Young Aussies won’t end up worse off than their parents, but there’s a major catch

Income growth for younger Australians has slowed, tertiary education rates have more than doubled compared to their parents’ generation, and they are entering the property market later.

But research from independent think tank the e61 Institute has found that young Australians’ earnings are likely to grow later in life, thanks to longer careers, bigger super balances and bigger inheritances from their parents.

Treasurer Jim Chalmers has said there will be a focus on intergenerational equity in next month’s federal budget.

But e61 chief economist Jack Buckley said the simple story of generations’ winners and losers “hides a more complex picture.”

“The problem is not that younger Australians will end up poorer than their parents, but that the budget system is shifting costs to years when they can least afford them, including repaying large HELP debts and forgoing 12 percent of their wages through mandatory super contributions, just as many are trying to save for their first home and start a family,” Buckley said.

The average inflation-adjusted income of a 35-year-old in 2023, about $90,000, is actually almost 80 percent higher than that of the average 35-year-old in the late 1980s.

Furthermore, the average household income of a 35-year-old today is approximately $380,000, which is roughly in line with previous generations at the same age.

“Older Australians are benefiting from the windfall of rising asset prices, and most of that wealth will be passed on unevenly through inheritance,” Buckley said.

“That inheritance boom will increase inequality within a generation in a way that is far more consequential than any gap between generations.”

The e61 report says reforms designed to remove stumbling blocks for young Australians, including an inheritance tax and the removal of capital gains tax exemptions on family homes, could prove more challenging than they are worth.

Instead, researchers believe that an increase in the GST, which would act as a quasi-wealth tax, is the most practical option.

“An increase in the GST would capture this windfall if spent, without requiring complex new asset assessment infrastructure,” Buckley said.

“Combined with higher benefits for low-income households and income tax relief, this could leverage this windfall while better supporting low-income people.”

Australia’s 10 percent GST is lower than many consumption taxes in other comparable economies.

Ideally, productivity growth is key to securing the financial future of the next generation, Buckley added.

“Behind all these distributional questions lies a deeper issue: Australia’s tax 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.”

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