A recently released study on wealth across generations by independent think tank, the Grattan Institute, shows that older Australians are capturing a growing share of Australia’s wealth, while the wealth of younger Australians has stagnated. The report, The Wealth of Generations, finds that Gen Y may be the first generation ever to be less wealthy than that of their parents.
Baby boomers have benefited greatly from the boom in housing prices over the past two decades. Gen Yers - with lower and falling rates of home ownership - have shared less of this huge windfall. Across all household age categories, housing accounts for around half of the average wealth and older Australians hold more property (by value) and therefore more wealth.
Beyond capital gains, the report notes that over the period 2004-2010, incomes grew fastest for older Australians, allowing them to add more to their wealth by saving. Also, governments are spending much more on older households for pensions and services, particularly health. The report goes on to say the next generation will be worse off unless governments act:
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.
The Grattan Institute claims that “young Australians (are) set to pay for government policy mistakes”. It seems that many financial journalists agree writing supportive articles under emotive headlines such as “The fiscal storm confronting young Australia” and “Baby boomers prosper at (the) expense of the young” and “Generation Y have every right to be angry”.
Personally, I think it’s a bit rich to blame one generation for the plight of another. It’s also cut-and-dry to suggest that only older Australians benefit from tax concessions. Not to be forgotten in this debate is the fact that only a small percentage of retirees receive the age pension and that many older Australians live in poverty.
Tim Costello, the Baptist minister and chief executive of World Vision Australia, had a more philosophical reaction to the Grattan Report. He acknowledged that throughout history parents have made incredible sacrifices to give their children a better life than their own. But he thinks it’s time for a reality check as we may have lost perspective in giving our kids too much:
Today if your kids have to share a bedroom, it’s as if it’s a denial of their fundamental human rights. That’s the nonsense we’ve got to. Today we have both sides of politics telling people who live in McMansions with two cars, ‘You’re a victim. Your electricity price has gone up. You’re in struggle town.’ We really have lost the plot.
Another voice of reason in this emotive debate is Emily Millane. She wrote an article for The Drum in which she pointed out that variances within each generation are where the real policy complexities and solutions to social inequalities lie. “So variable is the wealth within generations”, wrote Millane, “that it’s far more useful ... to understand the real dividing line in our society (is) class”.
In contrast to the Grattan Institute, another Australian think tank, The Centre for Independent Studies, believes we need a more informed and balanced debate about tax concessions. In a recent article - Rorts for the rich are a myth - a senior fellow at The Centre argued that dumping tax breaks on super and capital gains will not save anything like the critics claim. However, their removal would certainly damage saving and investing.
As I have acknowledged before in this blog, economic inequality is real and can be excessive. But pitting Gen Yers against baby boomers in tit-for-tat arguments - such as trading blows over housing - is not helpful. Baby boomers argue that they paid 17 per cent on their mortgages in the late 1980s. Gen Yers counter by pointing out that mortgage rates may be lower today but so is housing affordability (ie, the cost of a home relative to income).
The growing wealth gap between young and old is a worldwide phenomenon. As I outlined in Income inequality, seven out of ten people live in countries where economic inequality has increased in the last 30 years. Government policy choices in areas such as taxation can help address inequality. But disproportionate wealth gains will always be part and parcel of free-market societies.
Paul J. Thomas
Posted Monday, March 02, 2015 0 Comments Make a comment