they snagged a number of seats from both sides of politics, is on the back of this sense of unfairness in the system.
“In the next election or two, Zoomers and Millennials will make up the majority of the electorate. If the rage continues, successful governments will have to listen to the majority. Otherwise, they won’t get elected.
“I do see change coming in a generational sense and it’s probably not that many elections away.”