Australia's tax and transfer system has fundamentally shifted in recent decades, tilting the balance away from younger workers and towards a generation that has accumulated wealth at an historically unprecedented pace. The question now facing policymakers is whether higher taxes on older Australians represent sound policy or risk backfiring through unintended consequences.
The numbers are striking.In the final ten years of recent analysis, the pre-tax income of Australians aged over 60 was 65% of the population aged 18-60, but post-tax income equals 95% of their income. Three decades earlier,older Australians had private income equal to 41% of the income of those aged 18-60 and average final income equal to 61%. This transformation did not occur by accident; it reflects deliberate policy choices.
Government expenditure targeting older Australians such as the age pension, aged care and health care has increased significantly in real, per-person terms over recent decades, whilst net expenditure targeting younger households remains relatively constant. This has happened even asincreases in house prices have swelled the wealth of older Australians through capital gains and imputed rent, whilst younger Australians and migrants buying into the housing market have been kept poorer for longer.
The demographic pressure is real.The number of 15-64 year-old Australians for every person aged 65 or older fell from 7.4 in the mid-1970s to 4.4 in 2014-15 and is projected to fall further to 3.2 in 2054-55. Fewer working-age people will be funding more retirees. Yet the policy response has been tepid.
The government's recent move targets a narrow slice of the older population.From 1 July 2026 tax concessions will be reduced for certain earnings for superannuation balances above $3 million. Under the revised scheme,for superannuation balances between $3 million and $10 million, the tax rate on earnings will increase from 15% to 30%, with balances exceeding $10 million facing 40%, affecting approximately 90,000 accounts or less than 0.5% of all superannuation accounts.
Yet critics raise legitimate concerns about the breadth of any tax reform targeting retirement savings.The median superannuation balance for men over 60 is just $206,091 and for women $191,475, meaning most couples at those balances would qualify for the full pension with room to spare.Tinkering with the concessional treatment of superannuation income could incentivise couples and individuals to spend down their balances to qualify for a full or partial pension. Such behaviour would reduce private savings and increase government spending on means-tested support, potentially offsetting any revenue gain.
There is also the question of fairness across the life cycle.People in their 20s through to 50s are in the accumulation phase, whilst those over 60 have usually reached the end of their working lives, and if they have been fortunate and wise, will own their homes and have healthy superannuation balances, which is simply the natural order of things. Penalising that accumulation retrospectively raises questions about fairness to lifetime savers.
Balancing these tensions requires acknowledging what both camps understand: older Australians did not engineer the asset price booms that made them wealthy, and younger Australians did not create the zoning restrictions and planning rules that inflated housing costs.Growth in Australian land prices has created large transfers of wealth between generations, driven to some extent by government policies such as restrictive zoning and planning practices.
The structural problem is real. Without either higher taxes on older Australians or cuts to pension and aged care spending, the fiscal position will deteriorate as populations age.To achieve a fiscally sustainable budget over the coming decades, Australia must choose between increasing taxes and reducing government expenses. Yet policymakers must tread carefully. Blunt tax increases on superannuation could trigger behaviour that undermines the policy's own aims, whilst leaving the tax system untouched will impose an ever-heavier burden on fewer working-age people.
The July 2026 superannuation reforms represent a cautious first step. They affect a tiny fraction of Australians whilst signalling that the era of unconstrained tax concessions for high balances is ending. Whether this proves sufficient, or whether broader tax reform becomes unavoidable, depends on whether the government can sustain political will for more contentious changes to the age pension itself. For now, the question of generational fairness remains only partially answered.