For the first time in centuries, we're setting up a generation to be worse off than the one before it

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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.

It’s not young people’s spending habits that are the problem – this is not a story of too many avocado lattes (and yes, they are a thing).

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.

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.

Our generational bargain is at breaking point
Budget pressures will exacerbate these challenges.

Australia’s tax and welfare system supports an implicit generational bargain. Working-age Australians, as a group, are net contributors to the budget, helping to support older generations in their retirement.

They’ve come to expect that future generations in turn will support them.

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 (some generations will always be larger than others) but policy changes are making the burden worse.

Read more: Expect a budget that breaks the intergenerational bargain, like the one before it, and before that

A series of tax policy decisions over the past three decades – in particular, tax-free superannuation income in retirement, refundable franking credits, and special tax offsets for seniors – mean we now ask older Australians to pay a lot less income tax than we once did.

Disturbingly, these and other changes mean older households now pay much less tax than younger households on the same income.

Added to this have been substantial increases in average pension and health payments for households over 65.

It has meant that net transfers – government benefits minus taxes – have dramatically increased for older households but not for younger ones.

The overall effect has been to make current working Australians increasingly underwrite the living standards of retirees.

A typical 40-year-old today contributes much more towards the retirement of others through taxes than did his or her baby boomer predecessors.

As it happens, it is also more than the typical 40-year-old is contributing to his or her own retirement through compulsory super.

This can’t be what Australians want
Most Australians want to leave the world a better place for those that come after them.

It’s time to make sure we do it.

Lots of older Australians are doing their best, individually, supporting their children via the “Bank of Mum and Dad”, caring for grandchildren, and scrimping through retirement to leave their kids a good inheritance.

These private transfers help a lucky few, but they don’t solve the broader problem. In fact, inheritances exacerbate inequality because they largely go to the already wealthy.

We need policy changes.

Reducing or eliminating tax breaks for “comfortably off” older Australians would be a start.

Read more: Migration helps balance our ageing population – we don’t need a moratorium

Boosting economic growth and improving the structural budget position would help all Australians, especially younger Australians. It would also put Australia in a better position to tackle other challenges that are top of mind for young people, such as climate change.

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.

Every generation faces its own unique challenges, but letting this generation fall behind the others is surely a legacy none of us would be proud of.

It’s time to share the burden, and perhaps an avocado latte while we’re at it.The Conversation

Kate Griffiths, Senior Associate, Grattan Institute and Danielle Wood, Program Director, Budget Policy and Institutional Reform, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Do you agree with these suggestions? Do you accept the notion that you had it better than younger generations? Is it fair to say that once super fully matures, the ‘burden’ of supporting retirees will ease? Have your say in the comments below.

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Written by The Conversation


Total Comments: 118
  1. 0

    Where is the comparison of Interest Rates To Earnings in Relative Terms Through The Past Eras.
    Especially in the 1990’s when interest Rates were 16% plus for home occupier and 28% for investment home loans.
    Each Era has there Own Peculiarity, just like the one before Baby Boomers.

    • 0

      “Every generation faces its own unique challenges, but letting this generation fall behind the others is surely a legacy none of us would be proud of”

      But,” letting”? – What’s that got to do with us baby boomers? We didn’t let this generation fall behind….,they fell behind themselves with the help of current and previous government!!!!!

    • 0

      Baby boomers built this country, they paid taxes and raised the generation who are now in their 40s.
      Many boomers are now either paying x their own pension, getting a part pension or, a few of them, msy be getting a full pension. Most of us boomers r still helping our ’40 y.o. “kids” and even their kids.

    • 0

      Blinky, not all boomers have kids in their 40s, mine are still in their 20s. Reality check however, there is no prize for having paid taxes or raising kids. Your taxes helped to build the country we enjoy.

  2. 0

    So sorry to be such a burden as I age…….after all I only worked from the age of 15, paid taxes every week, was a nurse and later a social worker, helping many people. I would have loved to be self-sufficient in my retirement, but unfortunately have had to rely on the Age Pension…..lost a lot of money following an assault, and marriage break up. I have done my best not to be a burden. I am sad for the coming generation, but please don’t blame ours

    • 0

      Well said Patti! I think comparing one era with another is fruitless as entire sets of circumstances change. Furthermore setting up intergenerational resentments helps no-one. Although they don’t specifically do that, it’s in the tone.

    • 0

      Maybe we should just start an Age War, and see how many Twerps survive it…

    • 0

      Soooo much in the ‘report’ is erroneous and deliberately inflammatory that it angers me with its obvious intent !! The real worry is that there are many self-indulgent folk out there who DON’T know the agenda of the Grattan Institute and will believe the crap and vote accordingly at the next election 🙁 SURELY there wouldn’t be a political ‘movement’ behind this sort of garbage ?? Nah, yeah !!!!

    • 0

      “Today’s 40-year-olds are paying twice as much to support retirees than boomers did at the same age”

      They maybe paying twice as much as we did but, our dollar back then was worth twice as much, if not more, as it is now.

    • 0

      Stop pointing the finger at the baby boomers! We’re getting sick and tired of being oppressed and bullied by the “me,me,me younger generation mob”. If they can’t afford their dope, smack and cocaine they should rehabilitate and work harder like we used to.

    • 0

      Could it possibly be that Grattan is Spanish for garbage? The grattan Institute certainly produces enough of it.

    • 0

      No TREBOR. Not many would survive. You’d get them easily enough while they are mindless, blind and deaf to all but the phone.

      Grattan is all about taxing saving people. They are an ALP think tank like the LNP have the IPA.

      Strangely the IPA like the idea of destroying the middle class saving cohort. We want consumers buying avocado lattes and dresses to throw away after Saturday night wear. Not savers buying homes or shares or bonds . That’s for the wealthy to get wealthier.

  3. 0

    There are too many averages and variables for true comparison.
    How about looking at the service length – show me someone under 35 who has been at the same employer/job for more than 10 years. We all did well with long service leave/payments, unheard of these days. Interest rates are another variation (ref Chris BT). We also did more with less, and expected less – maybe we had a TV, rather than one in every room plus computers, and one phone, rather than 1 each. Our houses were smaller and cheaper to heat/cool, and we did not have the temptations of more recent times.

    We need to think about our overpopulation as well. It might be a good thing to allow the population to decrease as us oldies die off. Oh sorry, it’s “Jobs and Growth”, isn’t it!

    Aah! the simple life! Maybe we also thought about the future a bit more?

    • 0

      The old Morris Minor ran just as good as the Land Cruiser, too… third or fourth hand, of course..

    • 0

      It is mostly the younger generation that are in favour of a host of green restrictions that are greatly restricting prosperity generated by growth.

      Victoria & NSW won’t allow harvesting of new natural gas in their states, or even exploration to find what’s there, while complaining about the cost of gas from the northern states. The same goes for a host of wealth producing activities.

      They can’t have it both ways, restrict growth with too much greenery, & they nhen have no right to complain they aren’t well off.

      Perhaps if they reduced access to welfare of their own single parents & dole bludgers, there would be more for those who paid for the infrastructure they now enjoy..

  4. 0

    What a rediculous statement to suggest we baby boomers are the cause of the younger generations woes. We all did it tough over our working lives, scrimping and saving every penny to get ahead, and paying off our mortgages at much higher interest rates. Most of us have paid into superannuation during our working lives and now are at a stage of enjoying retirement. We baby boomers are subjected to all the economic and financial pressures as the younger generation, and most investors are affected by the low interest yielding accounts, and any down turn in the stock market. The Federal Government knew the day that the baby boomers were going the retire was coming, and should have prepared for it by now. And you can’t tell me the OAP has increased that much over the years. Anyone relying on the OAP alone would be doing it tough. I take offence to the suggestion we baby boomers are a burden on the younger generations

  5. 0

    I used to often look around the bus on a cold morning heading to work and inwardly laugh at the usually majority of women who back when I was a kid in he 50s would have been home as a housewife most likely looking after their children… yes; people had time to have children then lol.

    • 0

      However the government/society now works out their budget on dual income families. Women have to work and the children do miss out. It has made it exceeding hard for a single income family to even rent.

    • 0

      You had a bus? We walked to school in freezing cold or scorching hot…

    • 0

      Rosret, it does my old heart good to see others now taking up the cudgels over the MADIF – the Mandatory Dual Income Family, which I’ve been discussing now for over 25 years.

      Good to see sense steadily pervading into discussion instead of the normal BS that passes for discussion, the garbage about ‘rights’ and ‘independence’ etc, theoretical BS designed by overpaid ‘academics’ etc.

      Was watching Gandhi again last night, and there was a beaut phrase about hunger etc being terrific evils or something (missed it – just occurred to me now) – when a MADIF cannot make ends meet, something is terribly wrong… and social and economic divides get worse and worse.

  6. 0

    It just shows that statistics can be bent to support any argument. We baby boomers worked hard, paid our taxes and most of all saved as much as we could. Successive governments on the other hand have failed to save and provide the necessary funds to adequately provide the pensions etc that we are quite correctly entitled to. Even now the current government is quite happy for younger people to go into massive debt in order to spend, spend, spent .. supposedly to save the economy! Of course the prevailing attitude of many younger people to want it now rather than save to get it is not helping them to move forward. I worked from the age of 12 part time, studied hard on scholarship and now enjoy a reasonable lifestyle with no government support whatsoever. Just as well that my health remains good at age 80, as the government funded aged care system is useless except as a great money maker for the private providers.

    • 0

      You mean these people don’t actually know how to put statistical derivations into perspective and context?

      Who’d ‘ve thunk it?

      There is an argument that goes on and on – “Most terrorist acts in the US are not carried out by Muslims” – not – not at all – it’s just that the Muslim 2% of the population carry out 26% of terrorist acts….

      Get my drift? It’s called ‘spin’….

  7. 0

    We saved hard for our first home which was an old weatherboard. We decorated and maintained it over the 11years we lived in it and moved to a better house as we saved more and paid down the mortgage and again to the current one. We started with almost no furniture too. We didn’t for a minute expect to buy a new house and new furniture to fill it and add overseas holidays as well.
    Structural financial changes have been a two-edged sword for younger generations, allowing a much higher percentage for the loan to income ratio. And the perceptual shift from a home being a home to a home being an investment instrument is problematic too.
    It’s far more appropriate to look to current structural impediments that younger generations face and seek to improve them (as this article suggests too) than to pit one generation against another. Every generation has its benefits and difficulties. It’s almost always overlooked that seniors contribute billions of dollars by volunteering, not least in baby care for their grandchildren thus enabling their children to participate directly in the economy of this country. I really think this Grattan report should be picked apart!

    • 0

      .. and seniors continue to pay taxes….. and their contribution from government to retirement goes back into the economy .. something that the annual Bali holiday does not…

  8. 0

    I am absolutely gobsmacked when I read such hate articles. Exclude the $ numbers and it immediately becomes obvious that each generation has a better life quality than their predecessor. Direct $ comparsion between generations is meaningless. cheers

    • 0

      Yes I though there were laws against hate speech and bigotry. Obviously not when it is against the elderly and especially home owning older people.

      Grattan keep writing these bigoted ageist articles and research that is biased and which doesn’t actually compare at all.

      My grandkids are much wealthier than I was at that age.

      They have 10 x the clothes and shoes.
      They have TVs in their rooms and laptop computers and phones . I had a tiny crystal set radio. We had no TV at all.
      They go on overseas holidays and weekends in city hotels. I went to camp once with sport and rec.

  9. 0

    It would have been really good if the Government had put the brakes on the housing boom. However so many people think its fantastic that their home has increased in value.
    So the pyramid get rich scheme eventually crumbles – which it has its just only the young are affected thus far.

  10. 0

    The authors at the Grattan have failed to look at a big enough picture and have not considered implications that have much more far reaching effects on our Australian lifestyle for all age groups.

    Making policy recommendations in isolation without the full picture is irresponsible. There is so much more to consider that I will not elaborate here. The researchers should know better and need to go back to the drawing board. I shudder to think what would happen if Government relied on this short-sighted information.

    2 out of 10 for effort and wasting our time.

    • 0

      It is the Grattan Institute – they are always skewing data to come to a simplistic evaluation. Or perhaps the author of the article interpreted the data to come up with a generalised conclusion.

      Nevertheless I have no idea how 20 year olds will ever be able to afford a $1m home. When they do because inflation it make it so then our superannuation portfolio will be worthless.
      I just hope Treasury is keep an eye on the big picture. (but I doubt it)

    • 0

      Just part of the propaganda machine, Brian – slowly raising the water temperature for the frogs…. all a carefully orchestrated plan…

      Treasury is a bat that has lost its radar …

    • 0

      Another silly ALP sponsored nonsense like the franking credit stupid thing they did. No though. Pick on one group, savers. They have the money,.

      Kevin Rudd caused this by allowing foreign wealthy to buy up our homes. They still are. How do our kids compete with the world’s multi millionaires?

      All this will do is allow foreign Corporate landlords in to buy up housing and the young will never ever get a home.

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