Also published on: https://www.bee.com.au/2020/10/28/the-meek-shall-inherit-the-generational-wealth-gap/
For the first time in a long time, we’re setting up a generation to be worse off than the one before it.
Contrary to popular belief, avocado toast is not the problem here.
We’ve become accustomed to each new generation of Australians enjoying a higher standard of living than their predecessors, but they’re being locked out of a generational bargain as the wealth gap between children and their parents soars.
That’s according to the Grattan Institute’s Generation gap: ensuring a fair go for younger Australians, released last year, which presents a fairly grim assessment of the years to come.
The combination of a decade of slow economic growth, an ageing population and accelerating climate change are burdens that mainly fall on the young – emerging from economic, demographic and national policy changes.
“Older Australians today have substantially greater wealth, income and expenditure than older Australians three decades ago, but living standards have improved far less for younger Australians,” Grattan states.
“Poorer young Australians have less wealth than their predecessors and are far less likely to own a home. In contrast, older households’ wealth has grown by more than 50 per cent over the same period because of the housing boom and growth in superannuation assets.”
In short, the report finds that older Australians have inherited a financial system geared in their favour, at the detriment of younger generations. They’re better cushioned toward the blows of wage stagnation following the global financial crisis and climbing underemployment, given most already have established careers and other sources of income.
According to Grattan, this wealth disparity is largely a product of our ageing population, as health, aged care and pension costs erode the tax base and the working-age population reduces. The public health expenses associated with ageing coupled with low wage growth among Millennials and Gen Z, Grattan says, is a worrying trend.
Policy changes are only making it worse.
“Working-age Australians are underwriting the living standards of older Australians to a much greater extent than the Baby Boomers did for their forebears, straining the ‘generational bargain’ to breaking point,” the report states.
“Governments have supercharged these demographic pressures by introducing generous tax concessions for older people. The share of households over 65 paying tax has halved over the past two decades. And average income tax paid has barely changed for people over 65 despite strong growth in their incomes and wealth,” it says.
The think tank also found that inheritances, a crucial element to the looming intergenerational wealth transfer, overwhelmingly help those who are already financially secure.
“The biggest inheritances tend to go to people who are already wealthy,” it says. “Inheritances will not fix the problem.”
The intergenerational budget pressures built into our budget, it seems, are coming home to roost.