The great Australian dream is dying. Unless Labor acts now, it’s gone forever

In less than a week, Treasurer Jim Chalmers will hand down the 2026 federal budget; the first of this Labor government’s second term. On the agenda this year is intergenerational equity. And for good reason.

Danielle Wood, chair of the Productivity Commission, tells me that “since the 1950s, every generation of Australians has done better than the last – until now”.

Based on her commission’s research, Wood says that “people born in the 1990s are the first generation to miss out on substantially higher incomes than their predecessors”.

A big reason for this growing intergenerational inequality is the housing market, which this masthead’s senior economics correspondent Shane Wright likens to a “Ponzi scheme”.

Today it takes more than 12 years to save the usual 20 per cent deposit for an average house, compared to six years in the early 1990s. This is a crisis that requires serious reform, and now is the best time to do it.

The current Labor government enjoys a record 94-seat majority, a severely weakened opposition, and an electorate hungry for real change. This is not the time for small-target policy that only tinkers around the edges. This is the time to be bold.

This budget is an opportunity for the Albanese government to show courage in its fight for intergenerational equality.

First, the current tax system is set up to benefit older and richer generations. Independent MP Allegra Spender argues that Australia should address intergenerational challenges “by lowering [tax] rates but also by removing distortions” in the tax system.

In her budget-neutral white paper proposal, she calls for lower income taxes, a minimum rate of tax for investment income, and reducing the capital gains tax (CGT) discount from 50 per cent to 30 per cent.

By targeting family trust tax loopholes and artificial incentives to borrow for investment purposes, these changes would level the playing field across generations.

This masthead reports that the Treasurer is deciding between Spender’s CGT proposal and a reversion to Keating-era CGT rules. The latter change would see taxes charged on real (inflation-adjusted) gains only.

Regardless of which option the Treasurer chooses, it is important that he does not “grandfather” the change. Grandfathering – the process of exempting existing participants from the new regime – is a regressive choice that worsens intergenerational inequality. This is because it structurally protects older generations while forcing the younger generation to be the first to start paying at the higher amount.

The government is likely to claim that any CGT reform is designed to improve what Prime Minister Anthony Albanese calls the “great Australian aspiration of home ownership”. However, the Grattan Institute estimates these changes will only result in a 1 per cent decrease in house prices.

While still a worthy move, it is not quite a step in the right direction, but more of a tiptoe. It will be no surprise to those who care about housing affordability when I argue that the real answer to our woes is: supply, supply, supply.

Wood agrees and is unequivocal when she says that “boosting housing supply so young people can afford to live near jobs and amenities” should be a top priority for this budget.

She argues that federal incentives to reward practical planning reforms by state governments would be the most effective way to unlock more affordable homes.

Specifically, I’d suggest the federal government use the National Competition Policy to encourage state governments to up-zone land. Evidence from Auckland shows that up-zoning increased housing stock by 4 per cent, and reduced rents by 28 per cent.

Lastly, the government needs to fix the higher education system. In 2021, the Morrison government changed university fees across all fields of study, including 113 per cent fee hikes for arts degrees.

Andrew Norton, a professor in higher education at Monash University tells me this policy was aimed at changing course choices, “not to be fair”.

However, my own research (with co-authors at Melbourne University) showed that this policy barely changed course choices, with only 1.5 per cent of students changing their decisions. As a result, thousands of young Australians are paying more than $52,000 for a three-year arts degree, some with limited job prospects.

I can’t think of many things worse for intergenerational equality than condemning students to what Norton calls a “lifetime of student debt”. But despite Education Minister Jason Clare calling the fee hikes a failure, he is yet to do anything about it.

A current Senate inquiry which aims to “end $50,000 arts degrees” has 68 submissions, many of which include possible solutions to this debacle (including my own budget-neutral proposal).

Norton has little hope, predicting “the government won’t fix it”. But I hold out hope that the electorate won’t let this one slide.

Ultimately, this budget is an opportunity for the Albanese government to show courage in its fight for intergenerational equality. Global tensions, including the Iran war, will likely dominate the messaging, but they cannot distract from promised long-term reform.

If this government doesn’t act with the mandate it has now, it’s difficult to see that it ever will.

Max Yong is a teaching fellow in personal finance at Harvard University. He previously taught personal finance at Melbourne University.

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