If we care about fairness, it's not the well-paid that are the worry

When we talk about inequality, we tend to focus on income. After all, if some people are raking in thousands of dollars a week while others get by on just a few hundred dollars, that would seem to be a key contributor to inequality.

Income inequality is certainly an issue, with the top one-fifth of Australian households taking home two-fifths of the country’s income. But it’s actually our distribution of wealth that’s the biggest driver of inequality between the “haves” and the “have-nots”. It’s also, crucially, holding us all back from economic growth.

A report by the Australian Council of Social Service (ACOSS) and the University of NSW last year found that in Australia, the top one-fifth of households hold nearly two-thirds of the country’s wealth.

With an average of $3.25 million locked away, these households have their hands on about 90 times the amount of wealth stocked up by those in the bottom one-fifth of households.

And if we look at the number of people with “ultra-high wealth” – more than $750 million – Australia ranks fifth in the world (probably not a ladder we want to be topping).

It’s little surprise that most of the inequality in wealth comes down to our distribution of housing: especially the big gaps in the value of the family homes people own, but also the wealth held in investment properties.

But the research found shares and investment properties were the most unequally distributed forms of wealth – the top 10 per cent holds nearly two-thirds of the total value of these assets.

Many young people – especially those without family help – are locked out of home ownership, and older generations (on average) tend to be wealthier, partly thanks to rising property prices and simply the build-up of wealth over time. But there’s also a big gap in the amount of wealth held within generations.

Picture this: the average “older” household (those aged 65 and older) – are about four times wealthier than the average “younger” household (aged under 35).

But it’s actually older households that also happen to be in the top 10 per cent of all households by wealth, that hold nearly one-fifth of the country’s wealth.

It’s a different story for the one in 10 older people who rent, about half of whom live in poverty.

That might be part of the reason why so few older households pay any income tax, compared with nearly all younger and middle-aged households.

But even the wealthy older households pay very low rates of income tax: about 16 per cent on average compared, with 28 per cent for wealthy young and middle-aged households, and more than one-third of wealthy older households pay nothing at all.

Basically, as ACOSS principal adviser Peter Davidson puts it, the issue isn’t that older people are generally rich, but there’s a decent chunk of older, wealthier Australians who pay very little or no tax.

But Davidson, who helped write the report, also points out the problem is not that young people pay too much income tax. “They don’t,” he says. “And young people’s share of income tax paid is diminishing.”

According to the Parliamentary Budget Office, the share of personal income tax paid by those aged 29 and under has shrunk steadily from more than one-quarter in 1979-80 to about one-tenth in 2021-22.

So while we talk quite a bit about younger working families being unfairly punished and being heavily burdened by tax, the issue is more with the way we tax (or don’t tax) wealth.

That’s especially the case because when we talk about wealth in Australia, it’s undeniably linked to the housing market: one of the biggest drivers of wealth and wealth inequality, but also one of the biggest areas of financial stress for those who don’t already have a foothold in it (or financial help to get there).

We’re also seeing a worsening of inequality within the younger household demographic. Not only do they have less wealth on average than older generations, but also the most unequal distribution of wealth within their age group.

The bottom 60 per cent of younger households by wealth, for example, have only about $80,000 in wealth each. Meanwhile, the wealthiest 10 per cent have more than $2 million each stashed away on average, meaning they account for more than half of the entire wealth of that age group.

“It is likely that transfer from parents [the bank of mum and dad] contributed significantly to this concentration of the wealth of young households in the hands of the highest 10 per cent,” the authors of the report said.

A lot of the wealth difference comes down to some people owning their own homes while most don’t. Very few of the bottom 60 per cent of younger households own their own home.

As older generations die and pass on their wealth, this gap will grow. From 2003 to 2022, the share of wealth held by the top 10 per cent has grown, while the wealth of those in the bottom 60 per cent fell.

Davidson says the problem areas are obvious: taxation of super, capital gains and private trusts, which tend to be taxed at lower rates or present tax loopholes.

The government’s decision to raise the discounted rate of tax (from 15 per cent to 30 per cent) on earnings from super balances over $3 million is a good start.

But we should also extend the 15 per cent tax on income from superannuation investments so that it applies to those who are retired. Currently, once people are retired, they can withdraw money from their super tax-free.

We also need to fix the way we tax housing to discourage – or at least stop encouraging – much of the speculative investment which tends to inflate home prices. That includes curbing negative gearing and reducing the 50 per cent capital gains tax discount to a rate closer to the rate of inflation.

Allowing – and encouraging – wealthy people to lock away their wealth, especially in things such as existing housing, worsens inequality and pushes home ownership further out of reach for many Australians. But it also reduces the potential of our economy by directing money away from more productive uses, such as investment in education or innovation, and encouraging wealth accumulation over work.

If we want a fairer society – and a stronger economy – we need to make sure wealthy Australians are paying their fair share and that we’re giving everyone a fair go.

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If you think you had it harder back in the day, think again

By MILLIE MUROI, Economics Writer

Whenever I write about intergenerational fairness, or lack thereof, there are a heartening number of supportive responses. But, without fail, there’s always a handful who (perhaps to try to make me feel better), point out they had it harder.

But these people are missing a few things laid bare in one of Deloitte Access Economics’ latest reports written about – and for a change, almost exclusively by – young people.

It’s not wrong to say previous generations had it hard. And within any generation, there are people who have been flung through the wringer more than their peers because of individual circumstances and plain old luck.

The biggest mistake, according to the report, is assuming today’s young people (Millennials and Gen Z) are behind only because they are young – and that they will eventually catch up.

Deloitte Access Economics associate director Rhiannon Yetsenga, lead author of the report, says sitting back and waiting for the problem to be resolved – or waiting for young people to climb into positions of power – is not an option.

“We can’t afford to wait,” she says. “The future of Australia is being shaped by decisions that are being made today … and we need to make sure it works for the very people who will inherit that future.”

There’s clear evidence from the report that some of the most consequential parts of our lives have changed.

Despite being the most educated generation, young people’s incomes have been growing more slowly than older cohorts and grinding backwards since the pandemic. Despite being the most digitally connected generation, Australians aged 15 to 24 have shifted from being the least lonely to the loneliest age group in just a decade.

It’s easy to blame the latter on young Australians being chronically online: nearly nine in 10 young people aged 18 to 34 are on social media, more than any other age group. And nearly two in five say it’s easier to connect with people online than in person.

But delve into the research and the young people surveyed say social media is useful for maintaining existing connections, such as with friends or family, rather than developing new ones. They also emphasise online connections alone are not enough to form a sense of belonging.

Perhaps it’s not social media usage most responsible for young people’s growing loneliness.

One of the biggest changes across the past few decades has been the monumental increase in the cost of housing: something that has enriched a large share of older Australians at the expense of younger people.

“Australia’s housing crisis is locking out prospective buyers and driving up costs for renters, leaving young people with fewer pathways to secure housing,” Deloitte’s report states.

Not only does the average Australian home now cost 16.5 times the average household income (up from 9.5 times in 1990), but for young Australians aged 21 to 34 living in our capital cities, rent chews up nearly half of their average wage.

That’s far beyond the 30 per cent figure which generally means people are experiencing housing affordability stress.

It’s no wonder only about one-third of 25 to 29-year-olds own a home, down from more than half in 1981: it has become almost impossible to save a deposit without family help. And it’s no wonder their mental health has taken a hit when their financial stability is on the rocks.

Nearly two in three Gen Z Australians report living paycheck to paycheck despite cutting back spending more than any other age group in 2023-24.

With cost of living pressures – and the dream (very literally) of homeownership drifting further away – it’s little surprise that more young people are taking on multiple jobs, hitting a record share of 7.6 per cent in December 2024.

Money might not buy happiness, but it buys stability and the ability to build relationships and a support network.

With most renters (who are mostly under the age of 35) on rolling monthly or one-year contracts, and vacancy rates stuck at historical lows across the country, there’s very little security.

And with property prices and rents constantly surging, and higher-density buildings being knocked back, many young people are being priced out and forced further away from their family and friends. That’s a bad thing for everyone.

As Yetsenga points out, having young people in cities means they’re closer to work and costing the government less by reducing the need to build more expensive infrastructure further out from the city.

The constant uprooting – and simply the threat of it – is costing time, energy and mental bandwidth, and making it difficult for young people to build and maintain relationships.

It’s probably one of the key reasons young people are less likely to be married and more likely to delay having children. Financial stress, insecure housing and being further away from family also aren’t compelling reasons to introduce a child into the world.

Of course, having fewer or no children is not necessarily bad if it’s purely a personal preference.

But it’s an issue if younger generations are being barred from having kids because of external pressures.

A drop-off in the number of children is also consequential for older Australians as they enter aged care and make more hospital visits. Not only does it limit the number of future health and aged care workers, but it also means there will be fewer workers to tax to pay for these essential services.

Yetsenga also points out full-time work weeks were designed when it was common to have someone at home to do most household chores and child-rearing.

She raises questions about whether a childcare system where children need to be picked up at 3pm is fit for purpose, especially at the same time as there is a big push to make office attendance mandatory despite most young people explicitly saying this isn’t what they want and that they require flexibility.

These are all things we need to act on. But chief among them is the housing market.

As the report notes, there is support across the political spectrum aimed at helping first homebuyers, but the “fixation on short-sighted political wins” fails to fix the biggest barriers.

The problem is that most of these barriers are in place to protect the interests of existing property owners at the expense of those who just weren’t born early enough.

Zoning laws, for example, which place restrictions on density in certain areas, are largely put – and kept – in place by homeowners who want to protect the value of their property or gatekeep their suburbs from apartment blocks and construction. Understandable … if we weren’t facing a housing crisis.

Then, there are the even more baffling tax concessions we provide to investors (including those with multiple properties) which incentivise them to treat housing as a wealth-building tool.

The capital gains tax discount – where only 50 per cent of the profit from the sale of a property held for than 12 months is taxed – is far too generous, especially for existing dwellings, and makes it more difficult for first homebuyers to get a foothold in the market by pushing up demand and therefore property prices.

For many young people, the only ticket out of financial insecurity and renting is money gifted to them by family.

At the very least, we need longer rental contracts to give renters the reassurance they can establish their roots in a place without fear they’ll be ripped away within months. It would also save many of them days or weeks every year worrying, searching for a new lease, inspecting and applying for rentals, and moving their belongings.

Young people today are the first generation at risk of being stuck with living standards below that of their parents and grandparents. For those who say they had it harder back in the day, too: we shouldn’t be aspiring for that.

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We have arrested the development of our young

I hope you’re not among those silly people who concluded last week’s economic reform roundtable was just a talkfest that will lead to nothing concrete. Breaking news: we have to get together and talk about things before we agree on what our biggest problems are and what we will do about them.

Lots of bits and pieces came out of the roundtable, but by far the most important thing was universal agreement that something had to be done about “intergenerational inequity” – an economist’s way of saying that our young people have been getting a raw deal.

This came after Danielle Wood, the boss of the Productivity Commission, drew on its research to warn we were in danger of breaking Australia’s generational bargain – that our children will live better lives than their parents, as their parents did of their own parents.

Economists, naturally, see this largely in terms of reforming our system of taxes and benefits. The independent economist Saul Eslake summarises this by saying that our tax system “imposes a disproportionately high burden on younger working Australians, and a correspondingly lower burden on older, asset-rich Australians”.

Much of this disproportionate burden is accounted for by a problem we all know about – young people’s inability to afford a home of their own unless they have considerable help from their parents.

But a report to be released on Wednesday by Deloitte Access Economics reveals there’s much more to it than that. (The report has been prepared by Deloitte’s own young people.)

It says there has been an unprecedented shift in how young people under 35 work, vote and live. They’re navigating a version of adulthood that feels less like a rite of passage and more like a locked door.

The Hungarian sociologist Karl Mannheim argued that the economic and social conditions of our youth leave a lasting imprint on collective values, expectations and behaviour.

“Through this lens,” the report says, “Millennials and Gen Z are not merely younger versions of ourselves. They are products of their own formative experiences. The greatest mistake is to assume today’s young people are simply behind because they are young – and that, with time, they will catch up.”

Today’s young Australians are more educated than any generation before them, the report says, yet they face more insecure work and delayed financial independence. They are the first generation to live entirely online, and yet they report rising loneliness.

“They show up for issues and are determined to find balance, but remain locked out of the systems their parents helped to build.

“When the rules were written before they arrived, and the road ahead offers little promise of change, it is no wonder young people feel sidelined. In fact, 42 per cent of young Australians (18 to 24) feel they are missing out on their youth, and 41 per cent worry they won’t be able to live a happy and healthy life as they grow older,” we’re told.

Deloitte has used the census results for 1991 and 2021 to see how people aged 25 to 39 have changed between the Baby Boomers and the Millennials.

For a start, Millennials are better educated. The proportion of young people with post-school qualifications has gone from just under half to almost 80 per cent. The proportion of women with bachelor degrees has gone from one in eight to one in two.

Next, today’s young people are less likely to be married. The proportion which has not yet married has doubled from 26 per cent to 53 per cent. The median age at which the young marry has risen from 27 to 34. And whereas the proportion of 25- to 39-year-olds living as a couple used to be just over half – now it’s one-fifth.

Thanks to better economic management, the rate of unemployment among older young people has more than halved, falling from 8.4 per cent to 3.5 per cent.

The proportion of people with bachelor degrees whose earnings are in the top 15 per cent has risen from 38 per cent to 65 per cent. This may be because more of the female graduates have jobs and are working full-time. We know that the rate of participation in the labour market for all women has gone from almost two-thirds to more than three-quarters.

Now we get to home ownership. We know Millennials are likely to be better educated, more likely to be working and more likely to be in well-paid jobs but, even so, are less likely to be home owners. Whereas 66 per cent of Boomers aged 25 to 39 were home owners, for Millennials, it’s down to 55 per cent.

And whereas by that age, 19 per cent of Boomers owned their home outright, it had fallen to just 6 per cent for Millennials.

Elsewhere, we’re told that the younger generations are having children later, and more than half say they’re unlikely to have children.

The report argues that today’s young Australians are fundamentally different from previous generations, noting that they’ve grown up amid intensifying globalisation, a climate emergency, the rise of social media and now generative AI. Those young enough to have been at school during the COVID lockdowns had their educations significantly disrupted.

The report tells us how much a rapidly evolving labour market and financial instability are narrowing young people’s opportunities for economic prosperity. The way they see it is that the system has persistently moved the goalposts: you stay longer in education, you take longer to earn good money and longer to afford to buy a home. You marry later and have kids later (and maybe don’t have time to have as many as you’d have liked).

Little wonder the report tells us young Australians feel sidelined and unheard by political decision-makers, with only one in three trusting the federal government to do the right thing.

The way I’d put it is that, by our neglect, we’ve allowed our young people to suffer a bad case of arrested development. But thanks to the roundtable, I think we may be ready to do something to give the young a fairer deal.

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Don't let rich old men tell you the planned super tax is terribly bad

Would you want Australia to become more like America? How on Earth did so many Yanks vote to reinstall a crazy, destructive leader such as Mad King Donald? If we don’t want to become more like them, it’s worth thinking about how it happened, so we know what not to do.

Americans brought Trump back for two main reasons. First, extreme partisanship. Many registered Republicans voted for him because, no matter how bad he was, he couldn’t possibly be as bad as a Democrat president would be. But second, I suspect many Americans voted for him because they’d become so disenchanted with the way the country was run, felt so mistreated and estranged from the rest of America, that they wanted to give the system a big kick up the backside.

It wouldn’t do any good; Trump was no more to be trusted than any other politician, but it would make the outcasts feel a bit better.

I worry that if we go on the way we have been, we could end up with a section of our own community that was so peed off it wanted to kick against the pricks (excuse my language; not all politicians deserve that description). And it’s a mighty big section to have on the outer – the young. Everywhere they look, the young feel discriminated against.

Most of the older generation bought homes when they were affordable, but now they’re unaffordable. At work, they get paid much less than most older workers. And while their parents paid nothing for their tertiary education, they’re hit with huge HECS debts.

The young are right to feel ill-treated. Our system of tax and welfare benefits is biased in favour of the elderly and against the young.

Many people on the age pension benefit only to the extent that their paid-off home is ignored in means testing. Many self-proclaimed “self-funded retirees”, however, are doing very well for themselves.

It’s possible for a young family on, say, $150,000 a year, to be paying a lot of income tax, while a well-off retired couple on the same income pays very little.

The Albanese government is already facing annual budget deficits for at least the next decade, adding to the annual interest bill on our growing public debt. If we’re going to be spending more on defence and many other things, it will have to raise more in taxes.

How? Well, the nation’s chief executives in the Business Council of Australia helpfully suggest an increase in the GST. But it would be fairer if the government started by reducing the tax concessions and loopholes used mainly by the well-off.

And that brings us to the massive tax concessions attached to superannuation, which cost the government almost $50 billion a year in lost revenue. The concessions are worth far more per dollar saved to high income-earners than lower earners.

But they also favour the old rather than the young. The old earn more than the young, find it easier to save, and get the benefit from super sooner than the young. That’s why, in the government’s efforts to collect more tax, fixing the super concessions is a good way to reduce the tax system’s bias against the young.

Two-thirds of the value of super tax concessions go to the top 20 per cent of income earners. The concessions are intended to ensure people have enough income to live comfortably in retirement, but a fifth of withdrawals from super go as bequests to the superannuant’s children.

Treasury estimates that the share of withdrawals going as bequests will rise to a third by 2060. In other words, the concessions are so great that super has become a taxpayer-subsidised inheritance scheme. Meanwhile, other taxes must be higher to cover the cost of this inheritance scheme.

Treasurer Jim Chalmers intends to press on with a super tax measure he announced two years ago, but hasn’t yet been passed by the Senate. The plan is to increase the tax rate on super annual earnings for balances exceeding $3 million from 15 per cent to 30 per cent. The tax would apply only to the amount above $3 million.

The change will affect just the top 0.5 per cent of people with super – only about 80,000 people (including me). It would save the government more than $2 billion a year.

But the people affected by the change – mainly rich men – have put up an almighty resistance, portraying the measure as utterly iniquitous and – would you believe – unfair to the younger generation. “I’m not opposing this for myself ...”

However, the proposal has had strong support from the Australian Council of Social Service and the Grattan Institute.

The claim that the proposal would harm the young rests on the government’s intention not to index the $3 million threshold. If you left it unchanged forever, inflation would eventually cause the higher tax to apply to all the young.

Sorry, this is fanciful. There will be plenty of time to raise the threshold before then. Meanwhile, it will just apply to more, but slightly less-rich, old men (and a very few rich old women).

The other claim is that the extra tax would apply not just to interest and dividend income but also unrealised capital gains. This is true, but not as iniquitous as the protesters claim. It will mainly affect self-managed super funds.

It’s a messy way to tax earnings, but it’s difficult to avoid administratively because the existing 15 per cent tax on earnings is imposed on the fund, not its individual members.

Taxing capital gains that haven’t yet been realised may mean the tax has to be covered by money taken from elsewhere, but most people this well-off have plenty of money outside their super funds.

So, don’t believe it. These rich people just don’t want to pay more tax, and, as usual, are hunting around for the best counter-arguments they can find. I can afford to pay it, and so can they.

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Ross Garnaut: Prophet with a sunny view of our better future

Economist Paul Krugman’s endlessly repeated maxim that “productivity isn’t everything but, in the long run, it’s almost everything” has deluded far too many of the economics profession’s conventional thinkers.

It’s a throwaway line that should be thrown away.

It implies that any economic objective other than improved productivity is hardly worth worrying about. Such as? Distributional fairness aka “intergenerational inequity”. Tell that to the 40 per cent of voters under 40, and see how far you get.

It implies that the structure of our economy never changes, nor does the planet we live on. So the single-minded pursuit of improved productivity will somehow either stop climate change or magically deliver us a zero-carbon economy without any need for government intervention.

Or maybe the proviso “in the long run” is saying that our great, great-grandchildren will be able to look back on the clean-energy transition as little more than a blip. What a pity we live in a succession of short runs, not the long run.

A more realistic view is that, should the world fail to stop climate change, life will become almost unlivable, much of the economy will be stranded assets, and every spare cent we have will be spent shifting from one part of the country to another, and on buying hugely expensive water and permanent air conditioning.

A less cataclysmic future would see climate change get a lot worse before the major economies finally got their act together and ended the use of fossil fuels. This, of course, would lead to much unemployment in our coal and gas industries and much loss of export income.

Our future, no matter which way you envisage it, doesn’t sound very inviting. Much of our “natural endowment” of coal and gas deposits will be worthless and our “comparative advantage” in flogging them off to other countries will have disappeared. Do you still believe our government should be only worried about improving productivity?

What we need is some sort of economist prophet who can help us overcome this existential threat, not an army of blinkered economists telling us all that matters is raising our material standard of living.

Fortunately, among the profession’s abundance of unproductive thinkers is a lone prophetic, and so productive, thinker, Professor Ross Garnaut, who sees not only how we can minimise the economic cost of the transition to clean energy, but also what we can do for an encore. What we can do to fill the vacuum left by the looming collapse of our fossil fuel export business (which, by chance, happens to be our highest-productivity industry).

Because economists are such incurious people, Garnaut seems to have been the first among them to notice that, purely by chance, Australia’s natural endowment also includes a relative abundance of sun and wind.

Until now, we thought these were non-resources and of little or no commercial value. It took Garnaut to point out that, in a post-carbon world, they had the potential be our new-found comparative advantage. To provide us with a whole new way of making a bundle from exports, while generating many new jobs for the miners to move to.

When you add the possibility of structural change to the rules of conventional economics, you get what’s a scary thought for many economists: maybe our natural endowment isn’t ordained by the economic gods to be unchangeable through all eternity.

Maybe there are interventions fallible governments should be making to move our economic activity from one dimension of our natural endowment to another. Maybe such a switch is too high-risk and involves too many “positive externalities” (monetary benefits than can’t be captured by the business doing the investing) for us to wait for market forces to take us to this brave new world.

Maybe changing circumstances can change the nature of our comparative advantage in international trade, meaning the government has to nudge the private sector in a new direction.

It was Garnaut who first had the vision of transforming Australia into a “Superpower” in a world of ubiquitous renewable energy. And it was he who uncovered the facts that made this goal plausible.

Exporting our fossil fuels is cheap, whereas exporting renewable energy would be much more expensive. So whereas it was more economic to send our coal and iron ore overseas to be turned into steel, in the post-carbon world it soon will be more economic to produce green iron and other green metals in Australia and then export them.

In a speech last week, Garnaut acknowledged that, in its first term, the Albanese government began to lay the policy foundations for the Superpower project. The economic principles are set out clearly and well by Treasury’s “national interest framework” for A Future made in Australia, released after last year’s budget, he says.

The re-elected Albanese government has already restated its commitment to the project. Garnaut says there’s much more for the government to do in creating the right incentives for our manufacturers to re-organise and expand.

Research sponsored by his Superpower Institute finds that Australian exports of goods embodying renewable energy could reduce global emissions by up to 10 per cent. So we can contribute disproportionately to global decarbonisation by supplying goods embodying renewable energy that the high-income economies of Northeast Asia and Europe cannot supply at reasonable cost from their own resources.

This would “generate export income for Australians vastly in excess of that provided by the gas and coal industries that will decline as the world moves to net zero emissions over the next few decades”.

Garnaut concludes: “The new industries are large enough to drive restoration of growth in Australian productivity and living standards after the dozen years of stagnation that began in 2013.”

The present fashion of obsessing with productivity improvement for its own sake is counterproductive and probably won’t achieve much. We should get our priorities right and focus on fixing our most fundamental problems – unfairness between the generations, action on climate change and fully exploiting the opportunities presented by our newfound strength in renewable energy – and let productivity look after itself.

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Our politicians aren't acting their age. That's a good thing

By MILLIE MUROI, Economics Writer

If I told you someone, especially a politician, wasn’t acting their age, you might safely assume that’s a bad thing. What childish behaviour have they indulged in this time, you might ask.

But this week, it’s a compliment. The fountain of youth still evades us, and there’s no great anti-ageing commission – AAC, not to be confused with the ACCC – on the way. But the focus in Canberra has switched, at least for a minute, to something that’s flown under the radar for too long.

Treasurer Jim Chalmers on Thursday – at last – said something a lot of us, especially young people, have lived and known well: “there is an element of intergenerational unfairness in our economy”.

The culprit? A three-letter word that sends most of us to sleep, but here it is: tax. No one really likes it, but there’s a collective understanding – served with a hearty side of grumbling – that it’s a necessary part of our economy.

A good tax system, however, is supposed to be fair. And it’s meant to make our country fairer, too.

Tax as it stands now stacks the cards against young people: the very people we need to be supporting to become the backbone of our economy – including hospitals, aged care homes, and schools – as the rest of the country ages.

What’s unfair about our tax system? Didn’t generations before us get put through the same wringer? Well, not really.

If our economy is a board game, the rules have changed. So has the starting point for our newest players.

Young people today graduate from university or TAFE with bigger study debts than their parents had, face house prices more than 16 times the average household income (rather than nine times the average household income 25 years ago) and wages that have only started clawing back losses from inflation in the past year.

To then have a tax system that pulls the ladder out-of-reach of young people is bad – for all of us.

Grattan Institute chief executive Aruna Sathanapally, in a speech last week, put it like this: “Intergenerational equity is not a zero-sum game.”

We may never have it perfect, but it needs to be fair. Who wants to play or work hard in a game where your winnings are constantly whisked away?

But that’s what’s happening. Our tax and spending policies are leading to “unprecedented transfers from younger households to older households”, Sathanapally says.

Analysis from Grattan in 2019 showed a working-age household earning $100,000 would pay about 2½ times as much tax as a household over 65 earning the same amount.

While households over 65 have grown their income, they’ve also been shielded from paying their fair share of tax. That’s thanks to a bunch of policies that have ground down taxes for some types of income but not others.

If you’ve held an asset – such as an investment property – for at least a year, you could sell it and get 50 per cent off the tax you pay on its capital gains. If you bought the property before 1985, you’d pay no tax at all on your (probably very handsome) profit.

And if you’re drawing down on your super, it’s tax-free to withdraw after the age of 60 (after being taxed at a concessional rate of 15 per cent while you’ve been contributing to it).

But most young people don’t own a property they can sell – or even live in – and would have missed out on the windfall gains of the past few decades that have seen house prices shoot through the roof. And withdrawing from super isn’t really an option.

A bulk of young people’s income comes from wages that attract no tax discounts. And as our population ages, our reliance on taxing wages will probably worsen.

Why can’t young people just work their way up to things such as home ownership? Well, it’s a tough ask to save for a deposit when, on top of income tax, young people are paying off huge study loans and facing rents that have risen much faster than inflation or wage growth.

Income taxes have ballooned as a share of our economy – from about 8 per cent of gross domestic product (GDP) in the early 1960s to 14 per cent in the 1980s, and more than 18 per cent in 2023. And while in the 1950s, income from “personal exertion” – or wages – was subject to lower tax rates than income from investments, there’s now no such distinction.

In fact, those who invest in housing can be negatively geared, meaning if they make a loss on their investment property because the rent they earn on it is less than the costs of owning the property (including interest they pay on their mortgage), they can reduce their taxable income. That’s even if the property is quietly growing in value.

At the same time, zoning rules are pushing young people to the edges of our cities, further away from their work and study, and pushing up house prices in leafy suburbs.

The upshot of all this is that young people are having a harder time than older generations – so much so that the generation born in the 1990s, aged between 25 and 34 today, are the first not to enjoy higher incomes than their predecessors.

And according to Grattan, the wealth disparity between older and younger Australians has worsened. In 1994, those aged 65 to 74 had about three times the wealth of those aged 25 to 34. By 2020, that gap had increased to nearly five times.

While not all older Australians are wealthy, it was mostly older, wealthier households that continued saving and spending on discretionary items as inflation and interest rates spiked in the past few years. Younger Australians mostly cut back on spending and drained their savings.

It’s only recently that politicians have paid more attention to the plight of young people. That’s probably because, despite nearly 40 per cent of our population being aged under 40, fewer than 10 per cent of our federal MPs fit that bill.

Independent MP Allegra Spender this week launched her green paper on tax, pointing out that younger Australians were being left behind, unable to grow their financial security in line with other generations. “This creates a society of haves and have-nots, where your family wealth, and access to the bank of mum and dad, is essential to get ahead,” she said.

If we want a society that gives everyone the chance to work hard and get ahead, and move away from a game determined by a roll of the dice on who our parents are and how much wealth they can pass on to us, we need to shake up our tax settings.

It’s been a long time coming, but if our policymakers can step into the shoes of younger Australians and speak for their interests – as they’ve started to do – we’ll all be better off.O

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