Australia’s tax policy settings are leading to vastly different outcomes for people who have the same gross incomes but are simply different ages, a new report shows.
The report, from the Actuaries Institute, the peak body for actuaries in Australia, is raising questions about intergenerational equity.
The report provides the example of two Australians with the same gross income of $100,000. One is aged 30, and other is 71.
It says after accounting for taxation, government spending and transfers, the 30-year-old’s net income drops to around $85,700, while the 71-year-old’s net income increases to $128,100.
That’s a difference in net income of $42,400.
The report says current tax settings are treating similar incomes differently depending on age, rather than means. The core question of the report is whether spending by age is sustainable and if it is maintaining a “fair intergenerational balance” in Australia.
“Some of that $42,400 difference reflects genuine need, particularly higher healthcare spending for older Australians,” Dr Hugh Miller, a co-author of the report, said.
“But a significant part also reflects differences in eligibility for benefits and taxation settings.”
Actuaries are people who calculate risk and opportunity for pension funds and insurance companies, including the age at which people are expected to die.
Younger workers losing out
The report shows that older Australians have on average seen stronger growth in incomes over the last 20 years than younger people.
“Higher income and receipt of more [government] spending means that older people have had material gains per person,” it says.
“In contrast, people aged 20 to 30 are notable as the only age group not to benefit in net income over the past two decades.“
People aged 20 to 30 are notable as the only age group in Australia not to benefit from changes in net income over the past two decades. (Source: Actuaries Institute)
It says over the last 20 years, government spending has risen faster than taxes and the impacts have been distributed differently across age groups, with large spending increases on children and on people aged 80 and over.
But taxation has also risen, with working-age Australians bearing the brunt of the tax increases with higher income tax contributions.
It says an average 30-year-old with total gross income of $100,000 is earning reduced net income of $85,700 because their income taxes are more than outweighing any direct spending and income transfers they receive from government.
In contrast, an average 71-year-old with the same total gross income of $100,000 is receiving $128,100 net income because the direct spending and income transfers they receive from government are more than offsetting the taxes they pay.
The graphic below shows how prime working-age Australians, who are still trying to accumulate wealth, are experiencing net income losses from the tax and transfer system.
Age groups with very similar gross income end up with very different levels of net income, after taking taxation, government spending and transfers into account. (Source: Actuaries Institute)
The increasing tax burden on working-age Australians
According to the report, the heavy taxation of income from wages and salaries and the lighter taxation of income from assets is a dominant part of the story.
It says working-age people, who have fewer assets, are more heavily taxed than older people, while older people have greater eligibility for government benefits and experience different applications of taxation.
Superannuation and housing taxes are also more focused on working-age Australians, even though wealth from those assets may continue to accumulate at older ages. (Source: Actuaries Institute)
It says income and payroll taxes should obviously align with those who are working, because those people have the greatest ability to pay those taxes.
But it is noteworthy that superannuation and housing taxes are also more focused on working-age Australians, even though wealth from those assets may continue to accumulate at older ages.
“In the case of housing, the emphasis on stamp duty when people are buying property occurs more frequently and at higher values during working ages aligned with changes in family and household structures,” it says.
“Superannuation taxes are collected at the contribution and accumulation phases, which also align more with working-age people.
“Age Pension receipt is relatively broad (at full or part rate), providing extra income to older people.
“Further, the means testing for the Age Pension is more generous than that for government payments to working-age people like JobSeeker. [And] there is significantly lower taxation on capital gains, superannuation returns, and net imputed rent.”
It says the strong growth in house prices over the last 20 years has contributed to rising household wealth, but with the gains accruing to those who already hold property, many of whom are older.
It says wealth accumulation is a natural part of the life cycle (i.e. someone’s wealth generally increases as they age) but when asset prices inflate at much higher rates than labour incomes, as they have done for the last 20 years, wealth accumulation can be distorted.
The means testing for the Age Pension is more generous than that for government payments to working-age people, like JobSeeker.
“While there is some evidence that wealth accumulation trends remain intact, it is also true that exclusion from (or delayed entry into) home ownership may reduce the opportunity for asset accumulation for many,” it says.
The tax system has not adjusted to an aging population
The report, Spotlight on the Australian Tax and Transfer System, is the first of two deep-dive papers expanding on the Australian Actuaries Intergenerational Equity Index (AAIEI).
It contributes to the broader discussion ahead of the federal government’s Intergenerational Report due later this year.
The report focuses on average income, taxes and government spending for each age group in Australia. It says it is important to note that wealth and income vary significantly within generations too, not just between them.
“Specifically, while the report does point to more favourable outcomes for older Australians on average, we recognise the high rates of poverty and significant health challenges experienced by many older Australians,” it says.
But it says the substantial increase in wealth accumulation for older people on average, compared to working-age Australians, is putting the aged-based tax and transfer system under pressure.
It points to a recent paper from the Tax and Transfer Policy Institute (TTPI) at the Australian National University, which found similar results.
“The tax and transfer system has not adjusted to the changing age profile of income in Australia,” the TTPI paper found.
“Current settings increasingly favour older Australians at the expense of younger Australians.
“Unless Australian society wants to explicitly favour older Australians, policies should be considered that reduce payments to older Australians and that shift the tax burden away from younger Australian and towards older Australians.
“Policy rules around means testing could be an important part of such a shift,” it said.
Possible policy recommendations
The Actuaries Institute says as Australia’s population ages, with a larger proportion of the population moving into the over-65 category, it may not be reasonable to assume that the burden of tax increases should keep falling on the 30–65 age group.
It says to fix the issues identified in the report, Australia should review its age-based tax and income support offsets, reform the Age Pension assets test, and consider broadening the base of the goods and services tax (GST).
It says a broad-based land tax, which is often recommended by economists, could be considered.
“In addition to the well-documented efficiency benefits, a shift to a broad-based land tax would also shift the tax base towards older Australians who have benefited significantly from increased house prices and away from younger Australians trying to buy their first house,” it says.
It says the differing treatment of different forms of investment income has long been identified by economists as problematic, including by the Henry review. It says bank interest, dividends, share capital gains and property returns (particularly primary residential property) are all taxed differently, and these components with relatively light taxation are generally favourable to older people, who receive a greater share of such income.
It says income through discretionary trusts could also be taxed differently to regular personal income.
“The measures announced in the 2026–27 Budget, subject to final design informed by consultation and legislative passage, partly address this, with the tightening of capital gains taxes, limits to negative gearing arrangements and minimum tax rates for discretionary trusts,” it says.
“Such changes are obviously not without controversy, with impacts on business founders attracting particular attention.
“More far-reaching changes could include dual-income tax systems where investment income is taxed consistently but in a different bucket to wages income,” it says.
