So Successive Generations can be Optimistic: Kate Chaney
"This is not about pitting generations against each other. It's not about arguing whether the boomers or gen Y or the millennials have it tougher. It's not about avocado toast versus free university. It's about looking at how we design our tax and spending so that successive generations can be optimistic about their future."
That's what Kate Chaney said in the Grievance Debate in the Australian Parliament.
Kate said, I rise today to talk about the changing economic relationship between the generations in Australia. Australia's millennial generation is widely forecast to be the first generation since Federation that has worse economic outcomes than the generation before. Individual wealth of older households is increasing significantly faster than those of their younger counterparts. In fact, the gap between the wealth of the old and the wealth of the young almost doubled over the last few decades.
I want to talk about how we need to address the implicit generational bargain that underpins the relationship between younger and older Australians, and how we set our tax and spending priorities. Intergenerational economic fairness is an issue that we need to fix if we want our communities to enjoy rising living standards. This must be done in the context of a wider community discussion about what we care about.
Our working-age demographic is shifting, and our wealth distribution is shifting with it. There are fewer working-age Australians to support our elders. When I was born there were more than seven Australians of working age for each person over the age of 65. This has now declined from seven to about four.
Young people aspire to move through the same life stages as earlier generations—a quality education, a stable and well-paid career, buying a home, starting a family and building wealth for a secure retirement with dignity. But, instead, many young people are fearful of what their economic future looks like. They're struggling, in a financial environment that's increasingly difficult. Housing is becoming more expensive, the tax burden is increasing, and job prospects and pay are flatlining. Last year, ABC's Australia Talks survey found that three out of four 18- to 29-year-olds believe that young people will be worse off than their parents. Even overall—across all age groups—59 per cent of Australians agreed with this statement.
This is not about pitting generations against each other. It's not about arguing whether the boomers or gen Y or the millennials have it tougher. It's not about avocado toast versus free university. It's about looking at how we design our tax and spending so that successive generations can be optimistic about their future.
When my husband and I bought our first house in the 1990s, the median house price was about 4.2 times the median annual income; it's now double that, at 8.5 times. Today, younger Australians are less likely to own a home than young people were in the past. In 1981, seven out of 10 30-year-olds owned a home. In 2021, the census showed that only four did. An asset price boom over the last 20 years has benefited homeowners, who are typically older and pay relatively little income tax in retirement, while disadvantaging younger workers, who have suffered lower wage growth and pay more income tax.
As humans, it's natural for us to care about each other. An underlying assumption we make is that working age Australians contribute to the care of older and younger generations, and can expect the next generation to support them in the same way. But as our population ages, the burden of this care is falling on a smaller cohort of working-age Australians. Working-age Australians are also underwriting the living standards of older Australians to a much greater extent than earlier generations did for their elders. Accounting for inflation, in the eighties and nineties an average elderly household of people over 65 received $16½ thousand per year in support from taxpayers. Today that figure is 65 per cent higher, even though superannuation was introduced to reduce the financial burden of retirement on taxpayers. So, not only are there fewer working age Australians per older Australian, there's significantly more support paid as well.
There are controversial and difficult issues to be addressed in this, which is why it will be so important to make it a broad community-based discussion. There are trade-offs and legitimate expectations. Young people want to be able to aspire to the same milestones of financial security as previous generations, and older people not only want to live with dignity but also want to leave a legacy of a functioning society to their children and grandchildren.
The concerns I have raised are not just my own. Successive governments have acknowledged and investigated this issue of intergenerational unfairness. Every five years the Australian government releases an intergenerational report. The 2002 and 2007 reports highlighted the future budget pressures from a steadily ageing population. The 2010 report emphasised the challenge posed by climate change. In the wake of the Global Financial Crisis, the 2015 report illustrated the long-term sustainability of alternative fiscal policy scenarios. The 2021 report painted a dire picture, with budget deficit forecasts for 40 years, net debt still at 34 per cent in 2061 and the interest cost of servicing that debt growing to 1.7 per cent of GDP.
I commend this government for undertaking to release the next intergenerational report next year, earlier than it is due. But the intergenerational report has not traditionally contained recommendations and this is a missed opportunity. I challenge the government to take this opportunity to kick off a full and frank inquiry into intergenerational fairness. A coalition of youth-organised groups—Think Forward, the Foundation for Young Australians, Youth Action, Youth Development Australia and the youth affairs councils from several states—are supporting this idea. They take inspiration from the 2018 House of Lords inquiry in the UK.
The report from this UK inquiry, Tackling intergenerational unfairness, published in 2019, observes that intergenerational fairness had become an increasingly pressing concern for both policymakers and the public. The UK inquiry found that the relationship between older and younger generations is still defined by mutual support and affection. However, the action and inaction of successive governments risks undermining the foundation of this relationship. Many in younger generations are struggling to find secure well-paid jobs and secure affordable housing, while many in older generations risk not receiving the support they need because government after government has failed to plan for a long-term generational timescale.
This inquiry would need to look broadly at what a good life means to different generations. There is an assumption built into the way I'm talking about it that generations value the same things. This should be tested. This would fit as part of a broader community discussion about what as a country we value following on from statement 4 in budget paper No. 1, Measuring what matters, which is the government's discussion paper about introducing a wellbeing framework to the way we approach our economy.
Countries such as Wales, Scotland, New Zealand and Iceland are having this broad community conversation about what actually matters and are moving towards implementing a wellbeing framework in how they think about what their economies are for. The Australian government has indicated a desire to start using a broad range of measures that more accurately reflect what we value than GDP. It will be vital this is built on broad community engagement and views rather than sitting in Treasury. While it may take longer to build consensus on what we care about than it would for Treasury to adopt a predesigned model from another jurisdiction, this engagement work is essential in rebuilding trust in our democracy and building a common understanding of the context in which we will need to make difficult decisions.
With high but reasonable community expectations about support for the aged, for children and for people with disabilities, revenue will need to come from somewhere. While no one likes to talk about tax, this is not a problem that will fix itself. We need to either reduce our expectations of support or be open to new ways of paying for it. This was raised a decade ago in Ken Henry's review of the tax system but not much has changed. Understanding generational differences in what we value and how we want to live through an intergenerational fairness inquiry would inform longer term thinking and provide a mandate for some of the economic reform that has ground to a halt over the last decade.
At the last election, communities such as mine in Curtin indicated that they wanted to see longer term thinking in policy development and an optimistic and courageous vision for the future of the country. Now is the time to start these national conversations: What is important to us? How does our tax and spending system reflect what we value? How do we make good on the intergenerational bargain to support people at the vulnerable beginning and end of life in exchange for the promise that we will keep making things better?
I'll continue to work with the government and other stakeholders to support these longer-term discussions to ensure that we're focusing on the things that matter and making structural decisions that do not unfairly burden our children and their children.