The recent report from the ACOSS and UNSW Sydney-led Poverty and Inequality Partnership, Inequality in Australia 2024: Who is affected and how featured analysis of wealth inequality by age.

This is topical, with media reports highlighting the accumulated wealth of older people and lack of it among young people locked out of home ownership.

There is a large wealth gap between older and younger people

We found a large wealth gap between households headed by older and younger people. In 2022-23, the average older household (64 years +) was 25% wealthier (with $1,584,000) than the average middle-aged household ($1,265,000) and almost four times as wealthy as the average younger (under 35 years) household ($410,000).

Just over a third (34%) of all wealth was held by the 25% of older households, while only 7% was owned by the 20% of younger households.

Of course, older people have more time to accumulate wealth. That doesn’t explain why, over the two decades from 2003 to 2022 the share of all wealth held by older households rose from 27% to 34% (twice as fast as growth in their share of the population) while that of younger households declined from 8% to 7%.

Over the same two decades, overall wealth inequality increased: the share of wealth going to the highest 10% of households (ranked by wealth) grew from 42% to 44% while that of the lowest 60% declined from 20% to 17%. By 2022 the highest 10% had average wealth of $5.2 million, three times that of the next 30% (with $1.5 million) and 15 times that of the lowest 60% ($343,000).

But growth in wealth inequality is not just about age

We get a clearer picture of wealth inequality if we divide younger, middle-aged and older households into three groups based on their wealth: the lowest 60%, the upper-middle 30% and highest 10%.

When we break down the figures in this way, we find that the main beneficiaries of growth in wealth inequality were a wealthy older minority (those in the highest 10% and over 64 years old):

They comprised just one sixth of older households yet held just over half the wealth of their age group. These 370,000 wealthy older households had average wealth of $5.6 million. They comprised just 4% of all households yet held 18% of all household wealth.

At the lower end of the wealth scale, half of all older households had an average wealth of $435,000.

Of the overall increase in wealth over the last two decades, almost half (45%) went to the highest 10% of households and almost half of that (22%) went to wealthy older households – remember they are just 4% of all households.

Also notable is the strong growth in wealth inequality among younger households, even though they had only 7% of overall wealth and most were not yet purchasing a home:

Among younger households, the highest 10% (with average wealth of $2 million) held almost half (49%) of all wealth while the lowest 60% (with $80,000) held just 12%.

Much of the wealth of the highest 10% was in shares and other financial investments (26%) or investment property (22%) rather than owner-occupied housing (36%).

When we compare wealth among young people with different incomes, it’s clear the source of this wealth is not mainly their own earnings – these assets were mainly passed down from older generations (including the ‘bank of Mum and Dad’).

Over the past 20 years, the average wealth of the highest 10% of younger households rose by 126% compared with just 39% for the lowest 60%. When it comes to wealth accumulation, some young people are doing very well indeed while most are just treading water.

What can be done to reduce wealth inequality?

In the past, personal income tax was a key brake on growth in wealth inequality. If income from invests such as property, shares and interest is taxed, this slows down wealth accumulation. A progressive income tax is supposed to slow it down more among those who are already wealthy.

Yet there are yawning gaps in the investment income tax base. Capital gains from sale of property or shares is only taxed at half individual marginal tax rates. Negative gearing allows investors to borrow more to accelerate wealth accumulation (while exposing themselves to greater risk). The investment income of superannuation accounts is not taxed at all in the so-called ‘retirement phase’ once people are paid a superannuation benefit.

We looked at the average income tax rates paid by the highest 10% of households ranked by wealth, broken down by age group, and the proportion that paid any income tax. On average, around two-thirds of the assets of wealthy households are investment assets (financial assets and investment property) as distinct from their own homes, so we would expect income from those assets to attract income tax:

Among younger and middle-aged wealthy households, the average income tax rate was 28%. This is inflated by tax on their earnings as most have relatively high wages as well as substantial investments.

Among wealthy older households – who had investment assets averaging $3 million or more - the average income tax rate was just 16%.

Strikingly, 38% of wealthy older households paid no income tax, compared with 10% of wealthy young or middle-aged households.

The conclusion is clear: many people with ample capacity to contribute to the costs of the services and supports provided by government are contributing little. Gaps in the income tax treatment of investments are probably responsible for this.

Closing those gaps – for example by taxing the investment income of post-retirement super accounts and taxing capital gains at levels that are closer to standard personal income tax rates – would help stem growth in wealth inequality.

Further, we need to find solutions to the housing affordability crisis that blocks access to home-ownership (and secure affordable rentals) for young people. Otherwise, disparities of wealth are likely to become more pronounced and more entrenched as younger people grow older.