It is always disappointing when an important, and potentially transformational, policy idea is introduced in a form that almost certainly guarantees its rejection. That’s even more true in the context of an election campaign, where reasoned analysis of policy invariably takes a back seat to partisan polemics.
Dominic Perrottet’s announcement of a “future fund” in News South Wales to help young people finance education or the purchase of a home falls into this category. In the most attractive presentation, young people could start adult life with a fund of $50,000, enough to pay for a university degree, franchise a small business or, even, with other government assistance, pay the deposit on a modest apartment. Unfortunately, as we will see, the reality is rather different.
Perrottet’s proposal is a drastically cut-down version of an idea put forward in the US by Bruce Ackerman and Anne Alstott in the 1990s under the name “The Stakeholder Society”. Ackerman and Alstott proposed a grant of $US80,000 to all young adults. Allowing for inflation and currency conversion, this would be something like $A250,000 today. The proposal would be financed by taxes on wealth, and by treating inheritances and gifts from close family members as taxable income.
Such a proposal would convert the rhetoric of equal opportunity into something like reality. As always, the children of wealthy and well-educated parents would have a headstart, including better opportunities for school education and access to financial support. But gift taxes would reduce the capacity of the bank of Mum and Dad to transmit inequality from one generation to the next. Part of any intergenerational transfer would be taxed to provide a start for those young people not blessed with wealthy and generous parents.
Although it would be a once-in-a-lifetime transfer, a stakeholder grant would share many of the features of a universal basic income. There would be no means test, and no adverse incentive effects. The funds could be used for a range of reasonable purposes, or paid out as a cash grant if not used by, say, age 30.
Given that about 300,000 Australians turn 18 each year, a scheme with a grant of $100,000 would cost around $30bn a year, comparable to the revenue foregone with the stage 3 tax cuts. A grant on the scale proposed by Ackerman and Alstott would cost around $75bn, implying the need to raise lots of money through wealth and inheritance taxes. Clearly, only the commonwealth government could raise the necessary revenue.
How does Perrottet’s proposal compare to a real stakeholder grant? $50,000 sounds good, but the vast bulk would come from parental contributions. The government’s contribution of $400 a year would amount to a maximum of $7,200 (plus interest earnings) which would not be reached until today’s babies turn 18 in 2041.
Even so, the proposal might be worthwhile if the government contribution was the same for everyone. But under Perrottet’s plan, governments would match parental contributions. So, if parents can’t afford to contribute, their children get nothing. Perrottet softens the edge of this by saying that children whose parents receive family tax benefit will get a government contribution of $200, half the amount for well-off families who can afford the full contribution. That ratio is a pretty clear indication of Perrottet’s relative concern for low-income and high-income families.
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How many people would get the full grant? At first sight, $400 a year might not sound like too much for the average family. But remember that this is $400 a year for every child in the family. Not many families are as large Perrottet’s own (he is one of 12 children and has seven of his own). Equally, however, very few large families have the resources available to the Perrottets. For a family with four children, even on a decent income, finding the resources to lock away $1,600 a year could prove very challenging.
Perrottet’s proposal is an inequitable mess, unlikely ever to be implemented. But that should not be the end of the story. Inequality is growing and it is increasingly being locked in over generations. A substantial stakeholder grant to young people could change it.