Baby boomers getting wealthier, young Australians saving more but still poorer: Grattan Institute report

Updated

Baby boomers are hoarding the nation's wealth and depriving their children of future living standards on par with their own, a new report from The Grattan Institute argues.

The think tank has crunched the numbers on the growing wealth gap between generations, and found that while older Australians have never had it better, adults aged under 35 are poorer than they were just eight years ago.

"There's a real risk that we'll end up with a generation in Australia less well-off than its parents," Grattan Institute CEO John Daley said.

The report has found households whose main residents are aged between 55 years old and 64 years were $173,000 richer in real terms in 2011-12 than the same cohort was eight years earlier.

A household with residents aged 65 to 74 was $215,000 better off.

Meanwhile, householders with people aged 25 to 34 saw their wealth fall.

"It's been driven by a number of things," Mr Daley said.

"Particularly rising house prices, very rapidly increasing government spending on older households, governments running very substantial deficits that ultimately younger generations are going to have to pay for.

"Added to that, an outlook in which economic growth may be pretty slow for at least the next 10 years and possibly longer than that."

'Generational bargain' at risk

Mr Daley said that what he describes as the "generational bargain" is at risk.

"In most societies, and Australia in particular, every generation has wound up paying taxes when they're of working age, and then when they retire the government supports them," he said.

"They take out, as it were, from the government pot and, indeed, every generation has taken out more than they have put in."

However, Mr Daley added that it is an unsustainable trend.

"That works when incomes are rising, and when wealth is reasonably well distributed," he said.

Sorry, this video has expired Video: Grattan Institute CEO John Daley speaks with ABC News Breakfast (ABC News)

"It's at risk when economic growth is at risk of rising much more slowly, and there's a real risk that we won't be able to continue to support older people at the scale that we are at the moment."

Australia's growth does appear to be slowing.

Official figures released last week show annual GDP growth has slowed to 2.7 per cent, below the long term average.

The growth rate has been dragged down by two quarters of falling incomes for Australian workers, businesses and governments.

The result has been described by several leading economists as an "income recession".

The outlook for employment is not much better.

Economists are expecting tomorrow's official employment figures to show the jobless rate edged up to 6.3 per cent in November.

The prospect of rising unemployment and slower growth has prompted some leading analysts to predict the Reserve Bank will cut the official interest rate by 0.5 per cent next year, to a new record low of 2 per cent.

In the meantime, The Grattan Institute has offered some solutions to shift the wealth balance in the years ahead.

"Firstly, governments in Australia need to stop running really large deficits," Mr Daley said.

"Implicitly, younger Australians are going to have to pay an extra $10,000 in tax at some time in their life."

He has also called on the Federal Government to scale back the aged pension for wealthier older people, as well as cutting superannuation tax concessions.

"Both the Commission of Audit and the Murray [Financial System] Inquiry have recommended that superannuation concessions need to be tightened up so that essentially older and rich people get much less of a tax break than they get at the moment."

Topics: economic-trends, tax, australia

First posted