Recent research by the e61 Institute reveals that while young Australians are unlikely to be worse off than their parents, they face significant financial challenges early in life. Factors such as slowing income growth, a steep rise in tertiary education attainment compared to previous generations, and delayed entry into the property market contribute to these hurdles.
Young Australians will likely experience stronger earnings later in life due to several advantages: extended careers, larger superannuation balances, and significant parental inheritances. In fact, younger Australians are projected to inherit approximately $175 billion annually from Baby Boomers, a factor that may exacerbate wealth inequality.
Treasurer Jim Chalmers has highlighted the importance of intergenerational equity in the upcoming federal budget. Jack Buckley, principal economist at e61, cautions that the prevailing narrative of generational winners and losers oversimplifies the issues. He explains that the current fiscal system disproportionately places costs on younger Australians when they are least prepared to bear them. This includes repaying substantial Higher Education Loan Program (HELP) debts and contributing to superannuation while trying to save for their first homes and families.
Despite these challenges, the inflation-adjusted average income for 35-year-olds is about $90,000 in 2023, representing a significant increase of nearly 80% from the late 1980s. Furthermore, the median household income of a 35-year-old remains comparable at approximately $380,000, in line with prior generations.
While reform proposals such as implementing an inheritance tax or removing capital gains tax exemptions on family homes may be considered, these could be politically challenging. Instead, researchers suggest increasing the Goods and Services Tax (GST) as a viable alternative. An elevated GST could serve as a quasi-wealth tax that would capture the wealth transfer as it is spent while providing essential relief and support to low-income households.
Buckley argues that productivity growth is paramount for securing the financial future of younger Australians. He points out that the current fiscal system is not aligned with the levels of productivity growth needed for sustained economic prosperity. He proposes that embracing a growth-oriented agenda is crucial to assist the younger generation in overcoming the financial hurdles they face today.
The discourse surrounding these economic issues underscores the intricate layers of financial realities that young Australians must navigate as they seek to establish their own financial independence while grappling with inherited wealth disparities.