Australian children face a bleaker future than that enjoyed by their parents.
That’s the stark message from a Grattan Institute report into the Wealth of Generations. It’s just another confirmation that Australia needs to sit down and have an adult conversation about its future and address the growth of intergenerational inequality.
“We have come to expect that each generation will be better off than its parents: wealthier, healthier and better housed. But the world is changing. Today’s generation of young Australians may have lower standards of living than their parents at a similar age,” the report said in its overview.
It goes further, saying that for the most part it is the older cohort of Australians who are capturing the bulk of the wealth gains over the last decade while our younger fellow citizens are going backwards.
Unsurprisingly, housing features strongly with the report:
“In part, the wealth of generations has diverged because of the boom in housing prices. Older households made big capital gains. With lower and falling rates of home ownership, younger households shared less of this windfall.”
But while older Australians capture the wealth benefits, they are also leaving the tax burden for the impoverished cohort of younger Australians.
Not only is this simply unfair, it is also unsustainable from a fiscal point of view unless Australia becomes much more innovative and productive. The future pyramid is upside down and there simply won’t be enough workers to support older Australians.
“Government transfers from younger to older cohorts are now so large that future budgets may not be able to afford them as the population ages. In other words, the generational bargain is at risk,” the report said.
It’s also not enough to expect that the wealth transfer will take place eventually, with Grattan saying that, “Although older generations will ultimately pass on much of their
accumulated wealth, this may not help younger generations much.
“On current trends, inheritances are typically received later in life and primarily benefit those who are already wealthy. Gifts to younger generations are typically small, and also primarily benefit well-off households.”
The findings give some solid support to the Government’s budget reform efforts; perhaps not the current budget or its agenda, but a reform process certainly as Grattan says that it is the beneficiaries of Government largesse over the past years who should be paying the bill for reform of Australia’s fiscal position.
Governments can choose to prevent the next generation being worse off than its parents. Targeting the Age Pension, reducing superannuation tax concessions and shifting towards asset taxes could reduce the transfers between today’s younger taxpayers and older retirees. These reforms would fall most on those who have benefited from windfalls, government largesse, and paying lower taxes while deficits accumulated.
Boomers, you are on notice.