A new study released by independent think tank, the Grattan Institute into the Wealth of Generations, has found that maybe it’s time for older generations to pay.
The study found that older generations (65-75) are $200,000 more wealthy than households of that age eight years ago, despite having experienced a financial crisis. At the same time however, younger Australian’s (25-34) have gone backward.
The institute believes this to be due to rising housing prices. Those who did not purchase a house before 1995 seem to have missed a large amount of profits. In addition, incomes of older Australian’s grew at a faster rate than today’s young people, enabling them to save more.
The institute believe by reducing the number of tax perks given to older people, the budget would be easier to balance. Current laws state that people over 60 can reduce their income tax by up to $5000 a year via super tax concessions. They can also use the Seniors and Pensioners Tax Offset to reduce their tax payable by up to $1600.
Over the past 30 years, younger generations have been able to finance the retirement of older generations, however according to the study this won’t be able to continue. As the population ages and house prices increase over the next 25 years, younger Australian’s are going to be taxed even higher.
This is eventually going to place higher value on inheritance, meaning that the average persons vast bulk of wealth will be inherited after the age of 55. This will result in Australian’s living majority of their life with less money.
Here are the major findings for your perusal:
In 2011/12, the average household was $80,000 richer than a household of that age eight years earlier. Those aged 25 to 34 on average went backwards in real terms.
They are less likely to own property than their parents. An increasing proportion of those born after 1970 will never get on the property ladder.
Many members of the generation born after 1965 missed out on increasing their wealth as house prices boomed from the mid 1990s.
Between 1995 and 2012, real house prices increased by 4.3 percent a year, much faster than the growth in full-time earnings.
Alongside rising prices, increasing education debts may be discouraging younger households from taking on mortgages to purchase a home. However, the impact of HECS debt on overall wealth was relatively small.
While today’s 34-55 year olds own houses that are worth more, they had to borrow more to acquire them.
They do own more other financial assets such as bank deposits and shares compared to their predecessors. Compulsory super should further boost their lifetime savings.
Overall people are saving more of their income, this has increased from 0.4 percent of after-tax income in 2003, to 10 percent in 2013. Young households income increased at a lower rate, but they still managed to increase their savings by containing their spending, while older households saved more because their incomes rose faster. Those aged 55-64 increased what they spent by more than any other age group. At the same time their savings increased the most, because their incomes grew even faster.
Less than a third of those responding to a survey considered that their lives would be better than those of their parents. “People today who are both young and poor are probably the most financially vulnerable group in society”.
In 2011/12, the average 55-64 year old household was $173,000 richer in real terms than eight years earlier. The average 65-74 year old household was $215,000 better off over the same period.
Property wealth increased the most for 65 to 74 year olds, by $110,000. For those over 75 it increased by $90,000.
In 2003/04, households aged over 65, held about 26 percent of the country’s total wealth. Just eight years later, this had increased by four percent, to about 30 percent.
All households paid more tax in real dollar terms than 20 years ago, except for households over 65 years of age, whose income tax bill declined, despite strong growth in income over the last decade.
However, all age groups paid more indirect taxes, partly due to the introduction of the GST in 2000.
Both Treasury and the Productivity Commission forecast that governments will spend more on health in real terms over the decades to come as a result of an ageing population. But all age groups have contributed to the rising cost of health over the past 20 years, with government spending per person increasing by about 3.7 percent a year.
Analysis from Australia and abroad suggest that older households generally maintain (and even increase) their wealth in retirement.
There have been attempts to contain growth in spending on pensions by both the Rudd and Abbott governments, including lifting the qualifying age for the pension, though not all of them have been passed in parliament.