Australia’s deep middle class is what makes the country one of the most liveable in the world. I’d like to see it stay that way.
When I think of games and sports which are the most globally enjoyable, there is a recipe for success: penalise the leading party to the benefit of the losing parties.
In Pool games the play starts equal, but a stronger player will typically pocket more balls initially. However, as the strong player gets ahead, their game becomes increasingly difficult: they have fewer balls to pocket, and relatively more opponent balls obscuring the goal. On the other hand, the losing opponent gains relatively more opportunity, as the obscuring balls decrease. The stronger player typically still wins, but the game is more enjoyable for both parties.
In cycling, riders benefit from drafting behind other riders, creating an opportunity for weaker riders to shelter behind stronger riders, or to work together to catch riders ahead in the race. Unlike running, all members of a cycling race will often stay together until the end of the race, and clever tactics are required to truly outplay your competitors. This extends far beyond racing… Cyclists of a range of abilities can ride together socially despite the difference in strength. It creates a rider community unrivalled by other endurance sports.
Conversely, the board game of Monopoly penalises the weak. Once a player creates an initial position of strength on the board, it’s only a matter of time before opponents are eliminated. Buying properties generates rental income, while paying rent reduces your opportunity to buy properties. If you are the first mover in the buying game, you win.
Of the examples above, the game which most closely mimics Western society is the game based on society itself: Monopoly. If you receive a higher standard of education relative to others, you have a higher chance of getting a great job. Your great job will afford the opportunity to create wealth-generating investments, and in turn opportunities for additional investments will compound. Some of your wealth will benefit others, such as the ability to pay for services like cleaning or food delivery, and your higher tax contribution. Ultimately though, your rate of success will be greater than those of others you are supporting. Relatively speaking, the gap will widen.
And so the inevitable separation of the middle class towards upper and lower class. After four years living in New York City, the contrast in class distribution is stark. One of the most privileged elementary schools in the world sits adjacent to public housing. New York is a melting pot of diversity and opportunity all in the same place, but these groups are not necessarily mixing.
For Australia to keep its status as one of the most liveable countries in the world, we must invest in the strength of our middle class, and draw in the outliers. We must make meaningful changes to our economic incentives despite the inevitable cost of change. In 2019 the Labour Government has proposed numerous such changes, all of which could easily be argued as dramatic, destabilising, or that they simply won’t work. A few examples include eliminating negative gearing for some properties, capital gains tax incentive reduction, and franking credit reform.
Today, all of the examples above are incentives for the wealthy, or with significant investment such as those who have retired with superannuation (I’ll come back to this).
Negative gearing most notably benefits those already wealthy enough to one or more investment properties in addition to their own home. Housing is not of infinite supply, yet we are incentivising multiple home ownership more than first home ownership. While removing this incentive will cause property prices to fall and create some instability, the current model is simply unfair to those less fortunate who do not own their own property, and deferring any changes will most likely increase future instability.
For those worried about their superannuation, while I appreciate that some retirees require franking credits to maintain their ongoing income, these investment strategies are an artefact of the current tax system, not a requirement for sustainable elderly living. The system needs to be rebalanced for the generations that will also become elderly, otherwise they will never get to the point of benefitting from franking credits.
I acknowledge that Labour’s attempts to reform taxation don’t always get it right. In 2009 they introduced employee share scheme (ESS) reform with the intent of reeling in excessive executive compensation, but simultaneously crushed ESS incentives for cash-poor start-ups hoping to include their employees on the upside of business success. This was hugely damaging for my staff in Australia, and thankfully was partially reverted by the Liberal Government in 2015.
Each party’s 2019 policies are far from perfect, but I do firmly believe in frequent economic reform to level the playing field between those ahead and those behind. Because the sport of cycling is far more enjoyable when everyone can participate together.