Baby-boomers put on notice
By Fleur Anderson
November 14, 2003
RICH seniors sitting on real estate fortunes were headed for a stoush with overtaxed young people who cannot afford homes, Australia's top banker warned last night.
Baby-boomers have enjoyed 30 years of asset price inflation, says Mr Macfarlane / File
Reserve Bank governor Ian Macfarlane also questioned whether today's older population should be getting such a large slice of the government financial pie at the expense of education for tomorrow's workers.
"If we are not careful, there is a potential for conflict between generations," he told the Melbourne Institute's Economic and Social Outlook Conference dinner.
"The young may resent the tax burden imposed on them to pay for pension and health expenditure on the old – particularly if they see the old as owning most of the community's assets."
Mr Macfarlane, a 57-year-old career economist, said government policy had to look to the future.
"In fact, I think we will have to go further and be pre-emptive in conditioning the public, particularly the grey-headed part, to accept that policy must be forward looking," he said.
"This will mean giving priority to tomorrow's working age population, rather than satisfying the demands of yesterday's."
Mr Macfarlane also warned there would be no repeat in the next decade of the soaring house prices and the booming stock market enjoyed over the past 20 years.
He said his own generation had enjoyed 30 years of asset price inflation – that means rising home values – while "new entrants to the workforce struggle to buy their first home".
Despite owning homes worth much more now than when they bought them, retirees would also be feeling less secure, he said.
"They may be disappointed with the rates of return they are receiving on their savings," Mr Macfarlane said.
"It seems to me that the community has not yet come to terms with the fact that nominal rates of return on financial and real assets are likely to be much lower over the coming decade or so than over the previous two decades."
While 17 per cent mortgage rates were a nightmare for home owners in the early 1990s, pensioners and people with nest-eggs were unlikely to see such good returns for decades.
High returns were held up first by inflation, Mr Macfarlane said, and then by an asset price boom – including the share market – which lasted from 1983 to 2000.
"The final instalment reached bubble proportions in many countries," Mr Macfarlane said.
He said these big swings over the past two decades were unsustainable.