“Generational bargain is at breaking point”

More from Kate Griffiths and Danielle Wood at the Grattan Institute. Via the ABC:

Each generation of Australians has enjoyed a better standard of living than the one that came before it. But today’s young Australians are in danger of falling behind.

A new Grattan Institute report, Generation gap: ensuring a fair go for younger Australians, reveals younger generations are not making the same economic gains as their predecessors.

Economic growth has been slow for a decade, Australia’s population is ageing, and climate change looms.

The burden of these changes mainly falls on the young.

The pressures have emerged partly because of economic and demographic changes, but also because of the policy choices we’ve made as a nation.

Older generations are richer than before, younger ones are not

For much of the past century, strong economic growth has produced growing wealth and incomes. Older Australians today have substantially greater wealth, income and expenditure compared with Australians of the same age decades earlier.

But, as can be seen from the yellow lines on this graph, younger Australians have not made the same progress.

A graph showing the average wealth of different age groups over the years.

The graph shows that the wealth of households headed by someone under 35 has barely moved since 2004.

It’s not young people’s spending habits that are the problem — this is not a story of too many avocado lattes (and yes, they are a thing).

In fact, as the graph below shows, while every age group is spending more on essentials such as housing, young people are cutting back on non-essentials: among them alcohol, clothing, furnishings and recreation.

A graph showing expenditure on essentials and non-essentials.

Wage stagnation since the global financial crisis and climbing underemployment have hit young people particularly hard. Older people tend to be better cushioned because they have already established their careers and are more likely to have other sources of income.

If low wage growth and fewer working hours become the “new normal”, we are likely to see a generation emerge into adulthood with lower incomes than the one before it.

It has already happened in the United States and United Kingdom.

Our generational bargain is at breaking point

Budget pressures will exacerbate these challenges.

Australia’s tax and welfare system supports an implicit generational bargain. Working-age Australians, as a group, are net contributors to the budget, helping to support older generations in their retirement.

They’ve come to expect that future generations in turn will support them.

But Australia’s population is ageing — which increases the need for government spending on health, aged care and pensions at the same time as there are relatively fewer working age people to pay for it.

Demographic bad luck is one thing (some generations will always be larger than others) but policy changes are making the burden worse.

A series of tax policy decisions over the past three decades — in particular tax-free superannuation income in retirement, refundable franking credits, and special tax offsets for seniors — mean we now ask older Australians to pay a lot less income tax than we once did.

Disturbingly, these and other changes mean older households now pay much less tax than younger households on the same income.

A graph showing household income tax by age.

Added to this have been substantial increases in average pension and health payments for households over 65.

It has meant that net transfers — government benefits minus taxes — have dramatically increased for older households but not for younger ones.

The overall effect has been to make current working Australians increasingly underwrite the living standards of retirees.

A graph showing annual net benefits per household by age.

A typical 40-year-old today contributes much more towards the retirement of others through taxes than did his or her baby-boomer predecessors.

As it happens, it is also more than the typical 40-year-old is contributing to his or her own retirement through compulsory super.

A graph showing contribution by age to net benefits for all households aged 65 plus.

This can’t be what Australians want

Most Australians want to leave the world a better place for those that come after them.

It’s time to make sure we do it.

Lots of older Australians are doing their best, individually, supporting their children via the “Bank of Mum and Dad”, caring for grandchildren, and scrimping through retirement to leave their kids a good inheritance.

These private transfers help a lucky few, but they don’t solve the broader problem. In fact, inheritances exacerbate inequality because they largely go to the already wealthy.

We need policy changes.

Reducing or eliminating tax breaks for “comfortably off” older Australians would be a start.

Boosting economic growth and improving the structural budget position would help all Australians, especially younger Australians. It would also put Australia in a better position to tackle other challenges that are top of mind for young people, such as climate change.

Changes to planning rules to encourage higher-density living in established city suburbs would help by making housing more affordable.

Just as a series of government decisions have contributed to the challenges facing young people today, a series of government decisions will be needed to help redress them.

Every generation faces its own unique challenges, but letting this generation fall behind the others is surely a legacy none of us would be proud of.

It’s time to share the burden, and perhaps an avocado latte while we’re at it.

Apparently “quiet Australians” eat babies.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

  1. Boosting economic growth and improving the structural budget position would help all Australians, especially younger Australians. It would also put Australia in a better position to tackle other challenges that are top of mind for young people, such as climate change.

    so we should just continue doing more of the same (debt driven “grow the pie” trickle down) and expect different result next time around?

    Most Australians want to leave the world a better place for those that come after them.

    this is only when we think of our own (personal) kids, bot not so much when we think of all of Australian kids, and definitely not all of world’s kids
    Things changed so now Australians (especially BBs) wants their kids to be better off but don’t care about other kids much

    • this is only when we think of our own (personal) kids, bot not so much when we think of all of Australian kids, and definitely not all of world’s kids. Things changed so now Australians (especially BBs) wants their kids to be better off but don’t care about other kids much

      So true in the current culture of increasing selfishness in Australia (and other western countries) which adopts multi-culturism and rapid immigration program. The higher level of diversity in society cannot be good for cohesion and shared-values at national level. The different and opposing cultures and values in society make it hard to unite since they’re divided …my conspiracy theory radar said this maybe the real objective of immigration program in western societies…to dilute the democratic rights and power of the common people for the gain of the elites.

      • Deo, what you’re saying makes some sense re: conspiracy, but I honestly don’t think most people, nor Elites, are that thoughtful, cunning and clever…

        I think it’s simpler: more GDP, drive down wages.

        Most Elites are elites because they actively seek out power, and pursue it, not because they are particularly clever or cunning.

        My 2c

      • Even StevenMEMBER

        Agree that lack of shared values = increasing selfishness.

        Being ‘Australian’ is not what it was.

        But it’s not a conspiracy. It is a consequence of pursuit of power and wealth.

      • Maybe BW and ES are right…most are not that cunning / clever but maybe there are a few elites that want to maintain their elite status to eternity. Come to think of it, of course they want to lower wages and increase their business by adding more consumers to the market by high immigration.

        However, without the introduction of multi-cultural-ism as guiding dogma, the sustainability of high and higher level of immigration is restricted. For example, if Australia only accepts immigrants from one culture e.g. European / Judeo-Christian culture then the newcomers will easily join the existing population and demand better outcome / living standard for the whole society due to good cohesive society and less friction between generations. The multi-cultural dogma is the divisive tool that made it impossible for common people to unite in their votes / voices to get better outcome and hence, now we have true-blue Aussie resent the migrants, and the young gen resent the BB generation, etc. Heck, even many of the prior migrants (e.g. moved in >20 years ago) in SYD / Melbourne resent the newcomers (less than 5 year arrivals) that made their living harder. Why ? No such thing as Australians in real life, only at citizenship ceremony which lasted 1 hour. After that, you only see red-necks, bogans, wogs, smelly Asians, ME bikies and black criminal ganks in the society depending on what your value / cultural background are.

      • So true in the current culture of increasing selfishness in Australia (and other western countries) which adopts multi-culturism and rapid immigration program.

        LOL.

        Western culture has been promoting and glorifying selfishness, while ridiculing empathy and altruism, for 40-odd years now.

        But somehow people acting more like dicks these days is the fault of the last decade’s worth of non-white immigration.

        Genuis !

        Heck, even many of the prior migrants (e.g. moved in >20 years ago) in SYD / Melbourne resent the newcomers (less than 5 year arrivals) that made their living harder.

        Good job undermining your own position. You know those “prior migrants” you’re feeling some solidarity with, had the same things said about then “>20 years ago”, right ? Just like the ones that came in 20 years before them. Etc, etc.

  2. Changes to planning rules to encourage higher-density living in established city suburbs would help by making housing more affordable.

    It would be nice if that was the case, but I understand there is no evidence that higher-density living makes housing more affordable.

    The key to higher living standards is to ensure that the supply of the stuff needed for a good life outstrips the number of people who require it. So sensible limits on immigration and local breeding combined with a program of building a lot of good stuff would be the obvious solution.

    Build a lot of high density housing (and associated infrastructure)

    AND

    Build a lot of low density housing (and associated infrastructure)

    and then encourage it to be sold into the market at lower and lower prices.

    Whichever type the people buy more of, build more of it. Conversely if people stop buying one kind, then stop building it.

    • Claw, I think part of the problem is the crazy pills people are willing to swallow, and divvy out to others, with respect to the notion of “affordable”.

      Knee–jerk toxic stoicism and conservatism (in the sense of preserving the status quo) had gotten to the point where “affordable” is almost literally something you can “afford”, regardless of just about any sense of value – just about any plight gets rationalised to preserve one’s previous ego and position…this is Australia – “quiet Australians” – and it is most Australians.

      Affordability has become a simplified notion almost divorced from value – in fact, people get criticised if they call out the poor value of Australian property with respect to disposable incomes, historical norms, or just about whatever – gaslighting (character assassination) and logical props abound. We are nutjobs, in this respect.

      Now, if you can afford “something” nominally, you “should” just STFU, buy it, accept the various toxic narratives without question, and stop making vested interests feel uncomfortable.

    • The90kwbeastMEMBER

      Australia needs to decentralise somewhat by a Fed Govt and State govt driven program to incentivise grass roots business creation outside of Syd/Mel. It beggars belief we have such an urbanised centralized country with the landmass we have, even if much of it is uninhabitable.

      Growth areas should be focused on FNQ, Darwin, SEQ, Adelaide and Perth and affordable housing that isn’t a 2 bedroom shoe box can be built to suit.

  3. The Horrible Scott Morrison MP

    There is no generational bargain. It’s a leftist fantasy used to try to justify theft. Old people don’t need to give their cash to the young, and the young don’t need to keep the life support systems on. It’s every man for himself.

    • I honestly came here to see who would deny the Generational Bargain – I wasn’t disappointed 😉

      Where’s our stoic mate, Andrew, anyway – he also denied this idea a while ago, and thought he might poke his head up for some more?

    • The argument should only ever be are the laws made fair to average Australians? The laws have made average Australians slaves to banks for life, and therefore homeless or destitute if anything goes wrong such as getting cancer, losing a job at the wrong timing or divorce. The greedy then change the argument to being about the less wealthy expecting handouts from the wealthy.

      All the laws made the last 20 years have been about creating various classes based on wealth then kicking anyone who is down saying they expect this and that. My favourite line is when the snob class claim to have seen homeless people with shiney new iPhones.

      • In my mind, It’s mostly targeted at getting the apsirational class to kick the ones below and do the Elite’s dirty work. Much like the ambitious t*rds in a workplace with no moral compass who actually think the upper leadership will give them a go…

    • It’s actually quite the opposite. Back in the past the issue of taking care of elderly and helping kids was individual/family affair

      than we changed things and introduced collective care and collective support for young (mostly to undermine family). This was first done via state services that provided health care/ pensions/ free education/ unemployment benefits and than slowly that got privatized so now we have private health insurance/ collective retirement systems (superannuation)/ private education support (school loans), private income insurance/ …
      this private system is as dependent on collective well-being as state ones were. If demographic changes so there are less workers and more retirees that gets reflected onto economic growth/ stock market performance/ interest rates/ ….

      there are two things that make BBs better off at the moment : rise of personal debt (until everyone gets maxed out) and immigration. Without those two BBs would have much less and would be paying much more for services they are receiving.

      • It’s actually quite the opposite. Back in the past the issue of taking care of elderly and helping kids was individual/family affair than we changed things and introduced collective care and collective support for young (mostly to undermine family).

        Pretty sure for the majority of human history child-rearing and elder care has been a communal affair.

  4. Grattan should have taken it a level further by examining how much better off white Anglo/Celtic parents are compared to their kids. I see so many examples of families where the parents are doctors/lawyers/engineers and the kids are scrapping by as personal trainers or selling airline tickets at Flight Centre.

    These kids have confronted the additional challenge of imported competition from desperate immigrant families who don’t give a stuff about their kids having a traditional happy Australian childhood full of cricket, footy, netball, swimming and fun but instead are swotting the books to within an inch of insanity. So increasingly the professions are no go zones and they drift into casualisation and insecurity.

    Their parents on the other hand get their gourmet food on Deliveroo and Uber around the city enjoying all the fruits of a modern slave economy. I guess the Mamluk slave soldiers worked out fine for the Egyptians too – until they didn’t.

    • Totally agree, except for one point. We should all be happy that older people are getting their food delivered instead of driving somewhere to pick it up themselves.

    • The flipside is that whilst anglo celtic kids will be worse off than their parents (on average).

      The current immigrants (even with the lower living standards than the boomers) will have higher living standards than THEIR parents (who, with apologies to Trump) were living in Sh*thole countries.

      Grattan has clued on to this.

    • I think there is deep, wholesale dissonance (typical of the human heart): older people want betters for their kids…but not if it means that their plans and/or good perceptions of themselves are negatively affected…

      As a result, they have sentiment, but few actions; and a general denial and reframing of the problems at hand, preferring narratives that preserve their money, power and strongly positive sense of self.

  5. Base line pressures and costs associated with schooling, university, unskilled labor (read minimal wage), slave based internships / underemployment and costs of living are crippling the younger generation financially and emotionally. Most kids I see coming through who have followed the system and achieved under all the above categories (school, university, 1st jobs / internships) have no chance in capital cities in maintaining a similar standard of living or getting ahead like their BB parents unless their are considerable concessions made through generational wealth. Parents paying for private tutors (school/university), accommodation supplementation or young adults remaining in the parental home, healthcare, phones, transport, insurance and food. This is to just get by, not get ahead.

  6. The younguns are too busy being distracted by, “Netflix and Chill”, Instagram, Faceborg, etc. and all the politically correct virtue signalling that they have been programmed to engage in.
    It will take until they reach their early 30’s for them to realise that the opportunities and ability to do better than their parents have all but dried up. They will then have to impatiently wait until they inherit; if their parents have stuff to pass onto them.

    • they are not more distracted than their parents BBs were by TV, rock’n’roll, drugs, cars, …

    • Aha, here’s a stoic I thought would have a go…

      Nice gut-feeling sentiment you have there…except that it’s rather devoid of actual facts.

      Actual facts show young people these days spend a higher % on housing and a lower % on leisure and gadgets than their parents (BBs) did at their age; and, that they work longer and harder.

      Facts suck when you’ve got a toxic stoic STFU-narrative to weave, isn’t it? 😉

      Time to get informed, don’t you think? Gut feels don’t count, and neither does your from-a-distance views of young people (regardless of whether you are < 40 years old yourself or not…that would make your ignorance worse, not better…)

    • Even StevenMEMBER

      @ Prometheus

      Yes and no. The difference between the youth today and the youth of decades past, is that those from decades past weren’t having to contend with such a selfish, uncaring older generation.

      However, confronted with this crappy reality, I am disappointed the youth of today haven’t responded to the challenge. They are focusing their attention in all the wrong spots. They need to wise up. And get nasty.

      Any youth political groups that have formed seem to focus on social and environmental issues (transgender rights, climate change etc). None seem to seek redress on the reaming they are receiving in almost all other dimensions.

      • Their minds are so confused. Brainwashed to believe anti immigration is being racist. Also that being racist is always a negative prospect, a free thinking person should be able to think however they choose.

        Few are free thinking and therefore no groundswell of alternative action groups that do not follow the narative will emerge. We are stuck with get up…. Grrrrrr!

  7. “… younger generations are not making the same economic gains as their predecessors.”

    No sh!t Sherlock. The bulk of the economic gains were harvested by the Boomers i.e. those that benefitted from the beginning of the debt explosion in the early ’80s which led on to the longest equity bull market in history and the beginning of a monster housing bubble.

    When you borrow money to consume you bring economic growth forward and bank it for yourself. It’s that simple. There is no generational bargain because their can’t be under these circumstances.

    • Agree 100%. Not only did they harvest their era’s gains as you suggest, but they also saw in the global era of financialisation (excess leverage, speculative use of derivatives, blowing mega asset bubbles, etc) that allowed them to pull forward future era’s gains, where they were promptly swallowed. This is a big part of why the cupboard is bare for gen Y and Z in particular. (Gen X probably the last to get a somewhat fair go, spiralling house prices aside.)

      Oh and they also gleefully participated in the greatest collective sellout of Australia to foreign interests in our history.

  8. It’s all because of imposed massive Third World immigration which really rocketed from 1998 and continues unabated to this day.
    This ideology ensures wages are kept low, under/unemployment high and housing pushed to unaffordable levels.
    However we have come to the end of this unsustainable neoliberal/globalist nirvana, because the people have no money anymore. Must cut net immigration to 50,000 a year.

    • Ronin8317MEMBER

      But then we won’t have UberEat slaves working for whatever they can steal from the food they’re delivering!!

    • But the young folk like immigrants, it shows they’re not otherists, which is very important.

      • freddy lasthope

        Hell yeah, you should try living amongst those people, enthusiastically supporting their own destruction. It’s depressing as fvck.

  9. Our youth (and now our mature age).

    ▪️Sold out by an education system that prostituted itself as a visa alibi for over 5 million unskilled third world migrants

    🔻1.9 million PR unskilled useless third world dependents as intake only here to suck up Medicare, welfare, and as an inter generational burden for decades to come,

    🔻Plus 2.561 million third world unskilled migrants on pretext TR or SCV visas.
    Even worse.

    🔻Plus 440k third world unskilled tourist visitors to also work & live illegally and destroy wages & employment.
    Even worse again.
    🔻Plus 65,000 overstayers.

    => 5 million.
    90% or 4,5 million in Sydney & Melbourne.

    A vast patchwork of filthy migrant guestworkers enclaves slums.
    1 in 4 persons in Sydney or 1.3 million is a TR third world migrant guestworker on a visa alibi.
    It’s not like it’s invisible.

    Sold out by a government and housing industry that allowed over $80 billions of dirty third world criminal money to be washed into Australia by the foreign criminal syndicates and the migrant PR (to avoid FIRB) into over 600,000 modest housing to house this 5 million third world migrant influx in cash & hand bunk share.

    Sold out by the successive governments – once unable to gain an affordable education, a good job or any affordable housing, and now even denied a Newstart welfare payment they could live in.

    There is your ‘inter generational’ burden.
    -/-
    These youth & now our mature age can all vote.

    But they are not given an choice or even a voice in all of this.

    Why aren’t the Australians out in the streets protesting?

  10. That is the usual wankster sort of rubbish put out by the various institutes and the ABC.

    You may think that “Apparently “quiet Australians” eat babies.”

    But the reality is that “quiet Australians” are being eaten by the hoard of vibrants being encouraged to come here by both the elites and the leftist SJW. Note how there is no mention by the ABC or the Grattan Institute of the adverse impact on the welfare and wealth of todays young from the population ponzi which most of them support.

    Blaming the BB is just a stupid cop out and headline seeker and is intended to avoid focusing on the real issues