When Oliver Barley reflects on the four-bedroom house he bought in Perth around five years ago, he feels fortunate. The 33-year-old purchased the property for $780,000 during the COVID-19 pandemic. It’s now valued between $1.2 and $1.4 million.
“I don’t think we could afford to buy our house currently,” he tells SBS News, noting that the mortgage would likely be unaffordable, especially given his wife is now on maternity leave. Barley is astonished by how much his property’s value has increased since 2021, and he believes change is necessary. “I think we’ve reached what is very clearly a breaking point and a level of inequity that is no longer feasible,” he says.
His sentiment is echoed by many of his friends, who feel pessimistic about the housing market and their future prospects. “The numbers just don’t work,” Barley states. “Those who didn’t get on the housing market are now just looking at it as a ship that has sailed.”
Australia’s Tax System: A Catalyst for Inequality?
With housing increasingly out of reach for young people, experts are raising concerns that Australia’s taxation system could be fueling inequality and unfairly benefiting older Australians. For decades, the country has provided financial support to older residents as they retire and their incomes drop. However, spending per person on the age pension, aged care, and health care has increased significantly in the last 30 years, while expenditure targeting younger households has remained relatively constant.
Generous tax arrangements have allowed older Australians to accumulate significant wealth linked to their real estate and superannuation assets. Despite this growing wealth, the tax system has not adjusted, continuing to provide increased support for older generations. A working paper from the Australian National University’s (ANU) Tax and Transfer Policy Institute found that post-tax income for the over-60s was almost equal to that of younger cohorts between 2013/14 and 2022/23.
“Current settings increasingly favour older Australians at the expense of younger Australians,” the report notes.
Generous Concessions and Their Impact
ANU economic and social researcher Ben Phillips points out that not every older Australian is wealthy, and despite concessions, some would still be struggling. According to the Association of Superannuation Funds of Australia, a couple who owns their home still needs a combined $730,000 in superannuation to enjoy a comfortable retirement. Data from the Australian Tax Office revealed that around 92% of Australians with super had a balance of less than $500,000 in 2022/23.
Phillips argues that tax concessions such as those for negative gearing, capital gains, and superannuation have some legitimacy, but he believes Australia is too generous, especially regarding super. “We do see this increasing gap where it’s older Australians getting richer,” he says.
Property prices in Australia have skyrocketed over the last 40 years, with a PropTrack study showing Sydney properties were four times higher than in 1980, adjusting for inflation.
Levelling the Playing Field
Phillips believes Australia needs to change its tax system to rein in generous concessions that generally benefit older cohorts. He suggests this does not have to involve increasing taxes overall. “It’s probably about rebalancing how we tax in Australia,” he says. Lowering the tax concessions could allow for reductions in personal income tax.
Economist Chris Richardson of Rich Insight believes Australia has made two big policy mistakes — both of which have hurt the young while benefiting older Australians. These mistakes center on housing and, to a lesser extent, the share markets. Richardson notes that Australia is more generous with retirement support for wealthier residents through super tax concessions than it is for those on low incomes.
“What we are doing is spectacularly unfair and comes at a pretty massive cost. So a little touch of fairness would be a grand thing,” Richardson says.
Comfortable in Old Age, Struggling in Middle Age
Financial stress tends to be highest among younger and middle-aged Australians. According to the latest Household, Income and Labour Dynamics in Australia survey, people aged 65 and over consistently report the lowest levels of financial stress, with only 6% saying they were stressed in 2023 compared to 14% of younger cohorts.
Phillips emphasizes that just because someone has turned 60, it doesn’t mean they should pay no tax aside from GST on purchases. “There should be some concessions, but at the moment you’ve got extremely wealthy households who are over the age of 60, who are paying not a cent of tax on their earnings,” he says.
Future Tax Reforms and Housing Affordability
As Australia’s population ages, a smaller proportion of young people will be expected to support older generations. By 2050, there could be just 2.7 people of working age for each person aged 65 or older, compared with five people in 2009, according to the Rudd government-commissioned Henry tax review.
Phillips suggests that Australia may have to increase taxes to support its ageing population due to higher aged care and pension costs. If so, it would be fairer to reduce tax concessions on superannuation rather than squeeze more money out of people who pay income tax.
Over the past 15 years, Australia has increased taxes through bracket creep — meaning workers pay more as inflation pushes them into higher tax brackets.
Options Being Considered by Government
Treasurer Jim Chalmers has acknowledged “intergenerational issues in the tax system and in housing.” A Senate inquiry was established last year into the operation of the capital gains tax (CGT) discount, with a report due on March 17. New rules to limit negative gearing to two investment properties are also being examined.
Chalmers says the government has tried to address affordability issues by building more homes and offering 5% deposit guarantees for first-home buyers. However, he acknowledges there are other options being considered as part of the upcoming budget.
Opposition leader Angus Taylor expressed skepticism about changes to negative gearing or the CGT, stating it’s “highly unlikely” he would support such changes.
Housing Reform: A Long-Term Battle
Experts acknowledge that reforming negative gearing and the CGT won’t solve the housing affordability problem but could slow price growth. Richardson believes other changes, such as reforms to planning regulations, will also be necessary to bring down house prices.
“For 40 years in Australia, our housing policy has been the word ‘no’. It needs to change to the word ‘yes’,” Richardson says.
He emphasizes that housing affordability is a complex problem and will be a “battle that will be fought for decades.”
Victoria Provides Hope for Aspiring Homeowners
Barley remains hopeful that change can happen, pointing to Victoria, which appears to have cooled its housing market. Data from Domain shows property values in Melbourne are growing at the slowest rate of all capital cities. Changes to tax policies in Victoria have made it less appealing to investors, including forcing more homeowners generating income from their property to pay land tax.
Kate Raynor, an urban planning expert with public policy think tank Per Capita, notes that Victoria also approves more new homes than other Australian states and territories. “I would definitely be in support of changes similar to those [in Victoria],” Barley says.
He also supports changes to the capital gains discount but fears incendiary commentary over even the most modest changes. “It doesn’t seem like we can have a reasonable conversation about this because the extremes just get pushed so hard,” he concludes.
