Restoring the Australian Dream
The intergenerational contract that once ensured that each generation was better off than the last is fraying. To maintain social cohesion and trust, Australia must restore balance to this contract and ensure that young people receive a fair chance at prosperity. by freya leach.
First published in the MRC’s Watercooler newsletter. Sign up to our mailing list to receive Watercooler directly in your inbox.
After each election, the ANU releases a study of the results and tracks voting patterns. The preliminary results of the 2025 election have been released.
On the face of it, young people seem to have abandoned the Coalition.
But the greatest shift is not Gen Z, it’s Millennials. Contrary to convention, they are not moving further to the right the older they get. They have shifted away from the Coalition in greater numbers at each of the last four elections. On May 3 2025, just 21% voted for the Coalition.
Some will argue the shift to the left is driven by climate change and social issues, but that misses the deeper pain being felt by young people. Completing education, securing stable work, buying a home, and forming a family have all become more difficult, more expensive, and more delayed. These challenges are not just the result of changing preferences but are structural, driven by shifts in the economy, policy, demographics, and the social fabric. Meanwhile, young people don’t see the Liberal Party presenting policy solutions focused on their very real economic and social challenges.
The intergenerational contract that once ensured that each generation was better off than the last is fraying. Edmund Burke’s concept of society as a partnership between the past, present and future has long shaped Australia’s social model. The intergenerational contract ensures that people contribute to the system when they are able, and receive support when they need it, from education and Medicare to pensions and aged care.
But this contract is under pressure.
Young Australians may be the first generation in our nation’s history to be worse off than their parents. The forces driving Australia’s economic stagnation have been felt worse by young people. Wage-earners, who tend to be younger, fare worse under high inflation, bracket creep and slowing productivity. Whereas asset owners, like many older Australians, tend to be insulated from these effects.
The wealth of older households has grown over the last 20 years, while the wealth of younger households has barely grown since the 1990s.
On average, the disposable income of older Australians increases as interest rates rise, while mortgage holders (who tend to be younger), have experiencd declines in their disposable income even before Covid.
In 1993–94, people over 60 earned private incomes equal to just 41% of the private incomes of 18–60-year-olds. By 2002–03 this had risen, and in the most recent decade it climbed further to 65%.
Once taxes and transfers are taken into account, their position improves even more: the after-tax income of older Australians has risen to 95% of working age incomes.
The disparity is starker when comparing those over 60 to young adults aged 18–30. Over the past decade, the older cohort has earned around 11% more in private income ($72,000 versus $64,000 in 2022 dollars). But the tax and transfer system amplifies this gap: their after-tax income is now around 60% higher than that of young adults.
Older Australians have seen their incomes and wealth rise strongly through housing and investments. Meanwhile, government transfers and tax concessions heavily favour retirees. At the same time, public debt continues to expand, meaning today’s young people will inherit a greater fiscal burden. To maintain social cohesion and trust, Australia must restore balance to this contract and ensure that young people receive a fair chance at prosperity. Internationally, similar pressures on young people have driven support towards fringe populist movements on the left and the right, a warning sign for Australia if these structural problems remain unaddressed.
To make matters worse, Australia’s education system is struggling to equip young people with the knowledge, skills and values they need to be productive members of society. Despite record spending:
Academic performance in literacy and numeracy has declined.
Classroom discipline has worsened.
School attendance is dropping.
Teacher training is inconsistent, outdated and polluted by ideology.
Tertiary education is also losing value. University degrees are increasingly expensive, yet often fail to provide clear pathways into skilled jobs. Credentialism pushes young people into degrees they may not need, fuelling debt without improving productivity. (Read our research report on higher education here).
The cumulative effect of economic stagnation, unaffordable housing and worse career progression is that young Australians aren’t forming families. They stay single for longer, have children later and most end up having fewer children than they would like.
A challenge of delayed adulthood is that parents have less time to have their desired number of children. The average age a woman has her first child has risen to 29.9. But by age 49, 50% of Australian women report having fewer children than they would have liked. This is due to a range of factors, including that delayed childbearing reduces the chances of ever having a child. For women who are childless at 30, around 1 in 3 will remain childless. For women who are childless at 35, roughly 50% never have a child.
It’s widely acknowledged across the political spectrum that we need to lift the fertility rate. As Jim Chalmers said, “It would be better if birth rates were higher.”
But we shouldn’t force women into having more children than they want; we simply need to support families to have as many children as they already want but may not currently be able to have.
The average number of children women want is 2.35, and the average number men want is 2.22. The actual fertility rate is much lower at 1.48. We need to narrow the gap between desired and actual fertility through targeted pro-child policies.
Immigration helps offset a low birth rate, but only partially. It cannot substitute for a falling birth rate indefinitely because migrants also face the same cost of living pressures and end up mirroring the domestic birth rate. Thus, migration can delay the effects of an ageing population, but it can’t stop it.
Some policy recommendations in our forthcoming report on intergenerational inequality will explore:
Income tax splitting for families. Start to tax families as a whole.
Indexing tax brackets to inflation.
Tax-deductible newborn expenses.
Childcare subsidy deregulation to improve affordability and flexibility.
More homes by cutting planning red tape.
Lifting construction productivity through competition and regulatory reform.
Fast-tracked visa pathway for tradies to fill skill shortages.
Cap international students at 20% of students per course.
Peg immigration rates to the rate of new home construction.
Rebalance the immigration intake back towards skilled migrants.
The Liberal Party is the party of hope, aspiration, opportunity and reward. Let’s give young people a chance at the Australian dream by rebalancing the tax and transfer system, cutting migration, building more houses, reforming the higher education system and promoting family formation.
