Wealth transfers and their economic effects

Inheritances are growing, but not driving inequality

The Productivity Commission has released the first comprehensive research report on wealth transfers in Australia to improve understanding of the impact of inheritances and gifts on the distribution of wealth.

It shows that inheritances and gifts more than doubled since 2002 and could rise four-fold in real terms between now and 2050, as household wealth grows and the population ages.

But perhaps surprisingly, these wealth transfers are reducing some measures of relative wealth inequality in Australia.

“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 per cent of that was inheritances,” Productivity Commissioner Lisa Gropp said.

“Wealthier people receive more inheritances and gifts on a dollar-for-dollar basis but less as a percentage of their existing wealth,” Productivity Commissioner Catherine de Fontenay said.

“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%.”

“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,” Commissioner de Fontenay said.

More than inheritances, asset price growth, particularly for housing, has a much greater impact on wealth inequality.

The study shows that so far, each generation has been wealthier on average than the previous one at the equivalent age, though baby boomers have done particularly well. Children tend to enjoy a similar relative wealth position to that of their parents, but inheritances are not the main driver of this.

“Inherited wealth is only a modest contributor to intergenerational wealth persistence. About one third of this observed persistence is due to inherited wealth. The rest comes from all the other things parents give to their children – education, networks, values and other opportunities,” Commissioner Gropp said.

“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,” Commissioner Gropp said.

“Gifts on the other hand, tend to be much smaller and flow to younger people just starting out in life.”

The Commission could not find strong evidence of large transfers from ‘The Bank of Mum and Dad’ (gifts or guarantees from parents that help their children buy a house), despite popular belief.

The report on Wealth Transfers and their Economic Effects can be found at: www.pc.gov.au.

Media requests

02 6240 3330 / media@pc.gov.au

• Preliminaries: Cover, Copyright and publication detail, Contents, In brief and Acknowledgments
• Executive summary
• 1. How much wealth do people transfer?
  • 1.1 State of data about wealth and wealth transfers
  • 1.2 Inheritances
  • 1.3 Gifts
  • 1.4 Total value of wealth transfers
  • 1.5 Improving wealth transfer data collection
• 2. How have wealth transfers affected wealth inequality and mobility?
  • 2.1 Immediate‑term effect of wealth transfers on wealth inequality
  • 2.2 Longer‑term effect of inheritances on wealth inequality
  • 2.3 Effect of inheritances on the intergenerational persistence of wealth
• 3. How might future wealth transfers affect wealth inequality?
  • 3.1 Existing research and projections of future wealth transfers
  • 3.2 Simulation model of wealth transfers and inequality
  • 3.3 Projected effects of transfers on wealth inequality
  • 3.4 Scenario analysis
  • 3.5 Modelling conclusions and discussion
• A. Wealth data and estimating inheritance outflows
• B. Past wealth transfers and inequality and mobility
• C. Future wealth transfers and inequality
• Public consultations
• Abbreviations
• Glossary
• References

• Chart data - Wealth Transfers and their Economic Effects (XLSX - 5321 Kb)
• Code files - How much wealth do people transfer (ZIP - 3573 Kb)
• Code files - Effects of wealth transfers on inequality and mobility (ZIP - 170 Kb)
• Code files - Modelling effects of future wealth transfers on inequality (ZIP - 803 Kb)
• Additional detail on wealth transfers by donor, recipient and asset type (information request from the Australian Government Treasury, April 2022) (PDF - 172 Kb)
• Additional detail on wealth transfers by donor, recipient and asset type (information request from the Australian Government Treasury, April 2022) (Word - 73 Kb)