Equality and the Shrinking Pie

The basic idea of the Austrian pension system is simple: those who contribute more should also receive more. Over the past ten years, however, policy has shifted. Lower pensions were increased more strongly than higher ones. In doing so, the insurance principle was gradually weakened and a stronger emphasis on redistribution and solidarity took its place.

At the center of this shift sits a desire for equality. That is why income and pensions are subject to progressive taxation.

On the impossibility of equality.

It is easy to ask a successful entrepreneur to contribute even more to the social system. What often gets lost in this discussion is the level of risk taken along the way, and the personal trade-offs required to build success in the first place. Choosing security, predictability, and structured free time is a perfectly valid life choice. But when the state tries to flatten these different life paths into similar outcomes, it reduces the incentive for future entrepreneurs to take risks at all.

People who live off capital income are often treated with suspicion, as if no work had been involved. Yet the work was done earlier: through consumption restraint, saving, and the willingness to take investment risk. On top of that, already-taxed income is invested and taxed again. The question then becomes whether true equality can exist between those who have consumed their income and those who have deferred consumption in order to build capital.

Compounding over a lifetime.

The limits of equality become even clearer in areas far removed from money and taxation. People who spend a lifetime learning and building skills tend to navigate change more effectively. The same logic applies to physical health. Regular activity compounds over time in a way that becomes increasingly visible with age.

Over the decades of my work, I have mainly encountered people who created their wealth through sustained effort and performance. They tend to handle their capital with care, discipline, and a long-term perspective, often across generations. This behavior does not only benefit them personally, but also contributes to society more broadly. It is a reality that rarely finds its way into political debate or budget speeches. It deserves to be said, at least here in the Gutmann Viewpoint.

PS: For those interested in how politically enforced equality can undermine the foundations of prosperity, a recommendation worth reading is the book by Luca Dellana: Poverty and Prosperity: The Principles That Build Civilizations and the Policies That Ruin Them.