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The generational divide that has made many older Australians far more financially comfortable than their younger counterparts has been driven primarily by good luck, according to a new report by AMP examining the levels of intergenerational wealth inequality.
The report says Baby Boomers are currently the wealthiest generation in the country, with an average household net worth of around $1.6 million by 2019-20, well ahead of Gen X ($1.1 million) and Millenials ($500,000).
It said that divide has been caused by good fortune for Baby Boomers in the form of a four-decade decline in interest rates and a chronic housing shortfall that has pushed up home prices.
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"The growth in wealth for the Baby Boomers has been down to good luck in asset price, with ~8 per cent growth in home prices over the last 30 years (which has meant that it used to take six years to save for a 20 per cent deposit whereas now it takes nearly 11 years)," AMP deputy chief economist Diana Mousina wrote.
The report comes as Federal Treasury Secretary Dr Steven Kennedy also acknowledged young people are struggling to break into the housing market as easily as older generations.
"The intergenerational piece you're talking about, I think, is more aptly looked at more carefully to the structure of the housing market, where young people are not getting the same opportunities that older people," Kennedy said when asked by Greens Senator Nick McKim about the impact of interest rates on young people.
"I just would caution this (about the) younger, older person dynamic: I don't think it's helpful for the policy discussion. There's nothing particularly unusual in the way macroeconomic policy is working at the moment.
"The best thing we can do for younger people, give them jobs and ensure the economy is growing strongly."
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The AMP report said bridging the generational divide will be difficult, but pointed to a few potential fixes, including improving housing supply, broadening the GST, and looking at removing "extensive" superannuation tax concessions.
"The increasing divide in wealth between older and younger household groups is difficult to address because it mostly involves a period of good luck for the Boomer generation which can't be undone," Mousina wrote.
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"What can be solved by policy is an improvement in housing affordability … addressing housing supply issues can be done through providing incentives for older households to downsize, releasing more land, speeding up approval processes, encouraging growth in regional centres and investing in infrastructure in those areas.
"A broad review on the tax system is also needed, by looking at the capital gains tax concession, negative gearing and whether it should be limited.
"Although, changing tax policy related to housing now also won't actually fix the current affordability problem and risks denying growth in wealth for future generations."
