Generation Y keeping up on income but fewer able to afford a home

Australians in their late 20s have experienced world-beating income growth but fallen behind on wealth as older generations amass massive property and superannuation wealth.

Those are the findings of a study of economic inequality by the Committee for the Economic Development of Australia, released on Friday.

The report proposes a range of solutions to reduce inequality including higher capital gains tax, introduction of annual land tax and a boost to the Newstart payment for unemployed people.

The paper examined various forms of inequality including geographic, intergenerational, educational disadvantage, the experience of women in the workplace and the risks that technological development will increase inequality.

On intergenerational inequality, Prof Peter Whiteford from the Australian National University found that over the past three decades Australians aged 25 to 29 had enjoyed increases in real disposable income that are greater than the population average.

That is “significantly different from the experience of younger age groups in a selection of other high-income countries” where incomes have fallen behind, he concluded.

Between 1985 and 2010, Australians’ income grew at at 1.5% a year, behind only the United Kingdom (2.2%) and Spain (1.7%) over similar time periods.

But in Australia younger households aged 25 to 29 experienced “household income growth that is 27% higher than the national average” where older generations were the beneficiaries in other countries.

However, older generations’ wealth in Australia has “increased much more rapidly than that of younger generations, due to both increasing superannuation wealth and increasing property wealth”, Whiteford said.

“Younger households have seen both declining rates of home purchasing and higher overall indebtedness associated with housing.”

According to the Household, Income and Labour Dynamics in Australia data set, income inequality in Australia has been relatively stable since the survey began in 2001. By Australian Bureau of Statistics measurements income inequality increased slightly from the mid 1990s until the global financial crisis and moderated since then.

In a comparison of 35 similar advanced economies the CEDA report finds Australia’s income inequality sits “slightly towards the higher end of the scale, higher than 21 countries and lower than 13”.

Research by the International Monetary Fund finds that Australia’s tax and welfare system reduces the Gini coefficient – which measures income inequality – by around 0.15, compared with the OECD average of 0.18.

Prof Alison Sheridan notes in her chapter that Australia’s gender pay gap is around 15%, with little change in the last two decades.

The analysis of educational inequality finds that lower socioeconomic status, Indigenous students and students who in rural and remote areas are the most disadvantaged according to national tests. Educational inequality was similar to the United States but higher than Canada and the United Kingdom.

The CEDA report recommended the federal government should ask the Productivity Commission to periodically review inequality in Australia.

To combat geographical inequality the report recommended that job search assistance be “more effectively tailored” for the long-term unemployed. Newstart payments should be adjusted to “a more appropriate benchmark and indexation arrangement to ensure adequacy over time”.

The CEDA report recommended that government assistance for disrupted industries should be “targeted at retraining and transitioning affected workers” and not in the form of “passive assistance” such as subsidies and handouts.

In the education sphere, it called for a review of the vocational education and training sector and the provision of national information around providers, pricing, qualifications and satisfaction survey results.

To improve housing affordability, the government should tax “a larger component of capital gains” and move towards charging an annual land tax in place of transaction taxes on housing.

To combat the risks of future inequality caused by technological disruption, the government should “explore the adequacy of superannuation, pension and savings products for contingent workers” and consider whether action was required to give them an adequate retirement income.