Intergenerational inequality is one of the greatest current challenges in Australia. This inequality is creating a growing gap in opportunities and well-being between older Australians and younger generations.
Addressing that gap is key to a fairer, more harmonious and socially cohesive society and a more financially secure future for this country. A future where governments can afford to fund the services Australians need and reduce our national debt which will reach $1 trillion before 30 June 2026.
The impacts of intergenerational inequality are most apparent when considering housing affordability, debt levels and the contrast between how much income tax young working people pay compared to retired Australians, who often have no debt and pay little or no income tax on their superannuation pensions.
While some younger Australians may have parents or grandparents who can afford to give them money to help enter the property market, they are the lucky ones. Many are not so lucky and a fairer tax system is what’s required, not reliance on the ‘bank of Mum and Dad’.
Ideas for a fairer tax system
Seven major tax reforms are needed to address inequality:
- Indexing the income tax marginal rate thresholds to address bracket creep will help working Australians.
- Reducing the capital gains tax (CGT) discount (which primarily benefits wealthy Australians) from 50 per cent to 25 per cent over five years – as proposed by ACOSS, Vinnies and The Grattan Institute.
- Reintroducing a Minerals Rent Resource Tax.
- Reforming the Petroleum Rent Resource Tax so it produces the intended tax revenues.
- Introducing a Carbon Tax (proposed in late 2025 by the Productivity Commission) or a Carbon Solutions Tax (proposed by the Superpower Institute).
- Capping superannuation balances at $3 million and taxing super pensions received by over 60s above a certain threshold.
- Introducing an inheritance tax on deceased estates of wealthier Australians.
Reforms 1-5 have been recommended by Dr Ken Henry AC, the former Treasury Secretary and several other highly respected experts.
Super and inheritance taxes have been identified by experts as necessary areas for reform but without specific detail, which is where the following suggestions come in.
Super
Australia has a good superannuation system and concessionary rates of tax on earnings in super are important so Australians can have a comfortable retirement.
Super pensions for over 60s are tax exempt or largely tax free. These tax concessions were introduced in 2007 to encourage Australians to self-fund a reasonable retirement and reduce pressure on the government age pension. However, inadequate limits on contributions – especially until recently – enabled some Australians to raise their super balances beyond reasonable levels. Some Australians have more than $100 million in super. For many very wealthy Australians, super has become a tax shelter.
To make the system fairer, the total amount allowed to be held in super per person should be capped at $3 million (indexed annually by the CPI) so that the tax breaks only apply to a ‘reasonable retirement’.
Also, retirees with significant incomes – above the ‘comfortable retirement level’ of an annual super pension of $54,000 (determined by the Australian Financial Security Authority) should pay income tax to fund the services they enjoy. The current marginal tax rates would apply: 30 per cent plus two per cent Medicare levy on amounts above $54,000.
This change would have no impact on an Australian retiree aged 60-64 with an average super balance between $300,000 and $450,000 (which may equate to an annual super pension of between $20,000 and $25,000).
Inheritance Tax
Inheritance taxes, which currently exist in 26 out of 38 OECD countries, should be introduced in Australia. The tax should apply to an estate valued at $5 million or more, with concessions for:
- the family home, if it is passing to a surviving spouse who has no other home;
- family farms valued under $8 million which pass to family, to be run by them as a going concern for at least three years.
Tax could be calculated as a percentage of value of the estate, starting at five per cent for the excess over $5 million, with a sliding scale.
The Federal Government cannot afford to fund the services Australians need or meet its financial obligations without a fairer tax system: based on affordability and a more reasonable distribution of wealth.
Genuine reform is essential – not making cosmetic changes which achieve little and merely kick economic challenges, poverty and intergenerational inequality down the road for future governments and Australians to grapple with.
Australians, including older and wealthier citizens, are not to blame for taking advantage of existing and past tax concessions but they should pay more tax for the services they enjoy.
It’s the current system that’s at fault for contributing to inequality and it needs fixing – urgently.
IMAGE: of Australian dollars by Melissa Walker Horn
