Over the past thirty or so years, the Australian welfare state has become tilted much more heavily in favour of the elderly, away from people of working age. That’s the finding of a paper in the latest edition of Agendaan ANU public policy journal.

Over the period 1984 to 2010, the authors find:

there has been a substantial shift over this period in favour of the elderly; …this trend has accelerated rapidly in recent years; and… as a result of this accelerated trend, elderly households today are on average well off by comparison with younger households. 

This the conclusion they come to after looking at the net benefit that different age groups receive from the welfare state at different points in time over the three decades. The ‘welfare state’ here includes direct and indirect taxes (like the GST), as well as cash transfers and social assistance in kind (government spending on health, education, etc.).

They find that, on average, households of all age groups received a net benefit from the welfare state of $14 per week in 1984, measured in inflation-adjusted 2010 dollars. By 2009-10, this average had risen to $91 per week, a $77 rise. The net benefit of households aged 65+ rose from $341 to $602 per week over the same period, a rise of $261 per week.

Older households made their biggest gains in the period 2003-04 to 2009-10. Somewhat surprisingly, the large age pension increase of the first Rudd Government wasn’t the major cause of this, as the dependency on pensions among old people fell. The elderly have benefited from increased real health spending (relative to spending on older households in previous periods), and from a reduction in income taxes. Most people got a tax cut over this period, but the cuts were much bigger for older households

Partly as a result of this increased redistribution to the elderly, the authors find that the average income of older households is now close to the average for all households, adjusted for household size. In 2003-04, the average income of older households was around 21 per cent lower than the average for all households. By 2009-10, this gap had fallen to 5-6 per cent. At the same time, older households tend to be much wealthier than typical working-age households. This leads the authors to speculate that, if we could properly combine a measure of the income and wealth of older households, we’d find that “households headed by persons 65 and over are better off than the average for all households under that age.”

We have always redistributed towards the elderly. This is a core function of the welfare state – the ‘piggy bank’ objective. But the extent of this redistribution has been ramped up in the past decade, particularly in the final term of the Howard Government. At the same time, housing policy (on the demand and supply side) has helped to inflate asset prices, which benefits existing home owners at the expense of first-time buyers. All of this should lead to extreme scepticism of any policy proposals which would tip the balance further in favour of older households at the expense of the working age.

UPDATE: Make sure you read the follow-up post