Does this generation have it harder? The answer is complicated

Australia's generation gap is in focus in the lead-up to the federal budget. (ABC News: Sharon Gordon) Link copiedShareShare articleYou're hearing it more and more: it's hard to be a young person. That message will be at the heart of Tuesday's federal budget, which is set to contain sweeping tax changes framed as a way to bridge the generation gap. While there is plenty of evidence of challenging conditions for millennials and zoomers, pinning down the size of the generation gap can be surprisingly difficult, especially when it comes to assessing the popular claim that today's young people could be the first in living memory to fare worse than their parents. That debate will really kick off in the coming weeks. Before then, here's a guide to what economists say the evidence tells us — and what it doesn't. Concern about generational disadvantage is not unique to Australia. It crops up in almost every advanced country. The prosperous years of the 1950s and 1960s set off a "baby boom" that gave a generation its name. When that generation grew up, shifting social attitudes and the rise of women in the workforce saw them start their families later and have fewer children. A large generation followed by smaller ones has resulted in a "greying" of rich countries. Migration of young people has offset this a little, but health improvements have also meant longer lives and a demographic "bulge" of retirees. The consequences of this were featured in the federal government's first Intergenerational Report, an initiative of then-treasurer Peter Costello, published in 2002. "A steadily aging population is likely to continue to place significant pressure on Commonwealth government finances," it read. "If policies are not adjusted, the current generation of taxpayers is likely to impose a higher tax burden on the next generation." Peter Costello oversaw the first Intergenerational Report in 2002, which warned of the consequences of an aging population. (AFP: Torsten Blackwood ) In 1975, there were seven working-age people for every retiree, but today there are four. This leaves fewer working-age taxpayers to fund services for a greater number of retirees, who also have higher health and care costs. It has also strained the "social contract", the idea that people pay taxes throughout their working lives and are supported in retirement. The net contribution of working-age people to the budget — accounting for taxes and government payments — has increased in recent decades, and at the same time, the net flow to retirees has increased dramatically, a recent ANU analysis has found. Those are per-person figures, even before taking into account the fact that there are more retirees for every worker. In summary, a small number of young people are paying more and a large number of old people are receiving more. The authors argue this is not due to any specific policy change, but because policy settings designed for the old world have not been updated, especially Australia's heavy reliance on taxing wages. "Unless Australian society wants to explicitly favour older Australians, policies should be considered that reduce payments to [them] and that shift the tax burden away from younger Australians towards older Australians," the authors wrote. If population is one part of the puzzle, wealth is another — especially as it relates to housing, perhaps the most obvious part of the generation gap story. A pair of papers by the Grattan Institute in 2014 and 2019 highlighted the growing wealth disparity between young and old, finding that while the wealth of older households had grown 50 per cent in the early 2000s, wealth for those under 35 barely moved. The Grattan Institute found that the two main drivers were the growth in house prices and the introduction of compulsory superannuation. The papers also cited early evidence that the incomes and wealth of millennials had not yet pulled ahead of their predecessors, leading the authors to warn that millennials risked being the first generation in a century to "emerge from young adulthood with lower incomes than the one before it". Research by the e61 Institute based on more recent data reached a more sceptical conclusion. It found that while income growth had slowed for people in their 20s, it had remained stronger for those in their 30s and 40s, labelling this a case of "delay rather than decline". "The most likely scenario is that younger generations will still earn more, but they will do so later in life," they wrote, also predicting that delayed home ownership would be offset by bigger super balances in retirement. An analysis of ABS and HILDA data released in 2023. (Supplied: e61 Institute) The authors argued the most important factor was whether Australia's economy would keep growing. "If growth stays strong, each generation gets more in benefits than it put in via taxes. That assumption is now in question," they said. "The question is not whether a particul

Does this generation have it harder? The answer is complicated

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