Much of the discussion about the need for tax reform to preserve intergenerational equity is confused. The main challenges facing young people, in particular, are the limitations on the supply of housing and climate change.

In his summing up of the conclusions from the government’s Economic Roundtable a few weeks ago, Treasurer Jim Chalmers said the first objective of tax reform would be “a fair go for working people and including in intergenerational equity terms”.

But what does this really mean? What are the threats to intergenerational equity in terms of the distribution of income and wealth, and how far is tax reform relevant to ensuring future equity for today’s young people?

Income distribution

There are no official figures showing the distribution of income for different generations, but there is no obvious reason why the distribution of income for younger generations should have evolved differently from that for the rest of Australians over the last 40 years or so.

As regards the income distribution for all households, what we do know is that from the early 1980s to around the time of the global financial crisis (2008-10), OECD data show that income inequality increased in most OECD countries, including Australia. Since around that time, income inequality as measured by the Gini coefficient has stabilised in Australia (see Table 1).

Table 1 Gini Coefficient for household income and wealth

ABS Survey of Income and Housing.

A Gini coefficient of 0 means all households have the same equivalised income, while a Gini coefficient of 1 means that one household has all the income.

Furthermore, Stephen Bell and I have shown in our book, Fair Share, (MUP, 2018), that the impact of technological change on the distribution of jobs was the main reason for the increase in inequality in the 1980s, 1990s and early 2000s. Unlike America, however, Australian Governments ensured that education and labour market policies responded to meet this shift in demand in favour of skilled labour. As a result, in Australia relative wage rates have remained pretty stable over the years, whereas the wage premium for a university degree doubled in the US.

In sum, inequality of pre-tax income is a bit higher in Australia than it was 40 or more years ago, but that increase has been much less than in America. Further, in the last 15 years or so, income inequality has, if anything, come down a little. And there is no reason to think that the experience of younger generations has been different from the average.

In addition, Paul Tilley (Australian Tax Review, 2025) has shown that the progressivity of Australia’s income tax system “has been relatively stable over the past 40 years – although with some notable short-term fluctuations”. It is, therefore, not obvious that younger generations are facing higher tax rates relative to the rest of taxpayers than in the past.

The cost of superannuation

However, the prime concern of those who are worried about the intergenerational distribution of incomes seems to be the impact of alleged superannuation tax concessions and how the elderly are paying less tax than previously.

But as Andrew Podger has pointed out (Pearls & Irritations, 31 August 2025_._), whether superannuation is taxed at a concessional rate is debatable. Treasury use as a benchmark the tax paid by someone when they are working and accumulating their superannuation balance, whereas Podger and I would argue that superannuation should be taxed when it is received, as it is in the rest of the world. But when people are retired and draw down their superannuation, their income is accordingly much lower than when they were working.

So using that retirement income as the benchmark, there is no superannuation tax concession. Indeed, Treasury modelling back in 2017 showed that some $20 billion of concessions based on taxing superannuation as it accumulates became a $10 billion negative tax expenditure if superannuation was taxed as it was drawn down. And today that difference would be even greater.

In short, for the vast majority, it is contended that there is no superannuation tax concession, although there is a concession for the very rich, which is a good reason for taxing superannuation balances of more than $3 million at a higher rate, as the government is proposing to do.

The other reason advanced by Treasury for taxing superannuation more is their contention that the income tax burden on Australians aged 70 and over has fallen from about 30% in the 1990s to only 16% in 2022-23. But, frankly, this was an inevitable consequence from the spread of superannuation, which was only introduced in 1992 and at the very low contribution rate of 3%, compared to 12% since last July.

Thus, the (intended) benefit of this increasing spread of superannuation is that the proportion of people of aged-pension age and who receive an age pension has dropped from about 80% in 2010 to under 70% in 2023-24 and is projected by Treasury to fall to about 55% in 2062-63.

This fall in aged-pension demand was, of course, one of the key reasons for the introduction of superannuation. Thus, far from superannuation being a burden on young people, it is reducing the cost to society of looking after the elderly.

Wealth distribution

In contrast to the general stability of income inequality, the inequality in the distribution of household wealth has continued to increase, and the extent of that inequality is also much greater (see Table 1).

Together, land and dwellings and superannuation account for nearly three quarters of household net worth, with housing accounting for about half of total net worth. But the extent of housing wealth reflects the fact that dwelling prices have risen massively relative to incomes, with the median dwelling price now eight times the median income, compared with as little as three times when my wife and I bought our first home 60-odd years ago. While in Sydney, even with two full-time incomes, buying an average house today will cost as much as 9.5 times the median wage.

Not surprisingly, dwelling ownership has become increasingly unaffordable for first-time would-be owners, and the rate of home ownership has fallen sharply for younger people. For example, census data show that home ownership among 30-34-year-olds fell from 64% in 1071 to 50% in 2021, and for 25-29-year-olds it dropped from 50% to 36%.

Further, young people are much less likely to own their homes outright, and this has led to a fall in the proportion of all households owning their homes outright; down from 41.8% in 1994-95 to 29,5% in 2019-20, and almost certainly even less today.

As a result, recent survey data show that as many as 40% of young Australians feel they might not have a comfortable place to live in the next 12 months.

In sum, the difficulties faced by young people buying their first home today is the main reason for the substantial increase in inequality of wealth distribution and is the main reason for intergenerational inequity. Too many young people feel that they are at risk of being left behind.

Reforms to improve housing affordability

Much of the discussion in the lead-up to the Economic Roundtable and after has been about the alleged impact of tax concessions for interest payments and capital gains on the price of dwellings and thus on housing affordability.

Certainly, there is a good case for returning to tax real capital gains, including housing, at the same rate as all other income. However, interest payments have always been regarded as a legitimate deduction from the income generated by investment. Whether that deduction should be limited to the income from the particular investment financed by the loan, or deductible from all income, is a moot point.

In any event, it is very doubtful that changing the tax treatment of capital gains and interest payments would make much difference to the price of housing. Of course, the incentive for people to invest and become landlords would diminish, but there will still be the same number of households seeking shelter. So, the total demand for housing will not change, although the mix of owner-occupiers and landlords will change a little.

Instead, the reality is that the unaffordability of housing for young people largely reflects a shortage of supply. If we are genuinely concerned then we need to focus on increasing that supply, and that will require reforms to increase the density of our cities.

Climate change

Finally, the other big threat to intergenerational equity is climate change, which could have devastating effects on future generations’ well-being.

We do have policies to address climate change and reduce the risks thereof, but if we are really fair dinkum and care about future generations, then the biggest reform which we should undertake is to (re)-introduce a carbon tax.

Indeed, last year Garnaut and Sims estimated that if a carbon levy applied only to domestic emissions at the Europeans’ carbon price, it would raise about $20 billion a year, “more than enough to generously compensate households for higher electricity, gas, petrol and diesel prices”. It would also help meet the future demands for government services and maintain intergenerational equity.

The views expressed in this article may or may not reflect those of Pearls and Irritations.