The Generation Gap: A Deep Dive into Australia's Intergenerational Disparity
The narrative of the generation gap is a complex and multifaceted one, and Australia is no exception. It's a story of shifting demographics, evolving social attitudes, and the interplay of economic forces that shape the lives of young people. But how big is this gap, and what does the evidence tell us about its causes and consequences?
In my opinion, the generation gap is not just a matter of numbers, but a reflection of the broader societal changes that have unfolded over the past few decades. It's a story of the baby boom, the rise of women in the workforce, and the impact of housing affordability on the younger generation. But it's also a story of wealth inequality, the role of inheritance, and the challenges of intergenerational equity.
The Baby Boom and its Legacy
The baby boom of the 1950s and 1960s set the stage for a generation gap that has played out in many advanced countries. This period of prosperity led to a large generation, followed by smaller ones, resulting in a 'greying' of rich countries. Migration has offset this to some extent, but health improvements have also meant longer lives and a demographic 'bulge' of retirees.
The consequences of this are far-reaching. In 1975, there were seven working-age people for every retiree, but today, that ratio has dropped to four. This leaves fewer working-age taxpayers to fund services for a greater number of retirees, who also have higher health and care costs. It's a strain on the 'social contract' that has implications for the future of public finances.
The Wealth Divide
Wealth is another critical part of the puzzle. A pair of papers by the Grattan Institute in 2014 and 2019 highlighted the growing wealth disparity between young and old. While the wealth of older households had grown 50% in the early 2000s, wealth for those under 35 barely moved. This is largely due to the growth in house prices and the introduction of compulsory superannuation.
The authors warned that millennials risked 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 reached a more sceptical conclusion, finding that while income growth had slowed for people in their 20s, it had remained stronger for those in their 30s and 40s. This is a case of 'delay rather than decline'.
The Housing Theory of Everything
Housing is a central theme in the generation gap story. In the last 25 years, house prices have grown roughly fivefold while incomes have roughly doubled, making both deposits and mortgages more expensive for young people. This has given older home-owners a windfall, which they can pass on to their children. The Grattan Institute and e61 found that older Australians were holding onto their wealth or even increasing it in retirement, further exacerbating the wealth divide.
The Role of Inheritance
Inheritance is another factor that contributes to the generation gap. The Grattan Institute argued that the combination of inheritances and the 'bank of mum and dad' would exacerbate inequality, finding that the biggest cross-generation transfers tended to go to the already wealthy. e61 reached a similar conclusion, arguing that inheritances turn an intergenerational problem into a problem 'within the next generation' because it would 'flow unevenly'.
The Capital Gains Tax and Negative Gearing
Economists are divided on whether changes to the 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. The government is expected to grandfather changes to both negative gearing and the capital gains tax, at least in part, in next week's budget.
In my opinion, the generation gap is a complex and multifaceted issue that requires a nuanced understanding of the economic, social, and cultural forces at play. It's a story of shifting demographics, evolving social attitudes, and the interplay of economic forces that shape the lives of young people. But it's also a story of wealth inequality, the role of inheritance, and the challenges of intergenerational equity.
The way forward lies in addressing the underlying causes of the generation gap, such as building more housing, updating policy settings, and ensuring that the tax system is fair and equitable. It's a challenge that requires a collaborative effort from policymakers, economists, and the broader community to create a more just and equitable society for all generations.
