The generation gap is a complex and multifaceted issue, and Australia's situation is no exception. While the country's prosperous years of the 1950s and 1960s led to a 'baby boom', the subsequent shifts in social attitudes and the rise of women in the workforce have had a profound impact on the lives of younger generations. The result? A 'greying' of rich countries, with migration and health improvements offsetting the aging population to some extent, but also leading to a demographic 'bulge' of retirees and a strain on the 'social contract'.
The federal government's Intergenerational Report in 2002 highlighted the challenges ahead, predicting that a steadily aging population would place significant pressure on Commonwealth government finances and increase the tax burden on the next generation. This prediction has indeed played out, with a smaller number of working-age people funding services for a larger number of retirees, who have higher health and care costs. The net contribution of working-age people to the budget has increased, while the net flow to retirees has grown dramatically, further exacerbating the generational divide.
The Grattan Institute's papers in 2014 and 2019 shed light on the growing wealth disparity between young and old, with older households' wealth growing 50% in the early 2000s, while wealth for those under 35 barely moved. This disparity is largely driven by the growth in house prices and the introduction of compulsory superannuation. The authors warn that millennials risk being the first generation in a century to emerge from young adulthood with lower incomes than the one before it.
However, research by the e61 Institute based on more recent data presents a more nuanced view. It finds that while income growth has slowed for people in their 20s, it has remained stronger for those in their 30s and 40s, suggesting a case of 'delay rather than decline'. The authors argue that the most important factor is whether Australia's economy keeps growing, and that the question is not whether a particular generation does better or worse than another, but whether the system itself still works in a different economic environment.
The Grattan Institute and e61 also highlight the role of inheritances and the 'bank of mum and dad' in exacerbating inequality, particularly in housing. House prices have grown roughly fivefold in the last 25 years, while incomes have roughly doubled, making deposits and mortgages more expensive for young people while giving older home-owners a windfall. Older Australians are also holding onto or increasing their wealth in retirement, further passing it on to their children.
The ANU academics find housing to be a significant contributor to the growing generation gap, coming at the expense of younger Australians. They advocate for building more housing, a goal pursued by federal and state governments in recent years. Economists are divided on whether changes to capital gains tax and negative gearing will improve intergenerational inequality, but most agree that if the changes are grandfathered, any intergenerational redistribution will be undermined.
In conclusion, the generation gap in Australia is a complex issue with no easy solutions. While the evidence points to a range of challenges, from the strain on the social contract to the growing wealth disparity, it also highlights the importance of economic growth and policy settings in shaping the future for younger generations. As the debate continues, it is crucial to consider the broader implications and take a holistic approach to addressing the generational divide.
