For decades, Australia’s tax and welfare system has been designed to share resources fairly across the community. But new evidence shows that balance is slipping – and younger Australians are increasingly being left behind.
A recent ANU study “Measuring the changing size of intergenerational transfers in the Australian tax and transfer system” found over the past thirty years, government spending on older Australians has grown sharply. The age pension, aged care, and health care are now far more generous on a per-person basis. At the same time, spending directed at younger households has barely moved.
This shift can’t simply be explained away by the ageing population. Measured per person, older Australians are receiving much more from government than they once did.
What makes this trend even more striking is that older Australians are also earning more private income than ever before. Rising superannuation balances and booming real estate wealth have boosted incomes for those over 60. Yet instead of adjusting the system, governments have layered more benefits on top.
The result? A fundamental change in who gains from our tax and transfer system.
In the 1990s, Australians over 60 earned much less than working-age Australians. Their average after-tax income was about 60% of those aged 18 to 60. Today, their incomes are almost on par. And compared to Australians aged 18 to 30, the older cohort is actually far ahead: after taxes and transfers, over-60s now enjoy incomes 60% higher than young adults.
This raises serious questions of fairness. Why should younger Australians, who already face soaring housing costs and stagnating wages, also carry a heavier share of the tax burden?
Three big issues stand out:
- Favouring older Australians – Current policies tilt heavily towards retirees. Unless we consciously want that, government should rebalance settings. Stronger means-testing of benefits would be a sensible start.
- Untaxed wealth – Housing and superannuation, the main sources of older Australians’ wealth, are lightly taxed compared to wages. This leaves younger workers shouldering most of the tax load.
- Housing policy – Skyrocketing land prices, fuelled in part by restrictive zoning and planning, have transferred huge amounts of wealth to older generations. Fixing this would help restore fairness and efficiency.
Looking ahead, the budget challenge only makes the generational divide starker. To keep government finances sustainable, taxes will have to rise or spending will have to fall. If the adjustment is made solely by taxing workers harder through bracket creep, younger Australians will pay the price while older Australians remain shielded.
Australia has a choice to make. Do we want a system that continues to tilt further towards those who have already benefited most – or one that restores balance between the generations?
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