Inequities in the intergenerational transfer of funds and the fact the Boomers will live on and on, means young people can expect to inherit – if at all – by the time they’re in their 50s. Young people need to create their own cultural and economic revolution because what we are seeing is a staggering divide between the rich and poor based on age. This story is from the ABC business reporter Gareth Hutchens
In a recent speech, Guy Debelle, a former Reserve Bank deputy governor, said one of Australia’s big challenges in the next decade or two will be managing the huge transfer of wealth that will have to occur from older generations to younger.
“Superannuation and housing are possibly the ultimate embodiment of intergenerational issues in this country,” he said, as reported by the Australian Financial Review.
To meet the government’s housing target every year there will need to be infill land created about 26 times the size of Melbourne’s CBD across Australia.
Dr Debelle was talking about an issue the Productivity Commission raised in 2021. In its 2021 report, “Wealth transfers and their economic effects,” the commission said Australians had experienced strong growth in household wealth over the last 20 years, but it had been very uneven.
“The wealth of the average older Australian has grown remarkably since the turn of the century,” it said. “Retirees in particular have seen disproportionately strong growth in their wealth relative to younger people.
“Indeed, at a time where one would expect retirees to be drawing down on their wealth to fund consumption, their wealth has actually increased.”
The commission said housing wealth was driving the phenomenon, along with growth in superannuation balances.
“Older age groups own more housing wealth, they draw down on that housing wealth slowly, and they inherit large housing wealth from their partners in old age,” it said.
Reserve Bank research shows that since the 70s there has been a gradual increase in the share of income paid to capital owners and a falling share paid to workers.
The report said that while trillions of dollars in wealth would transfer from older Australians to younger Australians in the coming decades, the timing of the wealth transfer could create its own challenges.
“By the time people receive an inheritance, they will be well into middle age — about 50 years old on average — already established in their careers and housing, and many will potentially be nearing retirement themselves,” it said.
It kickstarted a national conversation about the need for wealth transfers to take place sooner, about the social benefits of older Australians downsizing their homes in retirement, and about the tax system generally.
But that was four years ago, and house prices have soared (again) in the meantime.
Baby boomers will bequeath trillions o younger generations in the coming years. It could raise difficult ethical questions.
But according to JBWere, that figure now stands at $5.4 trillion over the next 20 years.
Its report revived questions about Australians receiving large inheritances so late in life, and how our tax system and housing situation were contributing to the phenomenon.
It said the value of inheritances, and the age of receipt of inheritances, both peaked about 60 years of age.
“This increased age of receiving an inheritance can be traced back to the rise in the average age of having children and increased life expectancy,” the JBWere report said.
“It does, however, raise the question of the need of recipients at this stage of life, compared to either earlier years (Bank of Mum and Dad) or for some bequests being directed elsewhere where greater need exists.”
At the beginning of last year, former Treasury secretary Ken Henry also warned that our tax system had deteriorated to the point that he was worried about Australia’s “social compact” holding together.
He said housing, the state of climate policy, and the commonwealth’s over-reliance on taxing workers’ incomes were three areas of major policy failure.
“It’s an intergenerational tragedy that we have allowed this to happen,” he lamented.
Australia’s tax system is stacked so heavily against younger people that it’s threatening the social compact, former Treasury secretary Ken Henry has warned.
And last week, Dr Debelle also linked Australia’s housing and tax situation to global economic trends.
He said the political problems we’re seeing in so many countries, and the “quackery” that’s underpinning some current economic policies (such as Donald Trump’s tariff policies) were symptoms of a larger problem.
“One of the root causes of where we are today — particularly in the US, but it’s also true in many other countries — has been the failure to distribute the gains from economic policy changes,” he warned.