Bank of mum and dad not driving inequality, report finds

Wealth inequality driven by rising housing prices, not 'bank of mum and dad'

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New research from the Productivity Commission has shown rising housing prices are contributing more to inequality compared with inheritance. Picture: Shutterstock

New research from the Productivity Commission has shown rising housing prices are contributing more to inequality compared with inheritance. Picture: Shutterstock

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Research from the Productivity Commission has shown rising housing prices are contributing more to inequality compared with inheritance.

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The bank of mum and dad is not a major driving factor of growing inequality in Australia, productivity research has shown.

It comes despite the figures showing inheritances and gifts have more than doubled in decades and are projected to rise four-fold in real terms between now and 2050.

The Productivity Commission's report on wealth transfer instead revealed asset growth, such as increasing housing costs, has the biggest impact on intergenerational wealth inequality.

Around $1.5 trillion in wealth was transferred between relatives since 2002, with about 90 per cent being made of inheritance wealth.

Productivity Commissioner Catherine de Fontenay said while wealthier Australians received larger inheritances and gifts, they represented 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 per cent than the wealthiest 20 per cent," she said.

"Hence wealth transfers tend to reduce the share of wealth held by the richest Australians and our projections show this is likely to continue.

"This might be a surprise to some, but it's been found in every other country that's been studied."

Fellow commissioner Lisa Gropp added gifts handed from wealthier parents to their children while they were younger was a stronger factor in growing inequality.

"Inherited wealth is only a modest contributor to intergenerational wealth persistence. 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."

The commission's research, however, could not find strong evidence that major gifts, such as sums of money for housing deposits, were being handed over by parents despite media reports.

This story first appeared on The Canberra Times.

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