Kate Griffiths, Grattan Institute and Danielle Wood, Grattan Institute
Each new generation of Australians since Federation has enjoyed a better standard of living than the one that came before it. Until now. Today’s young Australians are in danger of falling behind.
A new Grattan Institute report, Generation gap: ensuring a fair go for younger Australians, reveals that younger generations are not making the same economic gains as their predecessors.
Economic growth has been slow for a decade, Australia’s population is ageing, and climate change looms. The burden of these changes mainly falls on the young. The pressures have emerged partly because of economic and demographic changes, but also because of the policy choices we’ve made as a nation.
Older generations are richer than before, younger ones are not
For much of the past century, strong economic growth has produced growing wealth and incomes. Older Australians today have substantially greater wealth, income and expenditure compared with Australians of the same age decades earlier.
But, as can be seen from the yellow lines on this graph, younger Australians have not made the same progress.
The graph shows that the wealth of households headed by someone under 35 has barely moved since 2004.
Source: Grattan Institute
In fact, as the graph below shows, while every age group is spending more on essentials such as housing, young people are cutting back on non-essentials: among them alcohol, clothing, furnishings and recreation.
Wage stagnation since the global financial crisis and climbing underemployment have hit young people particularly hard. Older people tend to be better cushioned because they have already established their careers and are more likely to have other sources of income.
Source: Grattan Institute
If low wage growth and fewer working hours becomes the “new normal”, we are likely to see a generation emerge into adulthood with lower incomes than the one before it.
It has already happened in the United States and United Kingdom.
Budget pressures will exacerbate these challenges
Working-age Australians, as a group, are net contributors to the budget, helping to support older generations in their retirement.
But Australia’s population is ageing – which increases the need for government spending on health, aged care and pensions at the same time as there are relatively fewer working age people to pay for it.
Demographic bad luck is one thing but policy changes are making the burden worse.
A series of tax policy decisions over the past three decades – in particular, tax-free superannuation income in retirement and special tax offsets for seniors – mean we now ask older Australians to pay a lot less income tax than we once did.
Added to this have been substantial increases in average pension and health payments for households over 65.
A typical 40-year-old today contributes much more towards the retirement of others through taxes than did his or her baby boomer predecessors.
We need policy changes
Reducing or eliminating tax breaks for “comfortably off” older Australians would be a start.
Boosting economic growth and improving the structural budget position would help all Australians, especially younger Australians.
Changes to planning rules to encourage higher-density living in established city suburbs would help by making housing more affordable.
Just as a series of government decisions have contributed to the challenges facing young people today, a series of government decisions will be needed to help redress them.
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