Inheritances may be tightening the gap between Australia’s rich and poor, new research reveals, contradicting longstanding beliefs that receiving a windfall from a forebear simply perpetuates inequality.
The Productivity Commission published its first report on inheritance on Tuesday, revealing that the amount of wealth transferred – including cash and property – since 2002 had more than doubled, with more than $1.5 trillion changing hands.
That amount could rise four-fold in real terms over the next 30 years due to a growth in household wealth and an ageing population.
Productivity Commissioner Catherine de Fontenay said inheritances played a role in reducing some measures of wealth inequality across the country.
“Wealthier people receive more inheritances and gifts on a dollar-for-dollar basis but less as a percentage of their existing wealth,” she said.
“When measured against the amount of wealth they already own, those with less wealth get a much bigger boost from inheritances on average, about 50 times larger for the poorest 20 per cent than the wealthiest 20 per cent.”
A trend set to continue
That tends to reduce the share of wealth held by the richest Australians, and it’s a trend that’s likely to continue.
“This might be a surprise to some, but it’s been found in every other country that’s been studied,” de Fontenay said.
Children tend to enjoy a similar level of wealth to that of their parents, the report found, but only about a third of intergenerational wealth persistence is due to inherited wealth.
Fellow Commissioner Lisa Gropp added that inherited wealth was only a “modest contributor” to intergenerational wealth.
“About one third of this observed persistence is due to inherited wealth,” she said.
“The rest comes from all the other things parents give to their children – education, networks, values and other opportunities.
“By the time people receive inheritances, they’ll usually be well into middle age — about 50 years old on average. This limits the impact inheritances have on opening up lifetime choices and opportunities about career and family.”
Asset price growth – particularly for housing – has a far bigger impact on wealth inequality, the report found.
Should Australia re-introduce a ‘death tax’?
Death taxes are typically used to redistribute wealth and improve equality in society.
Australia is one of just a handful of OECD nations not to have a ‘death tax,’.
In the wake of the COVID-19 pandemic, the OECD has called on all of its members to implement a ‘death tax’ or increase other taxes.