Bigger inheritances are on the horizon for Australians because of growing household wealth and an ageing population, the Productivity Commission reports. But it is asset price growth, not size of inheritance, that has a greater impact on national wealth inequality.
The Productivity Commission on Tuesday published its first comprehensive research report on wealth transfers in Australia, predicting that inheritances and gifts could rise four-fold in real terms over the next 30 years.
According to commissioner Lisa Gropp, since 2002 inheritances and gifts more than doubled in Australia. The study also found that each Australian generation has been wealthier on average than the previous one at the equivalent age, with baby boomers doing particularly well.
“We found Australians give away tremendous sums of wealth during, and at the end of their lives.
“Over the past two decades, the total value of wealth transferred was about $1.5 trillion, and about 90% of that was inheritances,” Gropp said.
The study determined that while children tended to enjoy similar relative wealth to their parents, family inheritance was not the main driver of this outcome (with only ⅓ attributed to inheritances).
“Inherited wealth is only a modest contributor to intergenerational wealth persistence,” Gropp explained.
“The rest comes from all the other things parents give to their children – education, networks, values and other opportunities.”
What’s more, by the time that gifts and inheritances were received, children had already reached middle age and were about 50-years-old on average.
“This limits the impact inheritances have on opening up lifetime choices and opportunities about career and family,” Gropp said.
“Gifts, on the other hand, tend to be much smaller and flow to younger people just starting out in life,” she noted, also underscoring that the study could not find any strong evidence of large transfers from parents to help their children enter the property market (colloquially known as the ‘the Bank of Mum and Dad’) despite popular belief.
Catherine de Fontenay, also a productivity commissioner, added that wealthier people tended to receive bigger inheritances and gifts that were a smaller percentage of their existing wealth.
“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% than the wealthiest 20%,” de Fontenay said.
As a result, the Wealth Transfers and their Economic Effects study found that wealth transfers tended to reduce the share of wealth held by the richest Australians; and that this trend was 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.