The expectation of receiving an inheritance changes living standards, too. With no $200,000 house deposit to try and save for, future inheritors can occupy the slow lane, exercising more choice about their job, where they live and family formation. Ask any young person and they will remark on this growing divide among their peers. Why is my friend suspiciously composed in the face of no career trajectory or steady income, and others are high-strung and work-focused?
Not all young people have to earn their pocket money by working in the fast food sector. Credit: iStock
Australia’s tax system assesses individual income derived from owning wealth – interest, dividends, rent and capital gains – and income earned from working into a single, integrated income “stack”. Wealth-building tax incentives, especially in housing and superannuation, have transmitted a powerful message to generations of workers: the point of work is to build wealth.
But something big is going on. Wealth and work are decoupling: workers can’t afford houses, jobs without superannuation benefits endure and the tax system multiplies wealth. Post-COVID inflation-control policies accelerated this divide, hitting labour incomes hard while households with assets pocketed rents and capital gains.
Wealth has allowed some to buffer their exposure to monetary policy and the labour market, take holidays and attend restaurants and cultural events. Meanwhile, high-debt mortgagors, home deposit savers and renters work, sleep, repeat. And pray the Reserve Bank won’t lift rates.
We saw a similarly troubling dynamic during the Depression. Then, work incomes were sacrificed for macroeconomic stabilisation, while the wealth stocks of the middle and upper classes remained intact. Wealth spared some the humiliation of job loss, wage cuts, austerity and debt, while the working class and poor and rural communities languished.
Loading
The economic and social effects of transmitting massive wealth stocks between generations, of which housing is the largest component, are not being taken seriously. Powerful disincentives to work will be unleashed, affecting labour supply. Research shows wealth transfers reduce work effort. One study found an inheritance of $350,000 reduced labour force participation by 12 percentage points.
As work incomes and homeownership diverge, learned helplessness sets in. Millions have been purged from the neoliberal labour market due to a lack of suitable jobs or job-pathway programs and many have givenup on the world of work altogether. The roughly 300,000 young people who aren’t in any employment, training or study are much more likely to come from poor households. We once offered them social mobility. But the wealth glut kicks the ladder of opportunity away, baking in future destitution, inequality and higher fiscal outlays.
Reduced labour supply and a despondent workforce do not bode well for our ageing population, slowing productivity and a tax base dependent on taxing work. The volume of jobs we need performed to meet our collective demands are sobering, including 84,000 more electricians for energy transition, and 400,000 more aged care workers by 2050. Unfilled jobs means lower productivity and growth and it limits the capacity of government to deliver the programs and services we need.
Australia must confront this great baton pass of generational wealth with ambitious, creative ways of better taxing unearned wealth. It must also have an honest conversation about what this path can deliver for all Australians.
The Albanese Labor government pursued important IR reforms in its first term to lift the wages and conditions of workers, particularly for the low paid. But as wealth accumulation supersedes labour incomes, workers are falling further and further behind.
A Labor government’s task is to preserve the dignity of work. Honouring its social contract with working people means truly rewarding workers for their efforts, and ending their status as an easy revenue stream because fairly taxing wealth is too hard or complex.
In the dying embers of Australia’s “fair go” are millions hoping their toil will be enough to secure a decent life for them and their children. They must be made whole.
Alison Pennington is the chief economist at the McKell Institute.
