The wealth gap between young and old Austrlaians may have closed slightly, but thanks to the latest Federal Budget, the gains are only temporary.
The Actuaries Institute released the newest Intergenerational Equity Index finding young Aussies managed to close the gap with their wealthy elders last year, reversing a seven-year trend.
But, the report said this is likely to be reversed as the Morrison Government’s Budget will only serve to widen the gap again.
Hugh Miller, who compiled the Index, along with actuaries Ramona Meyricke and Laura Dixie, said 2020 was a year like no other.
“The Index shows, perhaps surprisingly, younger people doing slightly better than they have previously, closing what had been a record gap between generations,” Miller said.
“But the change is likely to be temporary. It reflects, among other things, government support directed towards young people through Jobkeeper and Jobseeker payments, which ended in March this year.”
The Index tracks equity over two decades. From 2012 it shows a widening of the gap between the generations.
Effect of the Budget
Miller said that many of the new spending measures will potentially improve wealth and wellbeing across areas such as employment.
“Some parts of the budget will continue the trend towards a widening gap between the older and younger age bands,” Miller said.
The large Government debt will also reduce future financial flexibility and while $18 billion over five years in aged care spending was welcome, it continues the trend of greater spending being allocated to older Australians, he said.
But he added that other measures, such as increased spending on skills training and wage subsidies targeting long-term youth unemployment, are likely to assist younger people in the future.
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Effect of COVID
Actuaries Institute CEO Elayne Grace said assessing the impact of the pandemic and subsequent lockdowns is key to driving better outcomes in the future.
She said quick decisions made during the early stages of lockdown, including increased bail rates for offenders, and housing for people who were living on the streets, could serve as evidence for future policy.
“These temporary measures could help direct policy in the future,” Grace said. “There may be an increased appetite for experimenting with different types of support given the demonstrated ability to adapt so quickly through 2020.”
The index found that young people were disproportionately affected by the pandemic in terms of employment but temporary government support helped offset loss of income as businesses shut and jobs were lost. Poverty rates actually fell, with the larger decreases for the youngest cohort.
Overall, the number of people expected to be in poverty was estimated to have dropped 13 per cent during the pandemic, compared to an increase of 90 per cent had the government failed to provide additional support.
Effect of the housing boom
Continued record low interest rates turned predictions of a house price crash into a surge, the report said.
This has increased the worth of those older Australians who are homeowners and made it more difficult for young people to break into the market.
“There is evidence that many first homebuyers entered the market, pausing the long term trend of falling rates of homeownership for young people,” Miller said.
However, despite many getting their foot in the door rising rates of homelessness among the young continued.
Concerningly, the largest growth in those needing homelessness support came from older Australians, who have seen a significant increase in poverty rates since 2016.
“Higher homelessness rates for older Australians are a growing concern, which has lowered the Index score for older people,” Miller said.