Today's young Australians are unlikely to end up worse off than their parents, but Australia's fiscal system is squeezing them at the worst possible time, and a looming inheritance boom threatens to deepen inequality within their generation, new research by the e61 Institute has found.
Rising costs of living, soaring house prices and slow wage growth have fuelled concern that today's young people will be less well off than their parents. But the e61 Institute research released today finds that the picture is more complex than a simple story of generational winners and losers.
The report finds that while income growth has slowed for younger Australians early in their careers - partly because tertiary education rates have more than doubled compared to their parents' generation - it will likely remain strong later in life. Their wealth also looks much like that of earlier generations at the same age: they are buying homes later, but building larger superannuation balances over longer careers and are set to receive large inheritances.
The report found that the average inflation-adjusted income of a 35-year-old in 2023 was about $90,000, almost 80 per cent higher than the average 35-year-old in the late 1980s. The median household wealth of a 35-year-old in the latest available data was about $380,000, broadly in line with earlier generations at the same age.
"Intergenerational equity is one of the key themes of this year's federal Budget - but any simple story of generational winners and losers hides a more complex picture," said e61 Principal Economist Jack Buckley.
"The truth is that younger Australians are unlikely to be worse off than their parents over their lifetimes. Income growth has slowed early in their careers partly because young people are spending longer in education, but they are likely to see stronger earnings growth later in life.
"Younger generations are also accumulating wealth at a similar rate - they are buying homes later but building up bigger super balances over longer careers and, as a cohort, stand to inherit significant sums from their parents.
"The problem is not that younger Australians will end up poorer than their parents but that the fiscal system frontloads costs onto years when they can least afford them, including through the repayment of large HELP debts and forgoing 12% of their pay through compulsory super contributions, right when many are trying to save for their first home and start a family.
"The other big issue is what happens within the next generation. Older Australians are sitting on a windfall from rising asset prices, and most of that wealth will be passed down unevenly through inheritance. That inheritance boom will increase inequality within a generation in a way that's far more consequential than any gap between generations," said Mr Buckley.
The report notes that while some potential reforms, such as an inheritance tax or removing the CGT exemption on the family home, could help address these issues, they are politically difficult, administratively complex, and would permanently change the tax treatment of assets to capture what may be a one-off gain.
Instead, the researchers argue that the most practical option is an increase in the GST, which acts as a one-off wealth tax by reducing the real value of existing wealth as it is spent.
"An increase in the GST would capture this windfall as it is spent down, without requiring complex new wealth assessment infrastructure," said Mr Buckley. "Paired with higher benefits for low-income households and income tax relief, it could tap this windfall while better supporting those on low incomes.
"But behind all of these distributional questions sits a deeper issue: Australia's fiscal system was built for stronger productivity growth than we have now. The biggest thing we can do for younger Australians is embrace a pro-growth agenda."
