Australian PM Albanese moves to ease intergenerational wealth gap. How effective will it be?

SYDNEY – In a bid to address a deepening wealth gap between younger and older Australians, the ruling Labor Party announced an ambitious federal budget on May 12 to rein in the housing market.

While the move has drawn praise – not least because it was politically risky – analysts say bolder measures will be needed. They suggest moves including expanding the housing supply and reducing public debt to genuinely improve the prospects of the younger generations.

Despite promising for years that he would not cut tax breaks for property investors, Australian Prime Minister Anthony Albanese, in the latest budget, took the risky move of ending two key tax breaks.

The government will abolish negative gearing – which allows investment property owners to deduct losses on the property from their taxable income – and a capital gains discount, which allows investors who sell assets to pay tax on only half of their gains. To encourage investment in home-building, the changes will apply only to established homes.

The move was particularly risky because Labor twice took these changes into election campaigns – in 2016 and 2019 – and lost each time, as home owners feared the changes would undercut property values.

Still, Mr Albanese decided to act, partly because his landslide election win in 2025 – and the crumbling of the Liberal-National Coalition Opposition, which is in disarray – has given him confidence that he can survive any backlash.

However, the broader reason for taking action was the growing consensus, including among most economists, that Canberra urgently needs to address the widening gulf between younger and older Australians.

The most obvious symbol of this gulf is the nation’s soaring property values. The average property price in Australia’s capital cities is now A$1.2 million (S$1.1 million), having almost tripled in the past 20 years. Government data, based on the most recent census in 2021, found that home ownership among 30- to 34-year-olds fell from 64 per cent in 1971 to 50 per cent in 2021.

Addressing Parliament on May 13, Mr Albanese said: “Unless we act now, we’re looking at a generation missing out.”

Not enough

But the consensus among economists is that the changes, though welcome, will do little to help struggling first-time home owners. The measures are expected to lead to a long-term 2 per cent slowdown in house price growth.

Professor David Orsmond, from the department of economics at Macquarie University Business School, said he supported the changes and believed the Government needed to address intergenerational inequities.

But the best ways to do this would be by expanding the housing supply, reducing public debt by cutting spending, and boosting growth by addressing the nation’s weak productivity.

“The government’s budget has made steps in the right direction, but it is not ambitious enough to make an impact,” he told The Straits Times.

“The sort of measures they are talking about will have a tiny impact on housing prices relative to their long-term trend,” he added.

Prof Orsmond suggested that the government implement measures such as supporting artificial intelligence investment and training, and promoting competition pressures to encourage businesses to adopt new technology. Such measures could help to boost growth, and jobs and opportunities for younger Australians.

The budget forecast a deficit of A$31.5 billion in the year to June 30, 2027, with no expected surpluses over the next four years. For the young generation, this generally means navigating higher costs of living, increased tax burdens, and diminished intergenerational equity.

“It is the younger generations that are the major stakeholders in the future,” Prof Orsmond said. “Pushing things to tomorrow leaves the younger generation with the greatest costs, as debt and deficits will lead to higher taxes.”

Dr Luke Hartigan, an economist at The University of Sydney, told ST that the deepening intergenerational wealth gaps and property divides had taken two generations to set in and that the budget “goes some way but won’t solve it”.

He said the government needed to expand the supply of housing through measures such as incentivising local councils to allow construction of apartment buildings and high-rises, and developing transport and other infrastructure to improve connections between central business districts and the outskirts of cities.

“We have a lack of housing supply,” he said. “The budget will have an effect on property prices, but it will not be a panacea.”

Impact of the war in Iran

The government has also come under increased pressure to reduce spending due to the deepening impact of the Middle East conflict, which has fuelled inflation.

Australia’s inflation rate is expected to peak at 5 per cent over the three months to June 30, but could reach 7.25 per cent later in 2026 in a “severe” scenario in which oil prices almost double to about US$200 a barrel.

The budget included an A$14.8 billion package to strengthen Australia’s fuel resilience, including an A$3.2 billion fuel reserve of around one billion litres of diesel and jet fuel.

Federal Treasurer Jim Chalmers said in a speech on May 13 that the oil shock had upended the Australian economy and the government’s budget was designed to balance “today’s global pressures with intergenerational obligations and opportunities”.

“We made a different, more difficult choice in this budget: to accelerate reform, not just absorb the shock,” he said.

Inheritance tax?

But further ambitious – and politically risky – reforms may be needed to ensure long-term changes to the intergenerational wealth gap.

Dr Hartigan noted the wealth gap between asset-owning families and those without, pointing out that houses and other expensive assets can be passed down through generations, while those in families without such assets may struggle to obtain them.

He said the government should consider imposing a wealth or inheritance tax to address these inequalities, noting that the US and the UK have such taxes.

“A wealth tax is a fair thing to do,” he said. “Not everyone has a ‘bank of mum and dad’.”