Capital gains are spread according to age, not wealth – tax targets the middle class

Put simply, those who are most likely to benefit from the wealth effect of asset price inflation are also those who earn the highest wages or salaries (Grudnoff, 2015). For the tax year running from mid-2014 to mid-2015, Grudnoff reports a highly unequal distribution for the benefits associated with negative gearing: 34.1% of total negative gearing benefits went to the 10% of household incomes; 62.2% went to the top 30% (Grudnoff, 2015: 5). The benefits associated with the capital gains tax discount are distributed even more unequally: 73.2% of total capital gains tax benefits went to the top 10% of household incomes (Grudnoff, 2015: 5). Even these figures, however, underestimate the true wealth-generating effects of asset appreciation in as much as they only register capital gains at the moment of sale and thereby exclude the impact of unrealized capital gains (as pointed out by Robbins (2018), the tax datasets used by Piketty and Saez suffer precisely from this limitation). A hidden leveraging effect is provided by the simple appreciation of asset prices, which may greatly inflate the imputed value of an investor’s collateral and hence allow easier access to credit and a tremendous accumulation of new wealth without ever appearing in the tax data. Although entirely ‘virtual’ and prone to volatility, the market valuation of capital gains generates powerful leverage effects that can generate real and long-lasting increases in wealth. The cumulative effect of government incentives over the past few decades has been to facilitate the debt-plus-equity pathway to asset purchase at the expense of the work-savings route that prevailed in the immediate postwar era, where mortgage repayments were set at 30% of a ‘breadwinner’s’ wages (Yates, 2014: 365). The situation openly favours the ownerinvestor at the expense of the wage-earner and prospective first-time purchaser. It is simply much easier to accumulate housing assets when you already own a house that is subject to rapid price appreciation: wealth begets wealth. With investors setting the bar, first-home buyers have had to take on rising levels of debt simply to remain in the game. But the effect of this competitive spiral has been to push house prices even further out of reach. These trends have a pronounced generational dimension, leading many to assume that the problem is essentially one of intergenerational injustice (Daley and Wood, 2014). But this ignores the fact that capital gains are spread unevenly among the baby-boomer 558 EPA: Economy and Space 53(3) generation and that the adult children of the wealthiest baby boomers are likely to benefit from these capital gains in the form of intergenerational transfers (Christophers, 2018). What distinguishes successive generations, then, is less a difference in absolute wealth holdings than a difference in modes of access to wealth: while older ‘baby-boomer’ generations were in a better position to buy property through wages alone, this option has become less accessible to younger generations who are increasingly dependent on the ability and willingness of their parents to lend or give them money for a deposit in order to enter the housing market (Simon and Stone, 2017: 23). This is confirmed by analysis of Australian Census and HILDA (Household Income and Labour Dynamics in Australia) data, which reveal that young adults who are competing against each other and investors to make a firsthome purchase are significantly more likely to purchase a dwelling (and a dwelling of higher relative value) if they receive financial help from their parents (Barrett et al., 2015). Kohler reports a dramatic increase in the reliance on parental support for the purpose of purchasing a home, and the sum total of these commitments would make the ‘Bank of Mum and Dad’ a mid-size home lender, smaller than ING but larger than HSBC (Kohler, 2018). There is growing evidence that parents are not only engaging in direct forms of support to adult children, but also taking on debt or guaranteeing loans to support them (Yeates, 2016). In short, social mobility is increasingly associated with the asset position of parents not only for the super-rich (cf. Gilding, 2005) but also for ordinary households. The decades of sustained property inflation have thus had a major impact on the distribution of wealth in Australian society. Figure 2 shows that during the period 2003–2011 the highest quintiles have experienced far greater increases in wealth than lower ones. These consequences were perhaps not so visible in the 1980s or 1990s, when for substantial parts of the population capital gains compensated for stagnating wages and house price inflation catapulted many working class (that is, lower-income but home-owning) households into a higher wealth bracket. Some of these households may well have permanently changed their class profile, especially if they went on to purchase an investment property.