Should Gen Y subsidise baby boomers? 384



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By Rodney Maddock, Monash University


A lot of public debate at the moment is focused on the issue of intergenerational fairness. People argue for instance that it is unfair for the baby boomers to pass debts on to the next generation.

According to the Grattan Institute:

“The housing boom plus rapid increases in government payments on pensions and services for older people risks creating a generation of young Australians with a lower standard of living than that of their parents at a similar age. The generational bargain, under which each generation of working Australians supports retirees while still improving its own standard of living, is under threat.”

This is probably completely wrong.

The Intergenerational Report makes the point quite clearly when it says that “Real gross national income (GNI) is projected to grow at 1.4% over the next 40 years … If this level of growth is achieved over the next 40 years, the average Australian income will increase from $66,400 today to $117,300 in 2054-55 in today’s dollars”. Quite simply the current generation is likely to be much richer than the baby boomer generation.

There are really three separate elements to the discussion: productivity, longevity and gender.

The Intergenerational Report (IGR) focuses on productivity. It points out that over recent decades the baby boomers have managed to raise their productivity by around 2.2% per year. This has led to very substantial increases in Australian living standards and means the next generation starts with a much higher standard of living than its parents started out with. Even though the IGR expects the next generation to increase productivity by smaller increments, down to 1.4% improvement per year, the next generation will have a much higher average annual income than the retiring generation, growing as it does and off a much higher base.

The big driver of these productivity gains is intellectual. Over time we have consistently learnt to work smarter, to produce more with less. And knowledge cumulates; we build on the shoulders of giants, so that breakthroughs lead to subsequent productive inventions, better machines and better processes.


Living longer, with more choice

The next generation will also have much longer lives than the baby boomers. A male born in 1950 had a life expectation at birth of 66.5 years: a male born in 2000 expects to live for 77.6 years. Eleven more years of adult life are a second valuable advantage the next generation has relative to the previous one. To the extent that people can now work longer, they have more productive years in which to generate income and wealth.

The statistics for females in terms of life expectancy are similar to males but there are two additional drivers. Females now have a much wider range of employment opportunities than did their mothers, with female labour force participation more than doubling since the late forties. Female wages have also risen considerably faster than those of men over the period, rising from about 60% of male wages to over 80% currently [See The (2014) Cambridge Economic History of Australia for data on female participation and wages].

The combination of these three factors means Gen-Ys will have much higher lifetime incomes than their parents.

As an illustrative calculation, compare a male born in 1950 with one born in 2000. For the calculation assume they each enter the workforce at age 20, and then work for 70% of their remaining life. This gives the baby boomer 32.5 years of work, and the millennium person 40.3 year of work. Wages have risen over time and are expected to continue to do so. We can just assume that for the 1950 baby wages rose at the rate of productivity growth of 2.2% per year, and for the future that wages will grow in line with the IGR report of 1.4% per year up to his retirement in the 2060s. This is all inflation adjusted.

The experiment suggests that the male born in 2000 will have three times the expected income of one born in 1950. For females, as suggested above, the gains are probably even greater.

While the numbers are conjectural, they do suggest that there is little doubt the current generation will be much richer than its predecessor. So what does intergenerational fairness mean?

If we accept the ethical principle that the rich should subsidise the poor, then logically later generations should subside their parents, and Gen Y should be subsidising the baby boomers.

We can complicate the issue by considering environmental issues, congestion and other factors which the next generation will have to deal with as negative offsets to their income gains. However the quantum of these effects would have to be very large to offset the direct income gains the current generation is most likely to enjoy.

There are other factors too, such as the reduced probability of world war, which the baby boomer generation has handed on to the next generation as a benefit which might be considered in a broader calculus. People growing to adulthood in the 1970s and 1980s certainly considered nuclear war likely, and that prospect has diminished to the considerable benefit of the next generation.

The Conversation

This article was originally published on The Conversation.
Read the original article.

Rodney Maddock

Rod has been a senior executive at the Commonwealth Bank for the last decade after earlier stints as Chief Economist for the Business Council of Australia, Head of Economic Policy in the Victorian Cabinet Office, and as a Professor of Economics at La Trobe University. He is currently working on a book on the Australian economy.

  1. I have been working since 1964, and still in full time work to this day, over the past 51 years how many generations have i subsidised ?

    10 REPLY
    • mike here-read something earlier on the subject & looking at it realistically, you supported the generation you took over from & they supported the generation they took over from etc., etc.

    • So did hubby & I, worked from 1963 ( in different countries) & from 1974 in Australia; taking “outages” (a quote from Carolyn) to look after my 2 boys for there were no “child-minding centres” available 8 hrs/ day! I had to retire in 2001, hubby in 2004, for health reasons; only qualified for the CSHC, & for part-pensions only since 2011! With the ever-changing rules governing the “entitlement to age pension” via the ASSETS & INCOME TESTS, can’t see hubby & i getting a “full pension” till our “financial assets” are all but exhausted!

    • What people forget is thati at women couldn’t pat superannuation in the early days and they couldn’t claim their partners in a divorce

      1 REPLY
      • Albert you are correct.It was written into our constitution that the government be responsible for the aged,sick, or disabled. A % of the tax we paid was paid into a separate fund to ensure the funds were available to meet this commitment. These funds were later removed and placed into general revenue. So in my book the government stole from the people, by means of overspending and find them selves in a position of not having the money to honour this promise.Likewise we pay a levy (tax) to cover medibank.If this not sufficient then a moderate increase would be in order, but for the Government to turn the younger generations against us by calling us leaners,and to go and find work is deplorable.And also be aware the Government currently hold 49.3 Billion dollars in the Australian futures fund. And of course the constitution of Australia is not taught in state schools as knowledge is power. It has now been suggested that Arabic language/culture be taught in schools, so that the younger generations will understand the cultural differences.I have my own views on that.

    • I do not think they can cut the Old Age Pension without a referendum as it is in the Constitution that 7% of our taxes were to be put into a separate coffer for our pension…….Why the Government will not let the Constitution be taught in schools???? Is it because they do not want us to see the truth or them bending the truth…… MP’s also should not get access to their Pensions etc until 70 — equality for all…

  2. I believe we have a very entitled generation of people who expect hand outs every where. They pay mortgages back at 3%. We paid ours back at 17.5 %. They want child care subsidised so they can work to pay for mansions. full of every luxury they can cram in. We minded our own children.yes times are different. They forget we’ve done it tough. But it’s a ME generation.

    26 REPLY
    • They have more luxuries than we had. We saved up and enjoyed everything we got. Now they get the whole house full at once. Plus a pool and two four wheel drives.

    • Norman Walker I tell you where we as parents went wrong:
      When I was at school and I got punished for something, my parents always sided with the teacher, but we quessioned the teacher’s actions.
      When I started to work I was expected to pay board, my kids didn’t have to pay a cent .
      We all had our chores at home and we were never allowed to stay in bed till midday .
      Spoil the kids and you have a wasted generation who expects that either their parents or the government must look after them.
      And we do them a great disservice by continually blaming others especially our government for our kids shortcomings.

    • You people are a disgrace – I go without everything just like you did and when I retire at 70 not 60 like you I will get nothing. Why the hell should I pay for your extra 10 years of retirement? Stop being a burden on the community and work out a way of earning a bit of money yourselves instead of whining for handouts. Luxuries – what a laugh.

      1 REPLY
      • Actually, Scott, I don’t think it’s the extra years of bona fide pensioners’ pensions you’re paying for. Taxpayers are slumping under the burden of the unfunded public servants’ pensions. State and Federal unfunded liabilities now stand at over $200 billion and growing at about $4 billion a year. Government does not want the taxpayers to know this so creates a diversion by saying over and over again how much of a burden the age pension is on Australians. Have a look at this site:

    • So true Bev, they are full of it these days. We paid for our kids education so they can turn around and expect us to keep paying.

    • mike here-boy oh boy Scott Condely sounds like nyour parents gave you an extremely hard time while you were growing up pity they didn’t kick a bit of respect into you, you whingeing little ingrate.

    • Labour is responsible for the entitled generation. Keep voting for Labour and it will only get worse.

    • We did all of the above. Worked hard, did without till we could afford it, 17.5% interest. However, we earned our keep so the money we put away in our superannuation made us self funded retirees. We don’t get ANYTHING from the government. We are STILL paying our own way. How are you paying my way!!! More smoke screens from Hockey who has YET to pass his heartless budget.

    • Scott Bundy Condely
      What about your super. Something we didn’t get till the seventies. It wasn’t compulsory to pay women super till the late nineties. You will have a nice little nest egg that baby boomers didn’t have the opportunity to earn.

      You are an absolute disgrace to yourself and your parents. The people you are so hateful and bitter toward paid their taxes too. Your parents, grandparents or both had their pensions subsidised by us and we didn’t complain about doing it. It’s how a civilised society operates. But I’m sure as hell appalled that my taxes subsidised your education. It was a waste of time and money. Your turned out ignorant, rude and disrespectful.

      1 REPLY
      • Well said Margaret why is there always such a horrible person on these conversations. I retired at 64 and my husband at 67 only because we were both in jobs that were taking a toll on our lives physically . And we are both entitled to the pension. If we could of worked to 70 we would of so I think you should think before you speak.

    • Mkke here-yes Margaret & howard said at the introduction of the bonus that he couldn’t see women going out to get pregnant just for the baby bonus. Within months it was being hailed by Harvey Norman as a big success, he hsd never sold as many wide, flat screen tvs ever before.

    • Margaret Peluso you have spoken the truth so well. This little twerp, Scott Bundy Condely, has absolutely no clue what he talking so rudely about.
      From a full time shift working nurse!!

    • Scott Bundy Condely you are a disgrace to yourself and your parents. And a selfish disrespectful sh*t. Many of us started working from the age of 15 & 16 earning a living and paying our taxes and not blunging off Govt benefits. I worked for 48 years without Super until the 1990’s!

    • I know you earned that social security. I just wonder why. so many didn’t have enough sense to save some where else. I know ppl could have joined the 401k… didn’t. Made enough to save…..didnt. all excepting social security to be the cure all. and you call the upcoming generation clueless.

    • By complaining about Gen Y we are actually saying we are inept as parents we raised or help raise them? We gave too much not expecting much in return?
      Then this same generation got old enough to vote and of course will only vote in someone that agrees with them “how selfish the boomers are” ? Vicious circle, me thinks?

    • I don’t expect anyone to pay for anyone , what I expect is for governments to stop wasting money ..

    • Scott Bundy Condely, no other hand feeds us but our own. Paid into a retirement fund since the 70’s of our own free will. Since we had the foresight to do this, despite no family tax benefits etc., both working & 4kids to educate, the govt now considers us not worthy of having any of our taxes returned to us via a pension or part thereof. YOU stop whinging & be grateful for what you see as your entitlement. Selfish prick.

  3. Indeed Gordon, and you would not have received government handouts during those 51 years, as most of that generation did not

  4. Y is for whiny. It’s just the way it is. And they AREN’T subsidising us. We’ve worked paid taxes for gods sake.

    3 REPLY
    • Love that. Y for whiny. Well said. They whinge like spoilt over indulged children.

    • And at 68, I am back in the workforce in a full time job. How dare this Govt accuse us of not pulling our weight. We have been doing that all our lives. Who in the Gratton Institute came up with that one? And how old were they I would like to know?

  5. Did baby boomers subsidise the generation before them. Is that not how it works. We support our parents and raise our families, then our children support us and raise their families. It’s been that way since the beginning of time. Up until the government started telling the generation they were entitled to everything and their parents were entitled to nothing, that we were a bunch of leaners. Well this leaner was taken out of school at 13 and went straight into full time employment. At 15 I was working shift work at Telstra, then known as the PMG. by 16 I was working full time and waitressing weekends. I worked cleaning jobs when I raised my family and when they were grown I went back to full time work. I’ve subsided myself, my parents and my grandparents generation. Guess what, the leaners are now subsidising family benefits and childcare fees for the younger generation. Oh, I guess we were subsiding the unemployment and sickness benefits of our peers too when we were young. You know what. I’ve been doing that since I was 13. Never ever complained about subsiding everyone let alone the aged.

    6 REPLY
    • The difference is that we did it all without complaint. We also never had thelatest of everything but more often than not we had second hand everything from clotheds to furniture; we did not live in a “throw away” society but repaired,reused & passed things down when we could not use them… we recycled long before recycling was fashionable.

    • And we are being thanked nicely for that aren’t we. The throw away generation is throwing their parents who sacrificed so much to give them a better life away. As they say no good deed goes unpunished. Very short sighted of them. One day they too will age then what will happen to them. Karma can really be a bitch.

    • And we are being thanked nicely for that aren’t we Lesley. The throw away generation is throwing their parents who sacrificed so much to give them a better life away. As they say no good deed goes unpunished. Very short sighted of them. One day they too will age then what will happen to them. Karma can really be harsh.

    • No and nobody wants to. They want you to die on the way to or from work. Yet you are a baby boomer and we are all lumped together as a bunch of leaners. You are stating a fact,pure and simple. Just explaining how it is for you. But now it is being seen as whinging. Baby boomers aren’t allowed to stand up and say hang on a minute, I have worked all my life and still am. That’s whinging.

  6. Personally, I think we susidised many & have paid our own pension plus some. Generation Y should do the same.. & thye should also look to some of their own generation who are not contributing in any way.

    1 REPLY
    • mike here-you have ATM multi generational welfare recipients who are never going to pay into Super, you have a gov that is too gutless to make the the unemployment choosers look for work or do work, you have a gov who need to push older people back to work to fill the jobs, So the easy way out-turn one against the other. I was listening to Lean Byner (5AA) on Friday & some GenY wallah was talking about how to get the younger people into work & the elders out. Straight away I thought ‘We could pay the elders a pension’ but we kinda do that ATM. Loose the belligerent pm & we are 50%there. Loose the hockey & we are another 25% down. Without those 2 pushing one generation against the other it would be a much nicer place our Aus.

  7. I don’t believe any generation should fund wealthy Baby boomers, the pension was never meant for the wealthy. But we all worked and funded our parents and our grandparents generation without complaint and we deserve our pensions now

    5 REPLY
    • Mike here-I’ve always believed that a liveable penion should be paid across the board from the rich King John Howard to the lowliest pauper, me. It should not be means tested. But also vybody houlpay equal tax.

    • I wish I could remember which rotten PM Rolled the pension fund into general revenue. I’m thinking it may have been keating.
      Menzies increased the personal income tax after the war. The increase was to cover your pension when you retired. He basically did it because they knew they had to populate this country. They foresaw the baby boomers coming. That tax component was always kept in a separate fund till one of these idiots rolled it into general revenue and seemingly they’ve all just spent the lot. Whoever took that money should be jailed. Ultimately we have all paid for our own pensions.

    • Sorry Libbi Elliot we funded our own retirement as our parents funded theirs & our Grandparents funded theirs they worked for their pension no free rides in their day they paid taxes part of was to go to a pension fund BUT our gov.s have raped & pillaged that fund & now cry Its the baby boomers fault

    • Australia is the only country that doesn’t have a separate “Old Age Pension” fund, separate from “general revenue”! If my memory serves me right, the USA, UK, some EU MEMBER NATIONS, & CANADA, has such fund for when their citizens become “seniors”! I know for a fact that CANADA has a Provincial (State) retirement fund where employees contribute to, as well as a National Old Age Security plan (for all its citizens), outside of general taxation.

  8. Why is it just lately that we are hearing all this blaming of the baby boomers?..I think this government is stirring up so much public conflict to justify their attitude toward us, I can never remember another government targeting pensioners & seniors the way they are, & I have never seen or heard younger generation blaming boomers for the budget problems, to me it seems like the government is the one that has the problem with us & are stirring up all this attitude .

    18 REPLY
    • I heard an ex Liberal politician says..that Howard was to smart to attack the pensioners..I guess that says it all

    • The 4 bigwigs in this government must not have a high regards for there parents because they are pension age. So sad it makes me cry what the way of our live has become.

    • No I am afraid it is not the media, they are reporting it, The Government is on tv calling us leaners and virtually saying we are worthless, they are the ones driving it because it suits their agenda

    • The problem is with GenY . They are greedy, want everything for nothing, don’t like working, they have no respect for their employers, thry want champaign on beer money, they want everything instantly,
      they expect parents to help and a lot of times burden their parents with child minding every day of the week so they can have their luxuries while the parents are growing older and have not much time to enjoy their retirement.
      And who’s to blame definately not the government but us parents who believed in a better society ig we make it easy for our kids.
      Sorry but we were so wrong and now we are witnessing the end result.
      Until we bring back discipline and the value of respect to those who are in authority we are doomed.
      My advise to The Builders and Baby Boomers is to enjoy life and let GenY do their own battles .

    • I agree ladies, every younger person I speak to thinks pensioners do it pretty tuff, but to hear this government keep blaming us for budget problems they hope that attitude will become the norm & they can justify their cuts to pensions ect

    • I wonder if the govt is deliberately creating a negative attitude towards pensioners to make us feel guilty if we don’t keep working and a target for the bludgers sterotype.

    • Why is everything that is said blamed on the government? Someone makes a comment and next thing you know it’s the governments fault they stir things up ! Time we addressed the person making the comments . Not everything people say is the governments fault .
      Let’s get realistic here .

    • Well said, Lynn. Governments have known for 60 years when our generation was going to retire, and all of a sudden we are being blamed for the country’s woes. Utter bullshit ( excuse the language) but our children and our grandchildren are deliberately being turned against us, for reasons of self interest politics.

    • The truth is public servants & military superannuation debt and pensioners funds required debt is growing faster than the future funds targeted profit growth.

      So to hide the mistakes of still not fixing or addressing this major problem know exists for past years they introduce distractions.

      If Politicians say no to independent tribunal pay rises or increased expenses allowances and Public Servants wages are frozen and the use of technology video conferencing email text Skype communications Viber was used instead of all flying with expensive entourages around the world at huge expense and seriously address dole new start payments Medicare along with pension entitlements being seriously addressed to actually eliminate bludgers costs creating this terrible position of becoming like Greece Italy or Spain where funds are no longer available to borrow from offshore financial countries due to our deficit not being reduced or in real world terms not paying off our existing loans debts but having that cost instead blamed to area a possible easy mark directed to the disabled & pensioners.

      Simply increase GST 2% start paying off real debt. Forget about votes of young me me grizzling I want to keep up sorry I want to be better than the Joneses. I want to take parental leave get paid so I don’t have to learn how to manage by going without. I want 4wd to drive city streets. I want two storey house, simply out of control greed for no reason generation. Some of the new generation are this, but there are some who do respect major sacrifices their parents and grand parents went without and our defence forces that keep us safe and a free country that has provided safe haven to provide education and a better chance in life for them to us grow mature and raise a family for the benefit of all the family members living in Australia. Plus next big business needs to have their hiring of Aussies look into as this is not the case with over the top greed at shareholder board members levels of entitlements along with greedy overpaid executives. Small business established for years suffering because this is being allowed to occur.

      Hopefully a message gets through Australia is a great country no need to sell it out to foreign interests or to rape and pillage it from inside from those who don’t care just want me me attitude. By not addressing our real growing Country debt. Get Parliment to stop being a Hollywood playground and actually stop bringing up the past rubbish and get on with growing this countries required industry services and infrastructure create jobs and reduce our debt. Elvis died with plenty of money so what? Just learn to be comfortable and get rid of greed at one end and scamming of Dole/ New Start bludgers at the other. Australia will be a much better country if this occurs. All Australians from Elderly to the young will all benefit if this finally starts and Canberra Actually delivers benefit a profit for the future of this country and all whom are lucky enough to live here. Politicians time to show you can do something that produces beneficial measurable results not just hot air and media interviews to get voted back in.

      Enough said my grandfather fought at Gallipoli enough mistakes not aired.

    • A previous government did target pensioners and seniors for the benefit of the middle class and that was the Howard Government.

    • I do not think they can cut the Old Age Pension without a referendum as it is in the Constitution that 7% of our taxes were to be put into a separate coffer for our pension…….Why the Government will not let the Constitution be taught in schools???? Is it because they do not want us to see the truth or them bending the truth…… MP’s also should not get access to their Pensions etc until 70 — equality for all…

    • We were promised our pension and we should get it! We worked, went without to receive it. gen Y are lazy, even when they get a job. “Please sweep the floor and empty the Garbage?” what do they say, “no we won’t, we are to good for that!” And wonder why they get sacked! As I have said before, let’s hit the road jack, sell up our houses and live life! Then where would these little Gen Y be! No taxes, rates etc for us.

  9. Gen Y are used to getting handouts , they are selfish, they want it all themselves. We worked and payed taxes and what is their answer for us? euthanasia

    1 REPLY

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