ANZ economists look at some of the potential longer term solutions to the 'rough deal' the younger generation are currently getting

ANZ economists look at some of the potential longer term solutions to the 'rough deal' the younger generation are currently getting
LOCKED OUT: The housing market is just one area in which the younger generation is getting a rough deal.

Economists at the country's largest bank have weighed in with their thoughts on 'the intergenerational divide' and the 'rough deal' being afforded the younger generation.

In an ANZ Insight publication, senior economist Miles Workman says Covid-19’s legacy of increased public debt and "even less affordable housing" will be carried disproportionately by younger people.

"This is adding to what was already a rough deal for younger people, who will be left picking up the tab of climate change and an ageing population," he says.  

"A perfect demographic storm means the pressure on policy makers is only poised to intensify from here. Big policy changes are likely to happen eventually." 

Workman says a multi-decade housing boom due to ongoing supply failures has "massively enriched" the older half of the population at millennials’ expense.

"Population ageing and a pay-as-you-go system means young people are being asked to support an outsized cohort of non-earners. Millennials are on the hook for the costs of climate change mitigation. And now they’re being hit with the bill for the Covid-19 rescue as well."

The longer New Zealand stays on its current path, the louder the voices of those adversely affected will get, Workman says.

"There’s a significant cohort of 20-29 year olds who currently account for a little less than 20% of the voting population. But fast forward 30 years or so, and this cohort, together with eligible voters younger than them, is projected to account for more than 60% of the voting population." 

Politicians are under pressure to address these intergenerational issues, some more urgently than others, Workman says.

"We don’t have any silver bullets to suggest. But there are certainly some key themes that policy needs to focus on."

He suggests these key areas for policy:

  • Build more houses
  • Sustainable income growth
  • Broadening of the tax system
  • Increased scrutiny of Government spending
  • A good hard look at superannuation settings

On building more housing, Workman says central and local government are the policymakers with the tools to address this, not the Reserve Bank.

"Government can bolster supply by reducing red tape, freeing up more land for development, encouraging intensification, helping local councils fund required infrastructure, and incentivising investment and training to lift the productive capacity of the construction industry.

"There are also ways to limit speculative demand, such as tax changes – though price impacts tend to be of the one-off variety.

"It’s all easier said than done, of course, and not a quick fix. But looking forward, assessing the Government policy response is pretty straightforward. Does it help increase supply more than it adds to demand? If the answer is no, then the policy is not addressing the fundamental issue."

Workman says sustainable income growth will need to be a real focus as part of the long-term housing strategy, but also as a way to limit the costs associated with the eventual fiscal consolidation following all the debt taken on in the Covid crisis.

"New Zealand’s low-wage problem is essentially a low labour productivity problem. Increased spending on infrastructure (including for residential development) is the obvious go-to here – and absolutely needs to happen. But politicians must not overlook private sector incentives when it comes to investing and taking the right kind of risks that will also influence the economy’s productive capacity.

"Recent changes to depreciation settings should encourage some additional investment, but more encouragement is needed. Addressing capacity issues with productivity-boosting capital investment rather than simply importing cheap labour as a go-to solution would help housing affordability too. A good hard look at immigration settings to ensure they are income-supportive over the long run is warranted."

Workman believes a broadening of the tax system "will happen eventually".

"The top 2% of income earners are in for a higher tax bill from 1 April 2021, but that’s just a higher rate on the same people already paying tax. Further, the top 2% of income earners are not necessarily the top 2% when it comes to wealth.

"Broadening the tax system such as via capital gains, wealth or inheritance taxes, are real possibilities over the longer run. Indeed, if income earners end up doing the heavy lifting of fiscal consolidation while houses remains unattainable to them – even to those earning an average wage – then surely it’s just a matter of time before the tax system is changed to make it fairer for them.

"The political appetite obviously isn’t there right now, but the debate won’t go away."

Increased scrutiny of government spending is likely to become a key part of the fiscal consolidation in the years ahead too, Workman says.

"Budget processes focus on allocating additional spending based on priorities. But often the spending that’s already baked into the fiscal outlook doesn’t get the attention it should; not all of it is achieving the desired result or is an efficient use of tax-payer dollars. Fees-free tertiary study is a great example. It’s very expensive and doesn’t seem to have had much impact on enrolments. Yes, it helps younger people, but it’s helping younger people who are more likely to earn an above-average income anyway, thanks to their qualifications. It would be a different story if it led to higher enrolments, perhaps, but interest-free loans are already subsidising higher future income earners."

And then there's superannuation...

"We urgently need to take a good hard look at superannuation settings to make them fairer.

"It’s more complicated than just increasing the eligibility age and/or means testing. Different groups tend to experience different life expectancy rates,meaning a higher eligibility age might not be fair in some cases.

"Also, the incentives to hide wealth in a means-testing environment can make the system complicated and less efficient. And we’re certainly not advocating that old age pensioners who are just getting by as it is should have to tighten their belts even further. But the fact remains that young people are being short changed, and some recipients of NZ Super don’t need it. And the slower we go on reform, the bigger the mess."

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


On this topic, here's Dalio's latest:

The divide in wealth and resulting policies, could have some very bad outcomes. He's not convinced that the US will avoid some form of revolution or civil war based on the history of such events and the current conditions there.

Interesting as you can see similar resentment building between property owners here and non-property owners. If this isn't well managed and the non-owners gain power of numbers, then they will likely push for change - more equality. If they don't get it, then history would suggest some form of more violent uprising.

Have a look at videos from the 100k money drop for a taste of stage 5.

Just shows how desperate some people are getting (and how stupid some businesses are)

Actually IO, That video shows how desperate some people are for a perceived "free hand out", which they've always been. More tellingly the ensuing bleating from idiots like the one who drove from Palmy shows how intellectually challenged some people actually are, same goes for people who took young kids to the event then bleated when they got knocked over. This country is blessed with an abundance of sheep - unfortunately there's a lot that aren't in paddocks. I have one word to describe people like the retard from Palmy - MORON!! He personally is a standing ad for the Darwin Effect

That might be true Hook, but people like that didn't choose their biology or environment and have basically drawn a short straw in life. I think less contempt and judgement would be fair; and perhaps a little more compassion - as difficult as that might seem...

You were more than happy to put your hand out during a time of severe hardship for many, and take money from taxpayers that you admitted you did not need at all. If I had to choose, I would much rather be quite ignorant and try taking advantage of free money being handed out by a business, than taking money intended for the benefit of my countrymen who might otherwise lose their jobs and suffer greatly, knowing full well that I don't need it.


We need to do something. Im late 50s and at the moment on paper becoming wealthier by the day without even trying or wanting to. I agree on these points but people in my age group are going to have to "let go" of some of this wealth and pass it on down. we cant just pass it all onto our kids - just perpetuates the problem of barriers of entry.
Personally I think we should tax capital and labour the same - I know there are risks here on the capital side as you can get losses which you need to allow as well if taxing the gains - but some bright economist should have a solution here. Keep the tax take neutral but spread it over both. In time you could adjust the income tax rate down as capital taxes rise. Do it on everything like GST so its simple to understand and no loopholes anywhere - houses, shares, farms the lot no exceptions - its all relative at the end of the day and we maybe surprised how low the overall tax rates could fall to (Capital losses argument accepted). Lower taxes overall so everyone has the same drivers on capital and labour.
Superannuation - This is the largest Government expenditure and no one wants to even mention it as its burnt politicians in the past who have tried. FACT - it needs to be means tested at some point so those on higher incomes/wealth don't get it or reduces down. I would like it but don't really need it and would prefer it to go on my kids and grandkids education, health etc

Why would I invest in shares if they're taxed at the same rate as property? Wouldn't I just invest in the thing that was going to give me the biggest absolute returns if it was going to be taxed at the same rate? We have to be careful here as we could end up with the opposite effect of what we're setting out to do, even with the best intentions.

Your looking for the best return on investment - I have no problem with that as the tax will be at the same rate on the profit. Tax then becomes almost a non event as no matter what you do it will apply the same. Those that give their labour to make money are treated the same as those that invest in shares to make money. No one can say anyone else is treated differently. Those that make better decisions will make more and all power to them.

Taxing wealth would result in people saving less and needing things like super more placing more burden in the state which will make the state raise wealth taxes which will further disincentivize savings. Taxes on the income from wealth already exist.

Yes and its funny how the wealthy have zero taxable income.

Is that coming from personal experience IO or another Youtube clip?

Do you have a point - or is this just a troll.

"on paper becoming wealthier by the day without even trying or wanting to" Jack this statement and the rest of you comment indicates that you have not grasped the problem at all. Taxing your, or anyone else's wealth won't achieve diddly squat except hurt the marginal people, owner occupiers. The problem is occurring because the Government has not and won't do anything substantive to fix the problem. they have admitted they don't want property prices to fall, but the only solution that benefits the younger generations requires property prices to fall, a lot! Wages certainly cannot increase to the levels required without out of control inflation. Taxes won't shift property prices but would entrench a class of wealth property owners, those who are currently investors who can generate the income to pay the taxes, and they will snap up the properties of those who are forced to sell, further exacerbating the problem. And do you really believe giving politicians more tax to spend will benefit this country?

Couldn't agree more. Adding tax to something never has made that thing cheaper. It will just add further distortions. Deal with the reasons for housing unaffordability (i.e. prices) by making houses cheaper - solve supply and the cost of money issue. Put up the cost of funding for housing and build more houses.

Easier said than done on the supply side.

Could the tax on residential properties increase the more of them you own? Circumventing mum/dad investors and owner occupiers, and impacting investors intent on hoovering up dozens of properties?

Yeah Jack no I don't think so. Worked my ass off in shitty jobs to get where I am now and have zero guilt about money in the bank. What you need to realise is all the money is at the very top and its getting worse by the day. You giving away some money makes no difference in the grand scheme of things. Until the multi billionaires stop sucking everyone else dry nothing will change.

Full of brilliant analysis.

Will the pollies listen? Absolutely not...


Before election:
JA: we build more house so house price will fall. we reduce immigration. we invest in highest tech. we are transformative. WE ARE in Action. We are different from Nationals.

After election:
JA: We work hard on difficult issues, which takes time. We are happy to see house price to increases sustainably. Good luck and the signature smile.

haha Xing, you missed one last quote - "OH! By the way - I'm off to the UN. Good luck with the CGT, hope it works! BYE!!"

Usual neoliberal nonsense.
It's 2020 ANZ!!!

Doctor Phil .. Oprah .. SOMEBODY Help ME !! lol Can we get a Fear & Greed Index up in here?

If I was JUST going by the commentary on and the MSM - the taxi driver principle would come to mind. Maybe a munificent pop?

I've noticed nobody is using the terms "Housing Bubble", "POP", "Crash", etc. This is a dangerous Spectre. lol spectre - I've been watching old Bond movies. #entertaining

Listen to the chatter
PM Jacinda Ardern announces government desire to maintain property prices and accept continued increases so long as they are moderate - the message from the top is - go for it - cause they arent going to undo any of the government actions that have caused 40% increase in 3 years

When both the Prime Minister and the Reserve Bank declare that property prices are not allowed to go down it truly makes it official: property is not a wealth transfer welfare scheme for the wealthy.

Surely her next declaration will have to be that the majority of people don't want to make lifestyle sacrifices to protect the environment for future generations or reduce climate change, thus we cannot inconvenience people?

At some point there must be room for leadership to make courageous decisions based on morals and ethics and long-term considerations - as had to be made the previous time around we were engaging in Muldoonist subsidising and protecting of a favourite industry.

Raising a generation full of fear based narratives doesn't really do anyone any good. Fear of a constantly peddled coming climate apocalypse, fear of the Orange Man, fear of a pandemic, fear of missing out somehow as older generations happen to hold more wealth. The latter has always been the case, as our youth eventually gets traded in for a life of better personal circumstances. If we plan for the future and are a little lucky along the way. These days many young people seem to live in their shared and personal bubbles of fear. Little of which is based on reality.

It may have always been the case that older people hold more wealth, but the difference is that opportunities to build a similar level of wealth by the time they retire have been pulled out from under younger generations. So it's not just that older people hold more wealth now, it's that younger people are unlikely ever to reach the level of wealth of the older generations.

I contend many of the young will do very well. They are the ones who have chosen not to be blinded by fear. As the case has been for every generation. The opportunities may not be the same, but they will be there. For those who can see them.

I agree - many will do well. But we should be concerned about how most people do. Will most of the people in the younger generation be able to do things like buy a house, raise a family, and have a decent retirement? At this rate, no. You're right - the opportunities just aren't the same. You shouldn't have to be exceptional (an entrepreneur or something like that) to achieve what I've outlined above. A stable place to live and raise a family, a decent retirement- these should be available to ordinary people like nurses and teachers and police, as well as lawyers and doctors and entrepreneurs. That used to be the case, and now by and large it is not.

Hey al123...where is your evidence to back up these woeful “poor me” statements. When has home ownership, stable life, decent retirement etc ever been easy? The so called “younger generation” have never had it easy! In fact the next young generation always have it easier than before...look at all of the assets that previous generations have built and paid for that you get for free? And consider the wealth a great many of those who come from typical 1 or 2 child families (not 4-6 as the Boomers were) will inherit?

Listen to the Chatter

Bernard Hickey says
PM just said she is dedicated to keeping house prices rising at a 'moderate' level

Jenée Tibshraeny
Ardern says "sustained moderation" remains the Government's goal when it comes to house prices, as people "expect" the value of their most valuable asset to keep rising.

Ha ha classic obfuscatory language, "sustained moderation"
Good one, Jacinda!


No worries...they'll just double the population..wankers

Sounds like the system is broken
which it is

too many wealth claims over a dwindling surplus
too many passive income streams
what cant continue, wont continue