How to create a better Australia for Generation Next

Grattan Institute CEO Danielle Wood delivered the annual Giblin Lecture in Hobart last week. A partnership between the University of Tasmania and the Tasmanian branch of the Economic Society of Australia, the lecture is named for the eminent Australian economist, Lyndhurst Falkiner Giblin.

Danielle used the occasion to issue this plea: “Let’s drop the petty generational warfare, and work together to ensure that the Australia we leave to our children is better than the one we inherited.”

And she set herself this tough task: “I want to explore the issues that young people tell us are keeping them up at night, and let them know why this has happened but also what we might as a nation do about it.”

In this special edition of the Grattan Podcast, we present a recording of Danielle delivering the lecture, complete with slides:

Transcript

Thank you very much for that kind introduction, Stuart and Mary, and I’m delighted to be here on beautiful Nipaluna land, and I would also like to pay my respects to Elders past and present. Thank you to the University and to the Economic Society for hosting us tonight. And I was really honoured to be asked to give this lecture.

On behalf of the excellent Tasmanian economist Linhurst Giblin. I actually first became aware of Giblin when I was studying at Melbourne Uni, and we had a building that I was studying at the time, it was called the Giblin Building. So I decided to have a look as to who he was. And at the time, actually, what impressed me most was the incredible diversity of his career that Mary alluded to there, but economics professor, head statistician of Tasmania, unsuccessful gold prospector, timber cutter in Canada, member of the Commonwealth Grants Commission, rugby union player for England, as was mentioned.

Fruit grower in Tasmania, soldier in the First World War, and director of the Commonwealth Bank. I think that’s a pretty extraordinary career in anyone’s books. But actually now, what impresses me most when I look back is his emphasis and skill at economic communication. He prioritised explaining economics to the general public.

His colleague who was also an economic professor, Torleave Heighton, wrote of him. Economics has always been called the dismal silence, science, and one must admit that many of its proponents tend to be dull writers. But that could never be said of Giblin. Perhaps none of his writing could be classed as high theoretical value, but sheer common sense and good humor has made him a valuable proponent of economic theory for the uninitiated.

One never gets tired of reading because his argument is always clear and is brightened with some breezy remark. Giblin’s series of press articles during the Great Depression, titled Letters to John Smith, The Causes of the Crisis, was an attempt to explain to a bewildered and hurting public what was going on, as well as to make the difficult case that wages would need to fall to remedy the situation.

His book on Australian tariffs, which was co authored with several other leading economists, Was a masterclass in nuance discussion of both direct economic effects, but also distributional impacts and effects on psychology and national identity. It stands to me as a useful reminder of how stripped back economics became in later decades deliberately abstracting from important contextual understanding of social impacts of policy and policy change.

So it was a real highlight for me to read some of Gland’s work in preparing for this lecture. I think his clear and robust writing combined with clear and robust thinking, sorry, combined with great writing is rare in economics, and I really want to recognise that aspect of his contribution tonight.

And so on to our topic this evening. Picking apart the nuances of outcomes between generations does require a Gibbleness focus on context and psychology. On many measures, living standards continue to improve over time, and some will argue that young people have never had it better. But survey after survey shows that young people are struggling with the economic hand they’ve been dealt.

A 2022 Pew Research survey showed that 72 percent of Australians thought that Australian children growing up today would be financially worse off than their parents. This was a 14 percentage point increase on the previous year.

In a recent survey of Gen Zs, Gen Zs I should say, sorry I’m in Australia, one in three reported struggling with their mental health. Two in three reported problem sleeping. When asked about what issues were keeping them up at night, 78 percent chose cost of living, 67 percent chose housing and rental affordability, and 60 percent nominated climate change.

In other words, economic and environmental issues loom large for today’s youth. And that is understandable, because today’s policy landscape, sometimes by accident and sometimes by design, has prioritised the needs of older generations over those of today’s young people, now and in the future. So, this evening I’m going to explore those issues that young people say are keeping them up at night.

And in the spirit, although probably not the execution of Giblin, I want to try and let them know why this has happened, but also what as a nation we might do about it.

Part one, navigating a cost of living crisis with less economic fat. It is no secret that in the past year and a half, the affordability of a whole range of goods and services has declined. Since December 2021, CPI has grown on an annualised basis of 6. 7%, including increases of 9 percent for housing, more than 8 percent for food, and more than 5 percent for transport.

Those are the three biggest items in the CPI basket. Over the same period, base wages have grown by only 3. 2%. Meaning that for the average Australian wage earner, their real living standards have gone backwards. If we put housing costs to one side for now, these increases in the cost of goods and services have hit all age groups and indeed, Grattan Institute analysis doesn’t find evidence that young people have seen the cost of their basket of consumption grow faster than older Australians.

But there are reasons why inflation is hitting young people particularly hard. Younger people have less economic fat to buffer them against the current rise in real living costs. First, because they have less discretionary spending in their consumption bundle. That means they have less scope to cut back before they start hitting essentials.

Households headed by someone over 45 spend substantially more as a share of income on housing and education than older households. Of the non discretionary items, only health spending is substantially higher for older households. And this reflects a longer term trend. In the pre COVID world, the growing cost of essentials, particularly housing, meant that younger people had increasingly orientated their consumption bundle towards essentials.

Indeed, if we look at the period from 1989 to 2016, non essential spending actually shrunk for young people in real terms. Indeed, all households headed by someone under 55 shrank their spending on non essentials during that time. It was partly helped by the decline in costs of some of the nice to haves, like clothing and household furnishings.

But for older households, the reduction in spending in these categories was smaller, and was dwarfed by an increase in spending in recreation, which includes travel.

So despite the regular hand wringing about millennials choosing smashed avocado over financial responsibility, Even before the recent pressures younger people had increased their spending less than older generations. And all of the growth in young people’s spending that you see there was because of spending on essentials.

The second reason is that younger people tend to have less in the way of wealth buffers. So people who are trying to maintain their consumption in periods where prices are growing faster than incomes, have two choices. One way is to reduce savings, an effect that has certainly been very apparent in the decline in the household savings ratio in recent times.

And the other is to draw down on wealth, so called negative savings. For those that don’t have savings to cut back on, young people have less in the way of wealth buffers to rely on. The average household headed by someone aged 25 to 34 had 317, 000 in net wealth in 2016. The vast bulk of that was in house or superannuation, which is not something that they are able to access.

For households 65 to 74, that figure is 1. 3 million, including a much higher share of liquid assets. The effect overall is that young people just have far less peace of mind around their capacity to cope with economic shocks, and that includes a period of very high price growth. A 2019 survey found that amongst 18 to 24 year olds, only half would be able to cover living expenses for one month if they lost their job tomorrow.

This is consistent with ABS data that shows that in 2019 20, half of all 18 to 24 year olds had less than 2, 000 in the bank in case of emergency. The third and final way in which young people are being particularly squeezed is the economic policy response to high inflation. Monetary policy remains our frontline tool for dealing with prices growing more quickly than we would like.

The Reserve Bank, like other central banks around the world, has responded aggressively to stamp out the current bout of inflation. It has increased interest rates 12 times, for a total rise of 4 percentage points since March 2022. A strong and despisive response from the Reserve Bank was ultimately the best thing for the country.

If we fail to take inflation seriously, we do end up with a bigger mess to clean up later. But, as the Reserve Bank Governor Philip Lowe reminds us, the cash rate is a blunt tool to slow inflation, and one that has very different impacts for different groups. As he noticed in his recent appearance before the Standing Committee on Economics.

Some people in the community are finding things really difficult from higher interest rates, and other people are benefiting from it. Nowhere is that differential impact more pronounced than across age groups. One key channel that interest rates work in slowing the economy is through squeezing household cash flows.

Higher interest rates reduce the spare cash flow of households with debt, particularly mortgages. The effect is to reduce spending for the more than three million or one third of Australian households in this group. compared to the counterfactual. But mortgage debt is concentrated amongst 25 to 65 year old households and is particularly large in net terms, sorry, amongst 35 to 55 year olds.

So to be more specific, it is the middle and high income millennials and Gen Xs, as well as the high income Gen Zs, who are on the front line of the Reserve Bank’s attempts to crunch consumer spending. The flip side of that household cash flow channel is higher incomes amongst those who hold interest earning assets.

While high inflation has eroded the value of savings, the response to high inflation, higher interest rates, has put more money in the pockets of people that hold those assets. The beneficiaries of this channel have been overwhelmingly older Australians. Indeed, those over 65 benefit in net terms from the cash flow effects of high interest rates.

Richer, older households are estimated to have a cash flow boost of more than a thousand dollars since interest rates started going up. And this puts aside the cash savings many older households can access in their super. Up to 16 percent of all accessible variable interest rate assets sits in the super accounts of older, mainly wealthier Australians who can withdraw and spend that extra interest.

Of course, the cash flow channel is only one way in which interest rates affect the position of households. Higher interest rates may also reduce spending through so called wealth effects by reducing the value of houses and shares Although the evidence of the strength of that effect is mixed that could have a more pronounced effect on older Australians given they hold a lot more assets But so far, this tightening cycle, any wealth effects on spending seem to be muted, as I’ll show you in a moment.

This may reflect the fact that older households are still spending down large excess savings accumulated during the pandemic, but it also could be because despite trending downwards in the face of higher inflation, the real value of property and shares is still above pre pandemic levels. So if we pull this all together.

How have different age groups fared in the current cost of living crisis? One important way to look at it is to look at how household consumption has changed. If we look at data published by the Commonwealth Bank, which is using the credit and debit card purchases of over 7 million customers, We can see that spending changes over the past year have been highly correlated with age.

Over 55s are living large, as the kids say. Per capita spending has significantly outpaced inflation. Younger people’s real consumption has substantially shrunk over the same period. And those declines have been particularly 40. The enthusiastic spending of older Australians is probably partly revenge spending, catching up on the opportunities lost during COVID.

and drawing down on the excess savings accumulated that period. But it is also likely to reflect the tailwinds of higher household cash flows because of higher interest rates. So where does that leave us? Australia’s young people are navigating a cost of living crisis with less economic fat and with the major policy tool to respond to inflation stacked against them.

But the degree of difficulty for that short term challenge is heightened by longer term structural changes. For today’s young people, the slow burn issues of an education system under pressure, unaffordable housing, a climate crisis and growing government indebtedness looms large.

Part two, letting down our kids in school. Education is critical to a flourishing modern economy. Jobs and Skills Australia estimate that nine out of ten new roles in the next five years will require some form of post school education. This reflects the longer term trend of the economy towards services.

Many requiring a university degree or a vocational education and training qualification. But for young people to flourish in this new economy, we need to get the foundations right. Despite growing funding, Australia’s school system has not been delivering the results that we want for our young people.

Data from the OECD shows that the performance of Australian school students in reading and maths, both compared to other countries and compared to our own performance over time, has been going backwards. The average Australian 15 year old student is now more than one year behind in maths compared to where students of the same age were at the turn of the century.

For reading, that’s about nine months.

Perhaps even more concerningly, the learning gap between students from advantaged and disadvantaged more than doubles between 9. The same is true in Tasmania, where the reading gap is equivalent to more than five years of learning by the time you get to Year 9, for those whose parents have a Bachelor degree or above, compared to those whose parents did not finish high school.

The 2023 NAPLAN results also paint a concerning picture of student achievement in Tasmania. Tasmania is below the national average in reading and numeracy in most year levels. And about 40 percent of Tasmanian students are below expectations in their year level compared to about 33 percent nationally.

That is roughly 10, 000 Tasmanian students who sat a NAPLAN test and were identified as not on track with their learning. I’m going to talk more later about what we can do to turn this around, but for now I just want to make the obvious point. This should be a first order policy priority. Not acting handicaps our future growth.

Indeed, as Bill Gates has argued, the best leading indicator of a country’s economic outlook in 20 years time is the performance of its education system. But it also handicaps those young people. If we do not equip them with the foundational skills, we will magnify those other challenges coming down the pipeline.

Part three, forever renters. Since World War II, Australia has been a nation of homeowners. Homeownership rates peaked at more than 71 percent in 1966. Almost three quarters of the nation was on the property ladder, living the dream. Homeownership was celebrated as an indicator of success, security and quality of life.

Homeownership rates declined gradually in following decades. But then sharply since the 1990s, when house prices and income started to diverge. At the 2016 Census, home ownership rates were at their lowest level since 1954. But what is striking is the drop, particularly amongst young people. In 1981, when the boomer generation was settling down and having families, 68 percent of 30 34 year olds owned their own home.

In 2021, the equivalent figure was 49%. And the falls have been particularly pronounced for poorer, younger people, challenging the suggestion that home ownership rates reflect different preferences of today’s young people. Young people want to own their own home as much as ever, but the fact remains it is now only the richest young people or the ones with the richest parents who can afford to.

Why is this? Mainly because house prices have exploded over the past 25 years. Until the late 1990s, house prices broadly moved with incomes. But between 1992 and 2018, they grew almost three times the pace of incomes on average. The implications for aspiring homeowners are very real. First, the time taken to save for a deposit has increased dramatically.

In the early 1990s, it would take the average Australian about seven years to save a 20 percent deposit for a typical dwelling. Now it takes 12. Second, while low interest rates pre COVID helped with the cost of servicing the substantially larger loans needed to buy, they have increased repayment shock for a given level of interest rates.

So next time your boomer uncle regales you with horror stories about 17 percent interest rates of the early 1990s, it is worth reminding him that 6 percent rates today are as painful as 17 percent rates then for the typical borrower. Indeed, the costs of servicing mortgages today as a share of total household income are higher than they were through the 1980s and 1990s.

There have been two big implications for young people from this shift. First, there is a much higher share of young people in the rental market, many of whom will be forever renters. This means that many more young families and in time more retirees living in rental properties. Grattan Institute projections suggest that home ownership rates for over 65s will fall from close to 80 percent today.

to 65 percent by 2056. That puts a premium on stability of tenure. Being forced to move or worrying about the possibility of having to move is a particular problem for families with children in school, for older people who don’t want to move away from their communities, and for poorer people who struggle to afford the cost of living.

for the cost of moving. Yet renters have little assurance that they can stay in a place as long as they want. Most tenancy agreements have a fixed term of one year or sometimes less. Then they turn over to periodic leases, what we call month to month leases. Renters move much more often than homeowners.

Two thirds of private renters moved in the past two years compared to one quarter of owners with a mortgage. And more of today’s under 35s are going to face a lifetime of this churn under current policy settings. The second effect is to create a huge disparity in wealth accumulation across generations.

Older households have always had more wealth that is not, that is to be expected. But the rapid run, run up in house prices has created windfall gains for existing homeowners. This has been a major contributor to the rapid growth in wealth amongst older households. A household headed by someone aged 65 to 74 has on average 1.

3 million assets in 2017, up from 900, 000 for the same age group in 2004. Rising asset prices over the past seven years mean that that figure is almost certainly now substantially higher. In contrast, the wealth of households under 35 has barely moved in that period. And for poorer young Australians, they actually have less today than poorer young Australians did 15 years ago.

Part four, the Jane Austen world. The inevitable riposte to these concerns about widening gaps in generational wealth accumulation is that inheritances will fix the problem. And it is true that inheritances will be a huge feature of the Australian economy in coming decades. With a swelling of our national household wealth of 14.

8 trillion, up more than 190 percent since the GFC, most in the hands of older Australians, there is an awfully big pot of wealth to be passed on. Big inheritances boost the jackpot from the birth lottery. Richer parents tend to have richer children. Among those who received an inheritance over the past decade, the wealthiest 20 percent received on average three times as much as the poorest 20%.

The Productivity Commission projects that amongst current retirees, just 10 percent of all inheritances will account for more than half the value of bequests in coming years. And inheritances are increasingly coming later in life. As the miracles of modern medicine have extended life expectancy, The age at which children inherit has increased.

The most common age to receive inheritance is late 50s or early 60s, much later than the money is needed to ease the mid life squeeze of housing and children that current millennials face. Of course, many parents are also dipping into their savings to help their children into housing now. Indeed, former Reserve Bank Assistant Governor Lucy Ellis explained that this is now the only realistic way.

for many young Australians to enter the housing market. But this too is mainly the domain of the wealthy. Large intergenerational transfers can change the shape of society. They mean that a person’s economic outcomes relate more to who their parents are. than their own talent or hard work. French economist, Thomas Piketty, has warned of a Jane Austen world where inequality is exacerbated by ever growing inheritances.

Easing intergenerational inequality means policies that work for the whole generation, not just those lucky enough to have a private safety net. Part 5. I’ve paid my taxes. Tales from the frontline of the intergenerational swindle. Demography is destiny, also French sociologist Auguste Comte told us.

Every few years, the Australian Government releases the Intergenerational Report, reminding us of one facet of this destiny, that without policy action, an ageing population and other changes will leave public finances looking ugly. The report highlights, without policy change, budget balances over the next decade will be a sea of red.

Net debt will stabilise and fall over the coming decade. before starting to creep up again as a share of GDP from the mid 2040s and rising to around one quarter of GDP again by the 2060s. Interest payments as a share of GDP before reaching 1. 4 percent of GDP by 2062. The same is true of the position of state governments.

Currently in NSW, which is the only state to put out its own intergenerational report, as you can see the chart there, suggests that the fiscal gap, the gap between its revenue and expenditure, will also widen over the decades. Sadly, it’s time to put my back in the black mug, back in the cupboard again, and maybe never get it out.

The underlying structural budget challenge comes from the different size of generations. and the implicit generational bargain that we’ve weaved through our tax and welfare system. Working age Australians, as a group, are net contributors to the budget. They pay more in in taxes and they get back in welfare benefits and spending.

These contributions support older Australians who take more out in spending and pension payments than they contribute in taxes. Today’s working age Australians anticipate that the generation after them will support them when they get to retirement age. So far, so fair. But what will make it more challenging for today’s young people to uphold their end of the bargain is that the destiny of demography is working against them.

The number of working age Australians for each person aged 65 and older fell from 7. 4 in the mid 1970s to 4. 4 in 2015, and is projected to fall to just 3. 2 in 2055. Now, this could be seen as just bad luck for today’s young people. There are swings and roundabouts that every generation has to grapple with.

But what I think is less easy to accept is a series of policy decisions that have substantially increased the size of the intergenerational transfer, those intergenerational transfers supercharging the future demographic pressures. The size of transfers, average spending per household minus tax contribution, has grown sharply for older Australians.

There are a range of reasons for this increase. First, health spending per person is climbing. Commonwealth health spending grew in real terms by about 40 percent from 2002 to 2019 20, and then even faster during COVID. State health spending has also considerably outpaced inflation and population growth over past decades.

Second, aged care spending is also growing strongly. Australian government spending on aged care per person more than doubled in real terms over the past 15 years.

These are also areas where strong future growth in spending is anticipated. The five main spending pressures highlighted in the intergenerational report, the NDIS, aged care, interest payments, healthcare and defence, are all expected to grow by more than 5 percent a year, each and every year on average over the next 40 years.

In total spending on these Fast five is expected to grow from 8.8% of GDP today to 14.4% of GDP by 2062. Most Australian support increased health and aged care spending, and the result of that, spending older people, living longer, healthier, more fulfilled lives is something that we should be proud of as a nation.

But at the same time, we have decided as a country to pay more to support those better outcomes. We have made a series of tax policy decisions, tax free super in retirement, refundable franking credits, special tax offsets for seniors, which mean that we now ask older Australians to make a much smaller contribution to the delivery of services than we once did.

Incomes for households over 65 have more than doubled over the past 25 years, substantially faster than the growth for households under 55. But households over 65 pay virtually no more income tax than people of that same age did 25 years ago. Indeed, the share of older households paying any tax fell from 27 percent in the mid 1990s to 17 percent pre COVID.

And that has contributed to a tax system where someone’s date of birth is almost as important as their income in determining their tax contribution. An older household with an income of 100, 000 pays about the same amount of tax as a working age household on 50, 000. There is simply no policy justification for this degree of age segregation in the tax system.

One argument that is sometimes advanced to defend the generosity of age based tax breaks is that older Australians have paid their taxes. But the idea of a tax system as an individual piggy bank is silly if you believe in the idea of a progressive tax and welfare system and the provision of public goods like roads and defence.

And nor does it hold water in a generational sense. Younger households today are underwriting the living standards of older households to a much greater extent than in the past. People born in the late 1940s, at the beginning of the baby boom generation, reached their peak contribution to the tax system in their 40s.

At that point, they were contributing an average of 3, 200 a year in today’s dollars. to support older generations in retirement. An average 40 year old today, born at the start of the millennial generation, is paying 7, 300 a year, more than they are contributing to their own retirement through compulsory super.

Under current policy settings, the child of today’s 40 year old will need to pay an inflation adjusted 11, 400 by the time he or she reaches 40, just to sustain the current levels of benefits for retirees. That is what the intergenerational report reminds us of, that without policy change we kick the can down the road.

Budget deficits grow ever bigger, net debt will increase as a share of the economy in decades to come. And these projections rely on income taxes to do the heavy lifting, rising from about 50 percent of tax receipts today to 58 percent in 2062. And this higher tax will be collected from a narrower base of working Australians.

This unwanted fiscal inheritance will fall on the generation of Australians whose wealth has stagnated, the same generation who missed the property boom or face rapidly escalating costs to service their mortgage.

Part 6, Code Red for our morality. But all these debates about tax and even house prices seem small compared to the ultimate generational transfer. The impost of a changing climate and the shifting of most of the heavy lifting on mitigation to the next generation. Climate change debates come with thorny ethical issues.

To what extent should we discount future harms from today’s decisions? How do we factor in likely improvements in technology in deciding the right time path for action? How much extra lifting should the developed world do to reflect the fact that we have already reaped the economic benefits from carbon intensive development?

Well, these are interesting and important questions. The bottom line is we are a very long way from these grey zones. The world has not done enough and is unlikely to do enough to keep temperature rises within the 1. 5 degrees needed to avert serious and potentially irreversible shifts in environmental systems.

Scientists estimate that at 1. 5 degrees. which we are likely to exceed in the next decade. Intense heatwaves will happen at almost four times the historical rate, and droughts and floods at almost twice the historical rate. Already in 2023, we have seen the hottest month ever recorded, June this year.

Four consecutive months where global ocean surface temperatures have hit new highs. Wildfires ravished Hawaii in August, another extreme weather event that scientists warn we will see more of. At rises of two degrees, which is on the cards between now and 2050, without much more significant ambition from the world to reduce emissions, Bushfires of the magnitude of our disastrous 2019 20 summer will be four times as likely to occur.

Also at 2 degrees, only 1 percent of corals in the Great Barrier Reef will survive. Large parts of the world will become uninhibitable, and the World Bank predicts there will be 143 million climate refugees by 2050 in sub Saharan Africa, South Asia and Latin America alone. It is in the worlds of United Nations Secretary General Antonio Guterres.

A code red for humanity. And while Australia and most of the world has now committed to a pathway to net zero, the so far glacial pace of change risks leaving young Australians with both the fallout and most of the hard work on mitigating emissions. Last week’s intergenerational report laid bare the economic costs facing younger generations.

Left unaddressed, the impact of higher temperatures on the way we work will flow through to lower labour productivity, costing us between 135 billion and 423 billion a year in the long run. If we look at the current path on emissions reduction,

we can see that emissions are trending downwards, albeit slowly. Even if we manage to get on the red path that the current federal government has promised, including 82 percent renewable energy penetration by 2030, and a fully implemented set of safeguard reforms to reduce industrial emissions, we will still need to up the pace of change from 2035 and beyond.

Indeed, if we don’t pick up the pace now, we are going to leave ourselves with a costly and disruptive tasks to get on the right trajectory through the 2030s and 40s. When we look at emissions by sector, the source of the current challenge is evident. Emissions are coming down in the electricity sector, although not as fast as we need.

Given the importance of this sector as an emitter and its role in decarbonisation of other crucial sectors such as transport and industry. Outside of electricity, we have made virtually no progress. We are yet to bend the curve on agriculture, transport or waste emissions. The government will need to land its safeguard mechanism to achieve the projected reductions in industrial emissions.

The scale and pace of change required have led my Grattan Institute colleagues to dub it an industrial revolution. on a deadline. Against the backdrop of this urgency, I almost fell off my chair a few weeks ago when I heard the leader of one of our major political parties call for a pause in the rollout of wind, solar and transmission infrastructure.

After at least four decades in neutral on climate policy, And the world now boiling is asking for more time for honest conversations, the best we can do. Which brings me to the gaping hole at the centre of the debate on climate policy in this country. Why, despite the tsunami of coverage, is there almost no mention of the intergenerational case for taking action?

Since Kevin Rudd’s response to the greatest moral challenge fell over at the first political hurdle, almost no one has dared to make reference to the catastrophic impacts of global inaction. on our children and their children’s safety, health, economic opportunities and wellbeing. Now more than ever, climate is articulated as an economic issue.

We need to act to avoid trade and capital market penalties for recalcitrants, or to create future economic opportunities by getting first mover advantages on green industries and jobs. Of course, these issues are important and relevant, but what should we take from the fact that an existential crisis is being sliced and diced into an industrial policy debate.

Are we a venal bunch with no care for the future? I don’t think this is the case, but us children may be forgiven for thinking so, given our action or lack thereof. We need to do better.

Part seven, building better. What would make a better Australia for the next generation is not a simple question. We should listen to the voices of young people and what they think is needed. Youth focused organisations have rightly expressed frustration in not being consulted on the intergenerational report, despite its implications falling squarely on today’s young.

A coalition of youth focused organisations, including Think Forward, the Foundation for Young Australians, Youth Action, Youth Development Australia, and the Youth Affairs Councils from several states, have called for a parliamentary inquiry to start the, to start the conversation on intergenerational fairness.

They take their inspiration from a 2018 House of Lords inquiry in the UK. The report from that inquiry, Tackling Intergenerational Unfairness, was published in 2019 and observes that intergenerational fairness has become an increasingly pressing concern for both policy makers and the public. They found that the relationship between older and younger generations is still defined by mutual support and affection.

However, the action and inaction of successive governments risks undermining the foundation of this relationship. Many in younger generations are struggling to find secure, well paid jobs. Affordable housing, while many in older generations risk not receiving the support they need because government after government has failed to plan for a long term generational timescale.

It all sounds highly familiar. I reiterate my support for this inquiry tonight, and I look forward to hearing the ideas presented by those at the front line of some of the issues that I have explored. But tonight I want to reflect on some of the things that my time researching policy suggests that could make a difference.

First, getting our macroeconomic policy settings right. Right now we are in the extraordinary position of having an unemployment rate with a three in front. And that has come alongside the fact that a record number of Australians are working. It means that more people who want a job now have one. It means that some people that are otherwise at the fringes of labour market, including young people, are now seeing doors open that previously were closed.

If low unemployment can be preserved as inflation cools, then over time we can expect to see a reversal of the trend in the decade pre COVID. Of higher youth unemployment and underemployment and flagging income growth. That would be a wonderful outcome. The other debate I think we need to have is whether monetary policy should be the sole tool in our toolbox to respond to high inflation.

We have relied on the Reserve Bank because of its capacity to act swiftly and without political constraint. And those things are crucial. But the distributional consequences of monetary policy and particularly the stark generational differences point to a need to complement monetary policy with fiscal discipline.

Could a new generation of fiscal rules, including those that put a break on new spending or automatically uplift taxes where there is high inflation, help share the burden. Second is setting the next generation up for success in the new economy. That means turning around the slump in educational outcomes.

The great news is we know a lot of the things that can make a difference. These include creating career paths and promotional opportunities for top teachers. So we can attract and retain high achievers in the teaching profession. Governments procuring high quality curriculum materials and making them available to all schools.

So, we see the end of the phenomenon of teachers searching Instagram at midnight for suggestions for tomorrow’s lesson plan. Using high quality school wide curriculum materials saves time and boosts learning, especially for new teachers and struggling students. Using evidence based instructional techniques could also make a difference to student performance.

The Tasmanian Government’s recent commitment to lift reading performance through a minimum guarantee. That reading instruction be done according to the evidence is a good start. To make this a reality, more support is needed for teachers to implement effective instruction in class. Better instructional guidance and training for teachers is essential.

And finally, small group tutoring should be embedded in all schools to help students who are falling behind catch up to their classmates. This last initiative is currently happening in New South Wales and Victoria. Giving other states a model to follow. Third, refocusing our energy on productivity enhancing reforms to grow the pie.

There is no shortage of suggestions here, I won’t bore you with any, with all of them, but from tax, to zoning and planning, to health, to migration, growing productivity will help underwrite future improvements in living standards. There is work from federal and state productivity commissions, various reviews of the tax system.

If I can plug the Grattan’s work, plenty there from the Grattan Institute governments have a lot of good ideas they can work with. The real question is whether after almost two decades of subdued economic reform ambition, fewer reforms, smaller reforms the relatively new phenomenon of reform rollback that’s the, the light shaded boxes that you see there.

Reforms being introduced and then whirled back after a change in government. The real question is whether governments have the appetite or the political capital to pursue some of the more challenging choices. Fourth, cleaning up the mess that is housing policy. As outgoing Reserve Bank Governor Philip Lowe reminds us, the problem is supply, supply, supply.

But more accurately, supply close to jobs and amenities and where people want to live. The opportunity for some residents in inner and middle ring suburbs to frustrate any development In the name of preserving neighbourhood character is simply another intergenerational transfer that prioritises the needs of existing homeowners over would be residents.

This has resulted in younger families being pushed further out to the urban fringe. National Cabinet has finally put this on the national agenda and its emphasis on encouraging states to confront the challenging politics of planning reform to boost supply is very welcome. And while it is a second order issue for affordability, addressing taxation of investment housing, particularly the size of the capital gains tax discount, which interacts with negative gearing to allow housing investors to reduce and defer personal income tax, should also be on the list.

As well as costing the public purse in a period when we need more revenue, the size and design of these tax concessions means more houses, more, more houses in the hands of investors rather than homeowners. and contributes to volatility in prices. Fifth, improving outcomes for people that don’t own their own homes.

Again, it is great to see the long needed changes agreed to at the National Cabinet, including limiting rent increases to once a year and banning no fault evictions in all states and territories. This will help boost security of tenure in the jurisdictions that are lagging on renters rights. For those renters doing it toughest, the best thing the government could do is to further boost Commonwealth rent assistance.

This payment, which helps vulnerable renters to keep a roof over their heads and still afford other essentials, is currently inadequate. The Albanese Government lifted the maximum rate by 15 percent in the May Budget. That should be turned into a 40 percent rise. And the Housing Australia Future Fund, which would be the largest federal investment in social housing in a decade, should be passed by the Federal Parliament as soon as possible.

Six, winding back age based tax breaks by taxing superannuation earnings. in retirement at 15%. This would establish or re establish, I should say, the principle that existed pre Howard government, that income tax contributions should be based on income rather than age. And crucially, it would represent a de escalation of policy decisions.

that cumulatively ask working age Australians to underwrite much larger transfers to older Australians than any previous generation has supported. This simple change would save the budget at least 5. 3 billion a year and much more in the future. The top 10 percent of retirees would pay an extra 7, 000 to 7, 500 a year on average, where the poorest half of all retirees would pay no more than an extra 200 each, and would stand to benefit much more from the increase in health and aged care spending that these revenues would support.

Seven, seriously grapple with taxes on intergenerational transfers. While so called death taxes, or more correctly, intergenerational transfer taxes, are political dynamite, the windfall wealth gains of older generations and structural budget pressures means we should at least have a sensible conversation about the possibility of taxing large inheritances.

As former Finance Department official, Jo Roach, in the audience tonight, has demonstrated If the money collected from such a tax were used to fund income tax cuts Most people under 50 would be ahead financially. At a minimum, we should not be subsidising inheritances via some of the existing rules that allow the accumulated value of super tax breaks to be inherited by the next generation, as well as the exclusion of virtually all the value of the family home from the aged pension asset test.

Finally, Australians need to get on with the job of emission reductions across the economy. Ideally, that would mean embracing first best policy and putting in place a tax on carbon emissions. But even if we don’t go there, there are any range of sector based policies that could make a difference. It will require pushing hard to meet the ambitious target of 82 percent renewables penetration by 2030.

It also means picking up on some of the low hanging fruit that exists, like emissions standards for vehicles. If governments are looking for inspiration, the recent Grattan Institute Net Zero series is filled with evidence based suggestions of relatively low cost things we could do right now that would help put Australia on the right trajectory.

The alternative is we continue to be part of the problem rather than solution to this generational and indeed existential global challenge. Part eight, calling time on generational warfare. I understand that my comments tonight are strong and my policy suggestions may feel confronting. I may be accused of trying to whip up generational conflict, but let me be clear that is the exact opposite of what I hope to achieve.

I believe that most Australians care deeply for other generations and want to restore the generational bargain. For all the Gen Z, OK Boomer, eye rolling, young Australians gave up their social lives and in some cases their jobs to protect the welfare of older and more vulnerable Australians during COVID.

Polling through the pandemic suggested young Australians were more strongly in favour of lockdowns than any other age group. And for all the pious Boomer lectures about brunch choices. Much of the concern I hear about house prices and their impacts comes from the older generations, many of whom say they would be happy to see the prices of their own assets reduced to ease the pressure on future generations.

Similarly, if we look around any climate change lecture or protest, you will find grey hair attendees as common as tattooed ones in the crowd. Care about the future is alive and well. A proper debate about the impacts of policy settings on the outcomes for different generations. can only occur when we reject once and for all generational exceptionalism.

The damaging belief that differences in life outcomes between generations are driven by choices in work ethic, differences in work ethic, talent or attitude, rather than by luck and policy choices. As American political philosopher Michael Sandel notes, such belief systems corrode our civic sensibilities.

For the more we think of ourselves as self made and self sufficient, The harder it is to learn gratitude and humility, and without these sentiments, it is harder to care for the common good. While every generation has its own unique challenges and opportunities, the only rational place to start is the idea that people born at different points in time are no less deserving than others.

So let’s drop the generational warfare and work together to ensure that the Australia we leave to our children is better than the one we inherited. With the right policy settings, I believe that we can restore the hopeful bargain. Thank you.